Uber Loses Appeal against ruling on UK Worker rights

On By In Long reads, Uber

Uber has lost its Supreme Court Appeal on whether drivers are self-employed or workers, directly employed by Uber itself.

The appeal was Uber’s fourth, and final attempt to overturn the judgement. That it took the case to such lengths highlights that the case had implications beyond its responsibilities to workers on issues such as minimum wage and holiday pay.

The Uber model relies heavily on the firm’s ability to minimise the impact of driver cost on the service it offers. This is because the driver is, ultimately a fixed cost in proportion to the number of passengers that can be carried in a vehicle. Reducing it, or removing it completely (a reason for Uber’s heavy investment in ‘driverless’ technology) is a critical part of the company’s path to profitability. Indeed the risk that it could not do so, and this case, were specifically referenced in the firm’s IPO as key risks on investment.

Beyond this, the ruling also causes issues for Uber in relation to its tax position within the UK. In order to minimise its tax obligations to the Treasury, Uber has long walked a careful line between being a minicab operator and an ‘App’. The former is critical to its ability to operate within London, and has been the cause of the majority of its regulatory run-ins with TfL. Yet its tax position largely depends on Uber’s ability to claim that it is the latter.

This is because, by being an ‘app’, Uber is able to effectively operate as a number of separate companies. Most critically, it means that UBV, its Dutch Subsidiary, can take passenger payments while its UK subsidiaries provide the actual ride. This leaves the profits sitting in the Netherlands, and the cost sitting in the UK (or elsewhere).

It has also allowed Uber to minimise its VAT contributions. Indeed this is a key hidden outcome of the current employment ruling. As long as Uber’s drivers were individual contractors, Uber could reasonably argue that the drivers were individually liable for VAT on rides. A situation that was beneficial to Uber, as the majority (if not all) of drivers fall below the individual VAT threshold.

Both of these financial instruments have allowed the firm to truthfully claim that it pays all the tax it is required to by UK law, whilst perhaps skirting the spirit. Today’s final ruling reopens the question as to whether it is actually breaking the rules as well. HMRC were watching this case with interest.

Failing the Duck Test

The reasons why Uber have lost this case are long, and fascinating. Broadly speaking, they relate to Uber’s desire to pitch itself to passengers as the full service operator, while trying to use contractual law and wording to claim it was not in the courts.

Unfortunately, employment law in England and Wales is less amenable to this approach than many jurisdictions elsewhere – such as the US. The ‘Duck Test’ (If it looks like a duck, swims like a duck, and quacks like a duck, then it probably is a duck) is not just firmly wired into English employment law, but has also been tested (most notably in regards to pole dancers and their employment status in Stringfellows night clubs). This was something Uber seemingly failed to recognise until it was too late.

Rather than discuss that in detail again here, however, we will point you to our detailed breakdown on this case, and all the issues it would (and has) highlighted back in 2019, Schrodinger’s Cab Firm: Uber’s Existential Crisis. We will also leave you with the words of the original ruling that was confirmed today:

“Any organisation (a) running an enterprise at the heart of which is the function of carrying people in motor cars from where they are to where they want to be and (b) operating in part through a company discharging the regulated responsibilities of a PHV operator, but (c) requiring drivers and passengers to agree, as a matter of contract that it does not provide transportation services (through UBV or ULL) and (d) resorting in its documentation to fictions, twisted language and even brand new terminology, merits we think a degree of scepticism.

“Reflecting on the Respondents’ general case, and on the grimly loyal evidence of Ms Bertram in particular, we cannot help being reminded of Queen Gertrude’s most celebrated line:

‘The lady doth protest too much, methinks.’”

30 comments

  1. Pigeons home to roost. Question now is whether they just close down the UK operation or pay all the bills now due.

  2. It’ll be interesting to see if this affects other businesses who are playing fast and loose with regulations. I’m thinking of the delivery industry. Lots of van and bike delivery businesses have drivers on ‘independent contractor’ contracts, but using the duck test, the drivers only operate for one firm, their day is scheduled by that firm to the last minute, and they are remotely tracked by that firm throughout the day. Independent contractors they are not….

  3. Last mile delivery is absolutely the area I expect this to have the most immediate impact. Because it’s the area which has to make a profit. It’s not run on investment voodoo (generally).

    For Uber and other gig-economy businesses I think the impact is more long term. The immediate focus will be on attempts at clever contract rewrites and on pushing the costs out on drivers, investors and passengers (in that order).

    But the key goal above all will be to avoid spooking investors. Uber has to pretend this is fine. Can’t risk the next funding round valuation.

