Deliveroo shares soar after court rules its riders are not workers
Employees of Deliveroo who make deliveries across the country, will not be recognised as contracted workers in attempts to negotiate for better pay and hours, a judge has ruled.
The decision was orignally made over four years ago, but last week was upheld by the Court of Appeal.
The court ruled that the ‘self-employed’ nature of Deliveroo drivers will continue to mean that they will not benefit from normal worker’s rights. As a result, drivers will not be able to unionise.
Deliveroo said: “Deliveroo’s model offers the genuine flexibility that is only compatible with self-employment, providing riders with the work they tell us they value. Those campaigning to remove riders’ flexibility do not speak for the vast majority of riders and seek to impose a way of working that riders do not want.”
Following the decision, shares in the London-based takeaway delivery firm shot up 9% – and in doing so, added more than £24m to Founder William Shu’s personal fortune.
Amazon – Deliveroo’s biggest shareholder – also saw the value of their shares go past £40m.
What does this mean for the gig economy?
Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown spoke to Business Leader about the impact the announcement had on the share price and what it means for the future of the gig economy.
The gig economy fortress has successfully defended itself against the latest flurry of arrows designed to pierce its walls.
Deliveroo has consistently argued in court that the way it engages with its riders means that they are self-employed and so should not be classed as workers. Now the company has won the latest skirmish in its legal fight with judges dismissing an appeal, ruling that because riders are not in an employment relationship with the company, they could not form a collective bargaining unit.
The company’s success appeared to hinge on the fact riders are able to ask another person to take on a job for them. This was the crunch factor which led to the UK Supreme court ruling that because of the lack of substitution rights, Uber drivers should be classed as workers.
The fact that Deliveroo successfully defended its business model once again has cheered investors with the share price climbing rapidly, up by 8.5% in afternoon trading.
Concern about the company’s reliance on the gig economy model was one of the factors which contributed to its disastrous IPO in March.
But the battle for improved working rights being fought by contractors is far from over with a European Commission review of how the gig economy operates still underway.
In its prospectus at IPO, Deliveroo said ongoing success in defending its contractor model could not be guaranteed. The boss of Deliveroo’s rival Just Eat Takeaway, which plans to increase its reach in the UK, has already adopted an employment model for its workers.
Although the gig economy stronghold is for now staying largely firm, over time there may be fresh capitulations as companies tweak their models to satisfy ongoing concerns under the spotlight being increasingly trained on firms by institutional investors.
There is now much more attention being placed on environmental, social and governance issues, with workers’ rights increasingly under scrutiny. So while Deliveroo might have still won for now on legal grounds, the jury is still out in the court of public opinion.
Does the Government need to simplify the complexities of gig economy workers?
The Government needs to simplify the complexities and uncertainties in the gig economy both for workers and those trying to employ them, say tax and advisory firm Blick Rothenberg. Robert Salter, an associate director at the firm spoke to Business Leader about the ruling.
The whole area is a minefield for gig workers and those that wish to employ them. Last week the Court of Appeal ruled that Deliveroo drivers are genuinely self-employed for labour law purposes, which is different from the Supreme Court’s ruling in the recent Uber case, where drivers were held to be workers for labour law purposes. But tax and social security law says that both the ‘workers’ in the Uber case and the self-employed drivers at Deliveroo are legally self-employed for tax and national insurance purposes.
The complexity of the law in this area and the difficulty in which businesses employing workers can legitimately have in deciding whether someone is a genuine employee, a worker – a type of intermediate status between employment and self-employment – or genuinely self-employed, needs to be sorted out as a matter of urgency. The disconnect in tax and labour law rulings arises from the fact that the tax and social security regulations only recognize two statuses for workers – that is, they are either employed or self-employed.
The law encourages businesses to try and treat gig economy workers as self-employed, and this can create significant savings for the employer compared to having a regular employee. There are significant savings for businesses both in terms of social security, where companies avoid incurring a 13.8% employer NIC liability, and because they are not faced with other costs, such as pensions auto-enrolment contributions.
The gig economy is here to stay and the Government needs to address the complexities and uncertainties that exist in this area, both to provide more support to gig workers, who may in many cases be quite marginalized and exploited, but also to assist those businesses which are trying to be better employers and to provide genuine support to workers with, for example, proper pensions provision as part of the overall reward package.
Otherwise the ‘pensions crisis’ that UK workers (and the wider UK economy) already faces – with the state pension being increasingly expensive and harder to justify on a longer-term basis, as UK society continues to grow ever older – will only continue to expand over the coming years and put even more pressure on a system which is already under real pressure.