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Employment Matters

What price freedom?
Employment Matters

Employment MattersIssue 4 | November 2016

Date
23 November 2016

Will Winch Managing Associate

The Uber decision and its effect on the gig economy


What price freedom?

The Uber decision and its effect on the gig economy

It appears that many people yearn to be their own bosses.  According to the Office for National Statistics, the number of people in part time self employment rose by 88% between 2001 and 2015; the number of people in full time self employment went up by a quarter.  Champions of self employment will argue that the flexibility to choose when and how to work has been the main driver for this.  Sceptics would say that people are forced into self employment by a downturn in the employment market, and point to a drop in the earnings of people in self employment of £60 per week over a twenty year period (according to recent research conducted by the Resolution Foundation).  Some might even argue that there is a difference between the 'genuinely' self employed, and those who are forced to categorise themselves as self employed because they are not, strictly speaking, employed.

Employed / Self employed / Other

Everyone is reasonably familiar with the concept of being employed or self employed.  For some time, though, employment law has grappled with a slightly nebulous third category – the 'worker'.  This is, essentially, someone who is not quite an employee because they lack one or more vital characteristics of the employment relationship (such as, for example, the obligation to attend work at fixed times and to be paid in return).  Neither are they quite self employed, as this implies a level of autonomy that they do not enjoy if they are in a vulnerable, unequal bargaining relationship with the person for whom they are performing services.   The wording of the statute sets out three elements to being a worker.  A worker must:

  • be in a contractual relationship with someone who gives them work to do (the "employer");
  • promise to do or perform personally any work or services for the employer;
  • not be in a relationship with the employer whereby the employer is essentially the client or customer of the individual's profession or business undertaking.

The problem is that the third element is very difficult to determine.  It could be said that everyone in self employment is in business, whether they are 'genuinely' self employed or not. 

The Employment Tribunal has developed a number of tests over the years to decide on the employment status of an individual.  None of the tests are determinative though, and they all need to be taken together.  As a result, deciding on someone's employment status is a nuanced process and can be very difficult.   To make matters even more complicated, HMRC also has its own test for whether someone is self employed – and the fact that either HMRC or the Tribunal has determined someone's employment status will not be binding on the other. 

This month, the Employment Tribunal examined the employment status of Uber drivers.  Nobody involved in the case was arguing that the drivers were employees of Uber.  The argument was around whether they were workers or self employed.  The decision brings the current system of employment legislation under the spotlight. 

The Uber case

Uber argued that its drivers were self employed individuals, who were free to choose when to work.  They were responsible for paying for and running their own cars, and funding their own private hire licences.  They were not required to wear a uniform, were self employed for tax purposes, and were free to work for others – even in competition with Uber.  The contracts entered into by the drivers went to great lengths to set out the 'arm's length' nature of the relationship, and the fact that the drivers were not employees.

However, drivers were required to follow a number of rules to be allowed to operate with Uber.  While they were not required to work at all, if they did indicate that they were working, they faced a penalty if they turned down too many requests from passengers.  Although they were free to choose their own route, they would need to justify why they had deviated from the recommended route set by Uber if a passenger complained.  They faced sanctions if their approval rating fell below 4.4/5.  They could not set the price - this was done by Uber's servers, based on the GPS readings given out in the course of the journey.  While they could agree a lower fee, Uber would still take its 25% cut of the full price it had quoted. Uber also stipulated the maximum age of the car, and the car's condition.  Further, Uber's marketing materials were designed to lead a potential customer to believe that they were getting a particular level of service from Uber, rather than from a driver somehow independent from Uber.

The Tribunal was cynical.  It said:

"the idea that Uber in London is a mosaic of 30,000 small businesses linked by a common 'platform' is to our minds faintly ridiculous."

It found that the drivers were, in fact, workers who were employed by Uber.  They found that they started work when they switched on the App that informed them of local requests from customers, and finished when they switched it off at the end of the day. 

In this case, the Tribunal put a great deal of emphasis on the extent to which, in the Tribunal's view, an individual is subordinate to and dependent on the person providing them with work.  In this case, they found that the level of control indicated a degree of subordination that was consistent with worker status.  However, it is important to note that the Tribunal specifically said that Uber could have devised a model which did not involve them giving drivers worker status, but they chose not to do so. 

The case may have been decided differently if, for instance, the drivers were free to set their own price with the passenger, or there were significantly fewer controls on the way in which they were expected to work.  Of course, this would have meant that Uber would have needed to relinquish a large degree of control over how it can protect its brand.  And if Uber did not apply these standards and exercise this control, it would not be Uber: it would merely be a phone directory for local minicab drivers.

Why does it matter?

The decision is significant for Uber because it now faces the risk of substantial claims for backdated holiday pay: it may also find that it has fallen foul of legislation relating to the national minimum wage and working time.  It also faces the risk of claims relating to other rights which attach to workers, such as unlawful discrimination and whistleblowing.

It is also significant for the rest of the so-called gig economy, in which individuals provide their services on an ad hoc basis, and have traded employment protection and job security for flexibility.  The decision is going to be read very carefully by other businesses that rely on a 'platform' model – providing people with the opportunity to do business with other people, without the platform itself getting overly involved other than simply on a technological level.

Companies such as eBay and Airbnb are unlikely to be affected by this, as the control they exert over the individuals who use their platforms to conduct business is significantly less on a day to day basis than Uber's control over its drivers.  But other businesses may need to consider whether to factor in the additional costs (and risks) of employing workers when setting their prices, bearing in mind that each case will continue to turn on its own facts.

Worker status is an issue that has been on the radar of employment lawyers and, indeed, government for some time.  Four courier firms are currently in litigation with cyclists who are claiming worker status.  Hermes, the delivery company, is being investigated by HMRC following allegations that it was not paying the national minimum wage.  An independent review was launched last month, headed by Matthew Taylor, into whether employment practices need to change to keep pace with modern business models, and, even more recently, a parliamentary inquiry was set up to investigate the future world of work, focussing on worker status, workers' rights and the gig economy.  This is a subject that is not going to go away any time soon, and is likely to become even more acute if, as a result of Brexit, Parliament is able to set its own laws relating to how the employment relationship should be regulated. 

Uber has, we understand, indicated that it intends to appeal the decision, and until such time the decision is not binding.  Whether it succeeds in the appeal remains to be seen.  In the meantime, though, the debate as to whether twentieth century legal concepts are fit for a twenty first century employment market will continue.