Following Friday’s ruling by the Supreme Court, Uber has to classify its drivers as workers rather than self-employed.
The Supreme Court has upheld the decision of the Court of Appeal by holding that drivers for Uber are workers and therefore entitled to paid holiday, minimum wage and rest breaks. In practice, this means that these are individuals performing work are now under a contract with Uber and are not in business on their own account.
As a result, Uber’s share price has retreated due to losing the legal fight. However, the ruling may accelerate the company’s self-drive plans.
Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown shared her views with Business Leader about what the future holds for the company.
Uber’s share price retreated in opening trading on Wall Street, falling 1%, as investors digested the implications of the UK ruling that drivers should be classed as workers and not self-employed contractors.
The UK Supreme Court decision steers Uber into a dead end in its legal fight and now the ride-hailing service will have to incur significant additional costs in the UK, to pay drivers the minimum wage and overtime and potentially also compensation.
The ruling is the latest to chip away at the gig economy model upon which the transport and delivery companies have developed sprawling and lucrative businesses.
Uber had warned investors when it listed in 2019 that a reclassification of drivers as employees instead of independent contractors would adversely affect the business. Although this ruling relates only to the UK, Uber faces challenges in other parts of the world to drivers’ self-employed status, so a significant rethink of its labour policies is likely to be on the cards.
The action taken against Uber wasn’t the first and won’t be the last by drivers and couriers paid by the ride or delivery, yet penalised if they don’t adhere to strict company rules governing how they operate.
The argument that these platforms are simply booking agents, linking companies and customers, no longer washes if contracts signed by drivers limit their ability to work elsewhere due to detailed clauses on availability.
It may end up following the example of the delivery firm Hermes, which lost a similar ruling in the UK in 2018. It came up with a compromise deal with union leaders, offering its couriers a self-employed plus’ status. Workers who opted in can get annual paid leave and earn above the national minimum wage, but new couriers had to follow routes specified by the company.
Deliveroo is another platform which is being put under the self-employment test, with couriers arguing in court that they should be entitled to collective bargaining rights.
For Uber, this is another setback at a time when it’s been left reeling from the effects of the pandemic. Although demand for Uber Eats deliveries continues to rise, it’s still not offset the sharp decline in driver bookings. However it’s not Uber’s short term profitability, but its vision for the future that appears to have kept significant interest in owning the stock through the crisis.
Uber is navigating spaghetti junction and shifting gears all over the place as it aims to use its technology to corner the markets in everything from food and freight deliveries to green transport and even access to healthcare via its ride service for patients.
This UK ruling may prove to be a set back on its ambitious road map, but it might accelerate Uber’s plans to bring in self-drive cars to eliminate the headache and cost of human labour.
How else with Uber be affected by the decision?
John Colley, Associate Dean at Warwick Business School, is a former MD of a FTSE 100 company and researches the strategy of tech companies. He spoke to Business Leader about the impact on the industry and its food delivery company.
Uber’s usual approach to threatened increases in worker rights is heavy lobbying of all authorities and customers. In London alone it is believed to have over 3 million customers and 45,000 drivers, all voters. They invest substantially in lobbyists and public relations to avoid damaging regulation. In this case, that approach has failed and the costs of drivers are set to increase significantly. This does imperil Uber’s business model in the UK.
To make money Uber needed to increase fares and control wages as total losses for Uber internationally have been $6.6Bn in 2020 and over the last 4 years they have lost in excess of $20Bn. Outside of the US, it is looking increasingly unlikely it can make money as regulation starts to bite. Uber Eats may also find it is caught by this regulation too.
Ultimately, this ruling will result in higher taxi fares for customers and likely higher cost for delivered takeaway food.
Does the ruling leave more questions than answers?
The Supreme Court has decided in Uber BV and others v Aslam and others that tens of thousands of Uber drivers in the UK, most of them in London, are workers, which means that they are entitled to be paid the national minimum wage, holiday pay and for rest breaks.
This brings to an end a long-running case that began more than four years ago when the employment tribunal in October 2016 found that the Uber drivers had worker status.
Uber went on to appeal the decision but lost at the Employment Appeal Tribunal, the Court of Appeal and now in the Supreme Court.
Alan Lewis, partner with Constantine Law commented: “There have been cases in other countries about the status of Uber drivers. In March 2020, for instance, a French court decided that Uber drivers were not self-employed. In UK law there is employee, worker or self-employed status. In French law, there is no separate worker status so the court ruled that Uber drivers were employees.
“There have already been many claims issued in the employment tribunal by Uber drivers for holiday pay and national minimum wage. Those claims have been postponed until this Supreme Court decision and will now proceed to hearing unless they are settled.
“Besides a potential cost to Uber which it is estimated could easily top £100m, this decision will have huge implications for the rights of what we estimate to be more than five million UK gig economy workers.
“It adds to the weight of judicial authority, building on cases such as Autoclenz and Pimlico Plumbers, that has emphasised the need to rely less on the written contractual terms and more on what happens in reality when considering questions such as: Who controls what goes on? Who takes the financial risk? Who supplies the equipment required to perform the tasks? Is there an unfettered right for the individual to appoint a substitute to carry out the work?”