  4. Whilst there are many similarities, there are aspects of the delivery business that differ from the taxi business. A key one is that there are 3 parties involved – the restaurant (or shop), the recipient, and the driver. Despite the weaselly “delivery fee” and “service fee” that recipients have to pay, most of the income to the delivery “app” is from the restaurant/shop, who are charged commission of up to 35% (+VAT) of each order. I suspect this makes the delivery business much more profitable from the start than the taxi business, but there’s no pretence here that there’s a contract between restaurants and delivery drivers.

    Other factors that may make a difference are that delivery drivers are AFAIK much more likely to work for multiple “apps” simultaneously and they’re not presented to anyone as “available” on a map prior to booking. Most importantly though, unlike taxis which have to be licensed, delivery services don’t have to pretend to be something else to meet/evade regulatory requirements!

    My opinion is that the ruling will affect the way the delivery businesses operate, but the impact to end users may be less obvious.

  5. Agreed. And a good explainer of the difference between the food model and the ride model. They’re not charging drivers for the right to drive. That’s the big difference. The revenue stream is thus different.

    The last mile delivery impact I think will be bigger but, as you say, more hidden from the consumer.

  7. Apologies, didn’t make myself clear. My comment wasn’t aimed at the restaurant delivery drivers. I was thinking of parcels from the various e-commerce giants. While Royal Mail (usually) directly employs their delivery drivers, most parcels sent from e-commerce giants are going via other courier companies. Many of these use drivers who are ‘contracted’ on an independent contractor contact – very much akin to the Uber model. No NI, holidays, sick pay etc etc. Hence undercutting Royal Mail not by superior logistics (though there is some of that) but by paying people less.

  8. @IslandDweller
    There may be implications for Hermes, and other courier-type services that use contractors, but there’s no pretence that the senders of parcels are engaging them directly, or that the courier firms are technology businesses rather than parcel delivery businesses.
    Related to all of this is the upcoming (delayed) IR35 changes around off-payroll working.

  9. Fundamental to this is that there are sharp operators bending the law just short of fracture, and that all of us who use the service (taxi, delivery, whatever) are condoning it in search of a cheap deal. Ethics – forget it. It’s exactly the same mentality as buying eggs, pork, clothing et al purely on price, regardless of animal welfare or sweat-shop conditions.

  10. I am not sure the situation is that different for deliveries once you ignore the recipient of the goods, who has no more role in this that the destination to which I’d book a taxi.

    The seller of the goods is the customer and the delivery company is the Uber-equivalent. It will then just be a question of the duck test – give them branded vehicles, schedule their day, track them, etc – they are your employees. Let them do what they want, and they are not…

  12. @Christian Schmidt
    This depends if you’re referring to traditional couriers (eg Hermes, DPD, TNT) or takeaway on-demand delivery services (eg Deliveroo, Uber Eats). For the latter, the recipient very much initiates the transaction with the provider, although it’s the restaurant that pays the lion’s share of the cost. In London at least, these services have branched out into offering alcohol, grocery and other on-demand deliveries.

    Either way though, no-one pretends that anyone is contracting directly with the actual person who brings the package to your door in the way that Uber tries to pretend you’re contracting directly with a taxi driver.

  13. @Garry Brown
    I’m afraid I don’t buy into this idea that responsibility for the ethical conduct of businesses must always lie with end consumers.

    Expecting us all to conduct extensive ethical research into any business prior to any transaction is unrealistic and frankly an exhausting proposition. Unethical businesses by definition will find ways to spin their sales pitch and smear their competitors. Given the rise and rise of retailers that many deem unethical, both on the high street and online, it clearly just doesn’t work!

    Minimum standards legislated and enforced by our elected governments are the only way to give us confidence that we can engage anxiety-free with honest businesses. It’s good for our mental health and good for the economy.

  14. @Paul
    “Either way though, no-one pretends that anyone is contracting directly with the actual person who brings the package to your door in the way that Uber tries to pretend you’re contracting directly with a taxi driver.”

    Uber Eats says that the customer will be charged if an attempt at delivery is made and fails. They don’t set out their full T&Cs on their website, not that I can find. (I found Just Eat’s T&C’s very easily on their website.) But that rule makes delivery failure the customer’s problem. So whatever contractual situation formally exists, delivery risk has been passed on to the customer, as if the deliverer was the customer’s agent.

  15. @Paul – thanks. Yes if I actually book with Just Eat or something (instead of phoning my with my local takeaway) then I have a contract with them. But the fact that the organisation from which I buy something has brought the delivery in-house, and very much stresses that it is doing the delivery, surely means that their chances of failing the duck test are actually increased?

