Uber in the Supreme Court – what does it mean for employers?

Last week’s decision by the Supreme Court that Uber drivers are “workers” and therefore entitled to holiday pay and the national minimum (or living) wage, amongst other employment rights, has wide ranging implications for many online platforms and other businesses. We explain and explore what this means for employers. 

1. Employment status in the UK – a recap
2. The facts in Uber
3. The Supreme Court’s decision
4. The consequences for Uber
5. Implications for your business
6. Contact us

1. Employment status in the UK – a recap

In the UK, there are essentially three types of employment status:

• employees, who work under an employment contract for a salary under the control and supervision of an employer
• self-employed contractors, who are in business on their own account and who provide their expertise to clients independently
• “workers” which in practice is a hybrid status encompassing aspects of employment and self-employment. These are also referred to as “limb (b) workers” because they fall under section 230(3)(b) of the Employment Rights Act 1996, which applies to individuals who are not employees but who bear some resemblance to them.     

Each status carries a different level of employment law protection, with employee status enjoying the most protection (such as the right not to be unfairly dismissed and the right to maternity leave and pay) and self-employed contractor status enjoying the least.

Whether someone is an employee or is self-employed is determined by reference to case law which has set out the many factors which are taken into account such as:

• whether the individual agrees to personally provide his/her labour in return for a wage (as opposed to providing services, which may or may not be provided by them personally, for a fee)
• the extent to which the individual is under the control of the business (i.e. he/she can be directed how to do their job)
• the extent to which the individual is integrated into the business (e.g. by using its equipment and resources)
• whether there is anything else which is inconsistent with an employment relationship.  

“Worker” status, on the other hand, is defined by section 230(b) of the Employment Rights Act 1996 as a person who “undertakes to do or perform personally any work or services for another party to the contract whose status is not by virtue of the contract that of a client or customer of any profession or business undertaking carried on by the individual”. 

Worker status will therefore not attach to individuals who are in business on their own account, such as freelance journalists or London cab drivers, who bear the economic risk of running their own business.  

On the other hand, worker status will attach to individuals who are not carrying on business on their own account but are not employees.  This may apply, for example, to casual staff in hospitality who do not have to accept the work offered, meaning they are unlikely to be employees.

If a person qualifies as a worker, they are entitled to some (but not all) of the protections to which an employee is entitled such as holiday pay, national minimum wage, whistleblowing rights and pension contributions.

2. The facts in Uber

Uber’s argument was that its drivers were not workers, but were instead self-employed contractors, in the same way that black cab drivers are. 

Uber drivers are required to provide their own vehicle and (usually) their own smartphone on which they operate the Uber app through which they receive hire bookings from customers.  Uber contended that the driver contracted directly with the customer and there was no contract between the driver and Uber under which the driver agreed to provide work to Uber.  The role of the company was merely to facilitate ride bookings and the collection of fares for the driver for which Uber received 20% of the sums paid by the passenger.    

The contracts with the drivers and other contractual documents which Uber used to document the arrangements sought to give the impression that Uber was merely an agent that facilitated a contract between the driver and the passenger.

3. The Supreme Court’s decision

The Supreme Court assessed the relationship between Uber and its drivers and came to the same conclusion as the employment tribunal which heard the case back in 2016 (which was also endorsed by the EAT and Court of Appeal in between).  The Court determined that the way Uber had attempted to present the relationship via the contractual documentation did not reflect the reality.

In determining the correct status of the drivers the starting point was not the contracts between the parties, but a consideration of all of the practical circumstances as a whole in order to determine whether the claimants enjoyed the statutory status (and the protections) of a worker.  This included a consideration of the contract but undue weight should not be placed upon the contractual terms, particularly where the terms do not fit with what was happening in practice.

The purpose of statutory employment law enacted by Parliament is to confer basic rights and protections on individuals working for entities under a broad range of working arrangements.  To give effect to this, the default position is that individuals engaged to provide services are workers unless they have a sufficient degree of autonomy to qualify as genuinely self-employed contractors. Any element of subordination between an individual and the business to which he/she provides services is likely to bring the individual within the definition of a worker. 

