Uber suffered a heavy defeat in one of its key markets on Friday when the UK Supreme Court ruled that a group of drivers should be classified as workers entitled to minimum wage and vacation time in a ruling that could jeopardize the future of the already unprofitable company .
The court’s decision, the latest in a series of disputes between working groups and so-called gig economy companies in courtrooms and legislative rooms around the world, poses an existential threat to Uber and other companies that rely on a large workforce of independent contractors provide car rides, deliver groceries and clean homes.
Supreme Court justices unanimously ruled that while Uber said it was just a technology platform connecting drivers with passengers, it acted more like an employer by setting tariffs, assigning rides, asking drivers to follow specific routes, and used a scoring system to discipline them.
The decision was a huge victory for labor activists in the US and Europe who are pushing for better wages and greater worker protection with services like Uber, Lyft, DoorDash and Grubhub, which have long been criticized for the way they use their drivers and supplies treat people.
It was also a sizeable setback for Uber, which could hit back other attempts to force it to change the way it drives, including the defeat of a California law in November that would have forced gig companies to make similar changes now forced by the UK court ruling .
As quickly as they have become part of everyday life and were valued in the tens of billions on Wall Street, gig economy companies work with precarious business models. Most of the time, they lose money with every trip and delivery offered. For example, in 2020, Uber recorded a net loss of $ 6.8 billion.
Their businesses were further hit by the pandemic as travel and entertainment spending fell due to lockdowns. Companies are still saying they can become profitable in the near future as Covid-19 vaccines help reopen economies. But paying more for the drivers could make turning a financial corner even more difficult.
The UK ruling could be a “nightmare” for Uber if it increases its labor costs, said Daniel Ives, an analyst at Wedbush Securities. London is one of Uber’s five largest markets worldwide.
“This case could set a precedent for other workers and companies in the gig economy across the UK and Europe, which would mean a major blow to the entire ecosystem,” Ives said in a statement to customers.
Uber and other gig economy companies around the world have made efforts to classify workers as workers with mixed success.
In France, Uber lost the ruling in the country’s highest court last year that a driver had the right to be considered an employee. In Germany, Italy and Spain, disputes over Uber’s labor practices have raised the alarm and limited availability, especially in traditional taxi companies.
In California, Uber and other companies sponsored a successful election campaign in November to get them exempt from a law requiring them to hire drivers and pay for health insurance, unemployment insurance, and other benefits. More fighting looms in Washington and state capitals over how workers can be classified for Uber and other platforms.
While the UK was one of the company’s key markets, it was also a source of legal trouble. In London, where Uber cars are as ubiquitous as traditional black taxis, the city’s transport authority took two steps in recent years to revoke Uber’s taxi license before the company agreed to new safety guidelines.
Sadiq Khan, the Mayor of London, welcomed the decision.
“It is a landmark decision for people who suffer from low wages and poor security at work,” he said in a statement. “Gig economy workers deserve the same rights as other workers.”
Uber has battled UK drivers’ efforts to be classified as workers for the past five years and appealed the decision to the country’s highest court. Friday’s ruling is expected to initially only affect the 25 drivers who filed the case, but is seen as a precedent for the 60,000 other Uber drivers across the country.
The ruling is now being referred to a labor court, an administrative court that will decide in the next few months how drivers should be rewarded and how the ruling will affect other drivers in the future.
Uber tried to downplay the decision, saying it would urge the labor court to narrow its scope. The company said it believed the ruling should only affect a small number of drivers and that Uber should not be required to classify all of its drivers as employees.
The company said it would argue before the tribunal that since 2016, when the case was filed, it has made a number of changes to its business model to provide more protection for workers, such as offering insurance to drivers when they have income lose because they are sick or injured and allow drivers to refuse certain trips without penalty.
“We are determined to do more and will now consult with every active driver across the UK to understand the changes they are seeking,” said Jamie Heywood, Uber’s regional general manager for Northern and Eastern Europe, in a statement.
However, some labor lawyers said the decision had wider ramifications than Uber’s suggested and was a key moment in the broader labor debate about gig workers.
The case “has a far wider impact than the Uber case alone and is likely seen as a turning point in employment rights for workers in the gig economy,” said Schona Jolly, human rights and labor lawyer at Cloisters Chambers in London.
Nigel Mackay, partner at Leigh Day, the law firm that represents the drivers, said the decision would have far-reaching implications and that Uber must start providing drivers with a minimum wage and vacation time, or the risk of a wave like that Cases from others. He said none of the changes Uber made since 2016 would “affect the key findings of the Supreme Court that Uber drivers are workers”.
“Any Uber driver can now join the claim to seek compensation for Uber’s failure to take paid vacation and ensure drivers are paid at least the national minimum wage,” he said.
Uber and other gig economy companies claim their business model allows people flexibility in choosing their working hours, while critics say it has undermined job protection and the traditional relationship between companies and employees.
Uber drivers are paid per trip, with Uber charging a 20 percent fee on each tariff. The court said drivers who have to pay for their own car, insurance, and taxi license are entitled to payment when logged into the app, not just when offering a ride, with some restrictions.
In the UK, workers fall into one of three categories: “self-employed” with little protection; “Employees” entitled to a minimum wage and paid time off; and “employees” with more rights do not want to be unfairly dismissed. The judges criticized the legal agreements that Uber is required to sign by drivers before work, which they classify as self-employed. The court said Uber does not have the power to “determine” whether or not worker protection laws apply to its drivers.
“Drivers are in a position of obedience and dependence on Uber such that they have little or no ability to improve their economic position through professional or business skills,” said Lord George Leggatt of the Supreme Court while reading the Judgment. “In practice, the only way to increase their income is to work longer hours while always following Uber’s performance standards.”
Uber said it would send a survey to drivers on Saturday to measure their views on the judgment and worker flexibility, and to better assess how their model can be adapted to the judgment. As the case plays out in the labor court, for some people Uber can rely on the appeal of gig work – the ability to work as much or as little as they want.
The case dates back in part to 2015 when an Uber driver, James Farrar, was attacked by a passenger in London. After Uber failed to cooperate with the police In investigating the incident, Mr. Farrar became embroiled in an emerging labor movement among drivers who were pushing for a minimum wage. Without a wage guarantee, Farrar said, Uber could inundate the UK market with drivers competing for a limited number of trips and depressing their incomes.
In 2016, the drivers filed a lawsuit with a labor court. In the UK, the national minimum wage for people over 25 is £ 8.72 (about $ 12) an hour.
“All Uber has to do is make sure the work they do exceeds the minimum wage limit,” said Farrar, who is now the general secretary of the App Drivers & Couriers Union. “The sad part is that we worked so hard on such a humble question.”