On Friday, February 19, the UK supreme court ruled that Uber’s drivers can no longer be legally classified as self-employed, and should be recognised as the company’s employees going forward. Uber Technologies Inc. (NYSE: UBER) has slid by 13.97% over the course of the week that followed. As reported by the Financial Times, the landmark judgement might reshape the entire gig economy, a labour market based on short-term contracts or freelance work, where on-demand companies connect with contractors often through an online platform. In this report, we evaluate the implications of the judgement for Uber Technologies Inc and the broader gig economy.
The judgement upheld an Employment Tribunal decision from 2016. In the said trial, the court concluded that the drivers who brought the case were in a ‘position of subordination and dependency to Uber’, as the company imposed maximum fares and penalties for cancelled trips, and also did not allow them to negotiate their contracts. Consequently, the court decided, the drivers should be entitled to rights and benefits, such as holiday pay, sick pay, sick leave, pension, or the minimum wage, similarly to the company’s regular employees.
The decision sets a precedence that can be leveraged by around 60,000 drivers currently contracted by Uber in the UK, while 1,000 similar cases are already under the way. According to Leigh Day, one of the law firms involved in the landmark case, each claim is potentially eligible for up to £12,000 in restitution for the period the drivers were classified as self-employed instead of ‘workers’. That will translate to £720 million, or 9% of the company’s 2020 global revenues if each UK driver is indeed classed as a worker and compensated in full. Therefore, the number of drivers readily available for every passenger, once a source of Uber’s competitive advantage, allowing the company to generate superior revenues, could soon turn out to be a double-edged sword. The issue becomes even more profound as, according to the Supreme Court’s ruling, the drivers not only work for Uber over the course of rides but whenever they are logged into the app. That means that the company might be forced to swap its commission-based model for hourly pay. In 2018, MIT found that net of costs such as insurance, petrol, or repairs, as much as 54% of Uber drivers made less than the minimum wage in their respective states. According to Stephen Morrall at Hunters Law, additional costs incurred to potentially match the minimum wage level would most likely be borne by the customers. In 2019 New York City’s Uber fares increased by 10-20%, following the implementation of the minimum wage law.
According to Trade Union Congress (TUC), there were around five million people contracted by gig economy businesses in 2019 in the UK alone, which makes up around 15.7% of the country’s current labour force (as reported in 2020 by the World Bank). Nearly 10% of working-age adults took on platform-contracted work at least once a week, according to the survey prepared by the University of Hertfordshire and Ipsos MORI. People contract themselves to carry out jobs ranging from cab driving, deliveries, household maintenance, through office work, to software development. TUC point out that similar findings were reported in corresponding surveys across Europe. Accordingly, analysts at Wedbush Securities, claim that the landmark Uber judgement will set precedence not only in the UK but throughout the entirety of Europe. As reported by Bloomberg on February 24, five days after the ruling, the European Commission launched a consultation regarding gig workers’ labour conditions, seeking to improve the protection of their rights. Consequently, a knock-off effect may be observed across the entire gig economy. Companies such as Deliveroo, Addison Lee, or Amazon Flex all take advantage of business models similar to Uber’s. Furthermore, Just Eat Takeaway has already announced that they would start offering some of the workers’ rights and benefits to their contractors, and CEO Jitse Groen publicly criticised the impact of the gig economy on society and workers.
Although it remains unclear how exactly the gig economy will fare under the changes in employment law, the companies might not settle for increasing the price of their services to cover costs stemming from the change in the status of their workers and may instead focus on fighting the judgement. As reported by the FT, people familiar with the company suggested that Uber might once again lobby for exemption of app-based transportation and delivery drivers from being classified as ‘employees’ as they did in 2020 in California. Alternatively, the gig economy could modify platforms to allow for less “subordination and dependency” (the basis of the ruling against Uber). Such a move could make the case that the workers are genuinely self-employed; it would mean, however, that the gig companies could not rest assured of guaranteed uniformity in the service they provide, as they could until now.
By Jakub Glinkowski
Sector Head: Daniel Regan