When the status of the Uber drivers was first considered by the employment tribunal in 2016 the tribunal concluded that Uber in reality had a high degree of control over the drivers and that this was indicative of worker status. The tribunal noted that Uber:

• set the fares paid by the customers with no opportunity for individual negotiation by the driver
•  removed drivers from their platform if they regularly refused ride requests
•  subjected drivers to performance reviews dependent upon their customer ratings
• did not inform the driver of the destination of the customer until after acceptance of the ride.

The Supreme Court decided that the level of control and subordination that applied in practice was not consistent with genuine self-employment and so the drivers were correctly categorised as workers.

It was also decided that the drivers’ working time is not just the time that they are carrying a customer to their desired location, but also the time that they are logged into the app waiting to accept a ride, entitling the drivers to the national minimum wage throughout this time. 

(Note that since the case was commenced in 2016 there is now a National Living Wage for workers over 23 years old and a National Minimum Wage for workers under 23 years old.)

An issue left unresolved by the Court was what the implications are for a driver who is logged into two apps (e.g. Uber and Bolt) at the same time.  Would the driver be entitled to a wage from both organisations?

4. The consequences for Uber

The decision will significantly affect Uber’s finances and business model. The affected drivers will now be able to bring back claims for unpaid wages and holiday pay, and the prospect of working out both wages and holiday pay for individuals in respect of the time they spent logged onto the app will be a logistical nightmare. Setting up pensions arrangements and backdating the entitlements is a similarly daunting prospect for Uber.

So far as the future is concerned , Uber will now face the decision of either (1) accepting that its workforce are workers, and therefore enduring the ongoing cost of providing all drivers with their entitlements to holiday pay, pension contributions and the minimum wage (no doubt passing on the costs to the passengers) or (2) relinquishing further control over their drivers so they can argue that under the modified arrangements the drivers are truly self-employed, thereby risking a reduction of control and a detrimental impact on the quality and simplicity of the service to customers.

5. Implications for your business

Businesses should review their working arrangements with individuals they engage as contractors and consider the extent to which these individuals can truly be said to be carrying out business on their own account.   

Particular attention should be paid to individuals who resemble employees in a number of respects, such as:

• they work under the supervision of staff in the business
• they do not bring their own independent expertise to the business
• their contracts are indefinite and not for a particular project or assignment
• they use the equipment and resources of the business
• they are required to use the branding and email addresses of the business; and/or
• they do not have other clients.

It will be particularly important for technology businesses and those with a “peer-to-peer” model to assess the degree to which they have control over the service providers.  Whilst a genuine freelancer who seeks work via a platform (for example by advertising their services in a trade publication) will not be a worker in relation to that platform, the earlier case of Pimlico Plumbers v Smith shows that only a few changes to this model will give rise to a worker relationship. 

Those operating a platform which connects users with service providers should consider all aspects of their model to make this assessment, seeking legal advice where necessary.  Are they setting the prices for end service users? To what extent do they “quality control” the service provider’s output? To what extent is the service provider able to negotiate their remuneration? What does the legal paperwork say, and does it reflect the relationship between the parties?

The terms of the contracts and the way the parties label their relationship will not be persuasive if they contradict what happens in practice.  The Supreme Court in Uber in fact went further and criticised terms in consultancy and service agreements which expressly state that the individual is not an employee or a worker and will not bring claims based on worker or employment status.  These are “inimical to the aims of the legislation” which confers employment rights on workers.   

The Uber judgment will not be a welcome development for businesses operating a platform or otherwise engaging consultants of any kind. It is important for businesses to act now to ensure that their arrangements are within the confines of the law on employment status or risk a large bill for back wages and holiday pay in years to come.

Contact us

If you have any questions about these issues in relation to your own organisation, please contact a member of the team or speak with your usual Fox Williams contact.