Uber was once again back in the courts in November in a further round of litigation, this time in the High Court, which has ruled that its business model did not comply with rules governing private vehicle hire.
In a much-publicised decision (which we discuss here), the Supreme Court previously held that Uber drivers are “workers” and therefore entitled to holiday pay and the national minimum (or living) wage, amongst other employment rights.
In this article we review the current legal position in relation to worker status, and suggest how technology companies should respond to recent employment law developments.
The High Court’s decision
The principal issue was whether Uber’s business model complied with the Private Hire Vehicles (London) Act 1998. The claim arose following remarks in the Supreme Court – which decided the drivers were workers – that this legislation would require Uber to be involved in the contract, and not simply to arrange the contract between passenger and driver.
In its judgment in the present case, the High Court agreed and found that the legislation requires Uber (and FreeNow, another party to the proceedings) to contract directly with passengers to provide the journey, not simply to act as a booking agent which facilitates the booking.
The decision is therefore a further blow to the “platform” model, in which Uber argues it is merely providing tech services via its app. The consequences of the decision are significant, as it creates further operational, financial and tax difficulties for the Uber platform.
Whilst the legislation in issue only relates to private hire vehicles, it is part of a much broader trend in the courts to scrutinise contract terms and to intervene when new technologies provide ways of circumventing consumer and employment law protections.
Given the wide-ranging implications for the gig economy and beyond, the issue of worker status is likely to be high on the agenda for technology companies establishing new platforms or reviewing existing business models for continued viability.
What is the current legal position in relation to worker status?
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 services independently; and
“workers”, which in practice is a hybrid status encompassing aspects of employment and self-employment.
Each status carries a different level of employment law protection, with employee status enjoying the most protection 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 many factors to take into account such as:
whether the individual agrees to personally provide his/her labour in return for a wage (rather than 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. the business can direct them as to how to do their job;
the extent to which the individual is integrated into the business e.g. by using its equipment and resources; and
whether there is anything else which is inconsistent with an employment relationship.
“Worker” status, on the other hand, is defined in employment law 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 London cab drivers, who bear the economic risk of running their own business.
On the other hand, individuals who are not carrying on business on their own account, but are not employees, are likely to be workers. Recent case law examples have included moped couriers, plumbers, members of law firm LLPs and professional disciplinary committee members.
If a person falls within the worker definition, they are entitled to some (but not all) of the protections to which an employee is entitled such as holiday pay, national living wage, discrimination and whistleblowing rights, and pension contributions.
Why is this important to a tech business?
As set out above, the dividing line between genuine self-employment and worker status is not necessarily clear without delving into the practical reality of how a workforce operates. Uber has certainly discovered that the consequences of mislabelling the workforce can be a considerable uplift in operating costs (both for historic employment liabilities and future employment costs).
While Uber may be able to absorb such additional costs, an early-stage tech business which wants to operate a platform or another innovation could quickly find itself answerable to investors and even further away from achieving sustained profitability.
What should tech companies do?
Consider early whether your platform is likely to require personal service from those delivering the service. An important example is provided by Deliveroo. It makes little difference to both Deliveroo and its users who exactly delivers a food order. As such, the Court of Appeal has held that Deliveroo provides its riders with a genuine contractual ability to substitute another individual for a job, thereby removing the element of personal service from the relationship and confirming riders’ status as self-employed individuals.
However, this decision stands out when contrasted with the general trend of case law towards individuals engaged via tech platforms being workers. As such, it remains important to fully consider the issue of worker status at an early stage of the business. In any event, Deliveroo’s business model may be difficult to replicate for many tech platforms, although other, more pure “peer-to-peer” models, can be less personalised.
Consider how much or how little the platform operator needs to be involved in the transaction. Are you more Pimlico Plumbers than Checkatrade? A genuine platform which merely links consumers to independent traders is unlikely to face an argument that those traders are its workers. On the other hand, where the traders and the platform share a common brand and the traders are under a degree of control, then the picture is much closer to a worker relationship.
Do you need exclusivity requirements? If you are operating a platform, consider whether you need to require traders to refrain from using other platforms. This requirement, whilst useful for branding and other reasons, runs the risk of worker status arising: if you’ve ever wondered why your Deliveroo order was pulled out of an Uber Eats bag by a rider wearing a Just Eat jacket, this may well be the explanation.
Build projected staff costs into your business plan. If you operate a business model which directly engages workers and/or employees for the delivery of your service, then we recommend that you assess potential staff costs at an early stage to avoid an unexpected increase in overheads and liabilities.
Ensure your contracts are accurate and fit for purpose. Uber had established a relatively complex contractual arrangement with drivers, which reflected its stance that they were engaged on a self-employed basis, with their fares merely facilitated by the Uber app (and sometimes by other apps at the same time). However, the Supreme Court has confirmed that the starting point in determining employment status will be to consider the purpose of the legislation, which is primarily to protect vulnerable individuals. Where the contracts do not properly reflect the day-to-day relationship between service provider, platform and consumer, the courts are willing to look beyond the paperwork and establish worker status where appropriate. We recommend ensuring that your contracts accurately reflect the working relationship with individuals engaged by your business, without using strained or unrealistic terminology, of the sort criticised by the Court of Appeal in Uber.
Need more information about the above people and legal expertise? Talk to one of our lawyers: +44 (0)20 7628 2000
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