  16. @Christian Schmidt: Deliveroo in the Netherlands recently failed the duck test – again – as they lost their third lawsuit about it in NL: https://netherlandsnewslive.com/deliveroo-has-to-treat-its-couriers-like-employees-and-that-can-have-major-consequences/90127/

    I don’t think my country is always a good example, but it’s definitely setting a precedent here as there are court cases about employees vs contractors in multiple business sectors going on and things seem to be shifting in favour of employees.

  17. English courts have long preferred substance to form in all sorts of contexts (except, of course, when they don’t!) and my favourite turn of phrase comes from the golden oldie Rent Act case, Street v Mountford:

    “The manufacture of a five pronged implement for manual digging results in a fork even if the manufacturer, unfamiliar with the English language, insists that he intended to make and has made a spade.”

  19. Having read some more about this for the last couple of weeks, I don’t think this can end happily ever after with Uber’s drivers all being workers. I think Uber may well close its business in this country, as @AlisonW suggested, rather than accept that. It still loses a lot of money in this country, and so can’t survive its costs being increased very much.

    Here’s what Uber says about it.
    https://www.uber.com/en-GB/blog/supreme-court-verdict/
    It confirms what @Greg said. Uber are arguing that the judgment only applies to a small number of drivers using an older contract form. It currently denies the judgment applies to any other contractual form it brought in subsequently. Drivers on the later contract forms, and there are various generations of contract, are going to have to go back to court to find out if the courts agree, or at the least start that process.

    So this is not the case, yet, that decided once and for all who is a worker and who isn’t. All it has done is say some people are workers, and set out some principles, but the application of those principles to the rest remains to be fought over. It may turn out that there’s a long way to go yet.

    The supreme court set out a list of criteria why the “duck test” applied to the drivers in the case. See heading “Uber-specific factors” about half-way down this legal commentary.
    https://fieldcourt.co.uk/the-uber-judgment-what-it-means-for-the-gig-economy/
    It is also noteworthy that the court did not take forward all of the cases that were brought by drivers, it just took a selection, the oldest, easiest, cases, in the hope that the principles so established would lead to the others being settled. That may still happen, but Uber is hoping that the differences of detail matter.

    What the court hasn’t done is draw a bright line between where “worker” ends and where “contractor” starts. Uber thinks that you cannot say precisely what the court said of these drivers of any other driver. So what Uber will now be doing is trying to work out where that line is, and give as little away as possible on the way. So their first gambit is to say that actually the sample cases were right on edge, and any small change means that they aren’t workers.

    We still have to discover if an Uber-like business can exist under the laws in this country. Rarely has the existence of the trade-off between advantage to the customer and to the worker been as starkly exposed.

  24. Taking the diner to the meal is “employment” but taking the meal to the diner is “contracting” – anyone?

    Court of Appeal ruling came after the Independent Workers’ Union of Great Britain appealed against an earlier judgement. It’s the fourth time a court has ruled Deliveroo riders are self-employed.

    The Association of Independent Professionals and the Self-Employed warned that the gig economy was in an “untenable mess.

    “We urge government to step in and clear the confusion in the gig economy, which arises from the fact that while U.K. law clearly defines worker and employee status, there is still no definition of what it is to be self-employed,” said Andy Chamberlain, director of policy at IPSE , in a statement.

    “We believe the only way to resolve this is to write a statutory definition of self-employment into UK law – not only to secure the rights of people who should properly be classed as workers, but also to protect the freedom of legitimately self-employed people.”

  28. Bloomberg Technology writes Uber loses UK court fight over London business model:

    “Uber Technologies Inc. and its London rivals will have to overhaul their business models in the city after losing a bid to challenge part of a landmark ruling which led its drivers to be re-classified as workers.

    “UK judges ruled that the tech firm should enter into a direct contract with passengers when providing car journeys and therefore assume more responsibility for each trip booked on their app. Uber had sought clarity over comments made in a portion of a Supreme Court court ruling given earlier this year.

    “Uber and others “will need to amend the basis on which they provide their services,” after the court concluded that “in order to operate lawfully, an operator must undertake a contractual obligation to passengers,” the judges said Monday. They also said London’s transport regulator will need to reconsider its current guidance to reflect the ruling.

    “The ruling shows that the battle over worker rights in the UK gig economy didn’t end after the nation’s top court ruled earlier this year that Uber must treat its drivers as “workers,” giving them access to vacation pay, rest breaks and minimum wage while they’re using the app.

    “The UK isn’t the only key market where Uber and its rivals like Deliveroo and Bolt Technology OU are grappling over the future of their operating models. The European Union is gearing up to announce proposals that would push for gig workers to be considered employees rather than self-employed and could cost the sector as much as 4.5 billion euros ($5.1 billion) more a year…”

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