On 28 October 2016, the London Central employment tribunal’s decision was announced, holding that Uber drivers have “worker” status, and are not self-employed (as Uber claimed).

The decision was a shot that was heard around the world of work. It will be appealed and at this stage does not create a UK legal precedent. However, it is potentially very significant as a matter of UK law, and may help define the market for international, political and legal reasons.

All employees are workers – but not all workers are employees

In the UK there are three basic categories for people who provide services. At one end are “employees” who have the most legal protection (for example, protection against unfair dismissal, maternity and family leave rights, holiday pay and sick pay) but are under the control and supervision of their employer. At the other end of the scale are self-employed individuals, who have little legal protection as they are essentially in business on their own account, but have a high level of flexibility (for example, in terms of choosing when and if to accept work) and pay tax and national insurance contributions at different levels from an employee.

In the UK, between these two extremes (unlike many other countries) we have a ‘middle category’ between employees and self-employed individuals called ‘worker’. Worker status does not give full employee rights, but it does give individuals the right to 5.6 weeks of paid holiday per year and to the National Minimum Wage (which is currently set at up to £7.20 per hour for people aged 25 and over). For some, it may also result in a right to pension contributions in accordance with the auto-enrolment rules.

Claimant drivers’ position

The Uber drivers in this case (or the union assisting them) have never claimed that they are Uber’s employees. However, the Uber drivers alleged that, because of the high degree of control that they claim Uber exerts over drivers, they do meet the test to be ‘workers’.

Uber’s position

Uber’s position is that it operates solely as a software platform provider which links customers (or “riders”) with self-employed drivers who are willing to provide transport services. Uber views the drivers as ‘partners’, and each driver as, essentially, a self-employed individual operating their own small business. In support of its position, Uber emphasised that drivers are under no obligation whatsoever to turn on the Uber app at any point (and, indeed, can choose to turn it off or on as suits them and their lifestyle) or even, if they are logged on to the app, to accept any rides that are offered to them. This lack of obligation to accept any work offered is often at odds with a finding of worker status. Uber claims that this offers driver a high degree of flexibility and leaves them free to combine using the Uber app with other work and lifestyle commitments.

The Employment Tribunal’s decision

The Employment Tribunal decided that, for any periods at least in which an Uber driver (a) has the Uber app switched on; (b) is within the territory in which the driver is authorised to work; and (c) is able and willing to accept rides offered to them, the driver is a worker of Uber.

The terms and conditions on which both drivers and riders using the app sign up state that there is a contract (to provide transport services to someone who wishes to travel somewhere) between the driver and the rider, with Uber only acting as the intermediary platform between them.

Despite this, the Tribunal did not consider that realistically it could be said that there was a contract between a rider and a driver, given that when the rider and driver sign up to Uber’s terms they don’t know the identity of the alleged other party to the contract (or parties, as in the course of using the app many different drivers will, of course, transport many different riders). The destination of the journey (a key term of the supposed contract) is not disclosed to the driver until after they have collected the rider, and the fee for that ride is both set and collected by Uber.

The Tribunal held that Uber was not a technology company offering a software platform as it claimed, but was fundamentally in the business of providing transport services (and not only software services to others who provide transport services). In doing so, it took into account that Uber was, in effect, marketing products which could only be transportation products (whether ride services to customers, or delivery services such as Uber Eats).

Control v quality control?

A key element in the Tribunal’s decision was the level of control that it considered Uber exercised over the drivers. In addition to the points above concerning key information not being known to the parties and the setting and collecting of the fare, Uber sets the default route for journeys through its GPS system and interviews and recruits drivers. If drivers do not accept a certain number of fares, Uber locks them out of the app for a short period. If customers complain about their Uber experience, Uber takes what is in effect disciplinary action against drivers. The Tribunal held that, together, these “control” mechanisms pointed towards a worker relationship.

Of course, the reason behind this level of control may be that Uber is able to offer a consistent and quality service to riders: for example, a customer’s name and contact details are not disclosed to drivers for security reasons; destinations are not disclosed so that any customer who needs transport can quickly access a driver (rather than drivers cherry-picking longer journeys only); and mechanisms for dealing with customer complaints about drivers are necessary for quality control. Whatever Uber’s intention, the Tribunal took the view that the way that Uber operates in practice means that the drivers are workers.

Uber has already confirmed it is appealing the decision to the Employment Appeal Tribunal, so the story will certainly not end here.

The cost of claims and ‘employment’ rights

The UK litigation is economically significant to Uber and the costs of losing are complex. Based on Uber’s 2015 accounts (published in September), estimated UK driver earnings are some £115m per annum. With 40,000 drivers, statutory holiday pay rights which go with worker status could cost as much as £13.88m per annum. That is approximately 10 times Uber’s after tax profit of £1.415m. Add statutory pension contributions which may be needed at 3% (£3.45m) and there are ongoing annual costs of some £17.33m – without taking into account sick pay. This takes no account of the minimum wage elements or historic back-pay aspects to the driver’s claim.

If the UK judgment is upheld, Uber’s options are limited. It can pass costs to drivers taking its commission higher, it can swallow them (although it already subsidises driver costs) or it can pass them to riders. Or maybe it can change its model, including how it uses algorithms and arranges pricing.

Uber is privately held and raised some $3.5billion earlier this year from Saudi investors. It must be assumed that Uber and its investors have priced into their business plans the implications of litigation and claims around status, along with other regulatory issues. They will also have priced in the impact of their growth in the market and ultimate plans for driverless vehicles, but the judgment may still affect their strategy with regulators and consumers over the coming years, and immediately, more disputes may arise. On Friday 4 November, one of the UK claimants revealed his request to take paid leave had been declined.

The gig economy is big – and this litigation is bigger

Strictly, the judgment in the UK case only applies to the claimants who brought the case, and an employment tribunal’s decision does not bind other tribunals. Does it really matter? We say yes: in reality the questions of control and pricing will likely affect over 100,000 UK workers in related industries (never mind the millions of other UK self-employed.) Uber itself has a large and growing number of drivers, and there are a growing number of similar cases regarding the status of “workers”.

More clarity about the impact of the judgment will come after 22 November 2016, when one of four cases against courier companies begins in the same Central London Employment Tribunal which heard the Uber case. Those companies engage at least another 11,000 people. Add the 8,000 or so individuals who work for Deliveroo, 10,500 with courier firm Hermes, the subject of a damning recent MP’s report, and there are nearly 70,000 in driving and courier industries without taking into account other licenced taxi drivers and couriers with smaller firms.

The same – but different

So, the judgment is likely to have a big impact. But it is not universal. Different online platforms do use different models, so it is not right to say the Uber case sets a precedent for all in the gig economy. For example, those who are renting out their property through Airbnb or selling their craft on Etsy are not going to be found to have worker status, as some have suggested. Even an outwardly similar online business might have a different result if in fact drivers were free to set their own prices or the platform set fewer controls on the way in which drivers performed their task.

How will the litigation shape future policy?

In America, influential politicians on both sides have made statements about the need to regulate the gig economy and perhaps have a “third way” between (costly) employees and the (unprotected) self-employed. They, like investors, may look closely at how European laws are developed.

In the UK, policy makers are very interested in the gig economy and this judgment forms part of an important fact pattern that will set future policy. PM Theresa May has already spoken of her wish to drive up the living standards of those in precarious work. HMRC announced in October that it is beefing up its employment status investigatory unit. There is significant pressure to reformulate policy, seen in the recent appointment of former Blair aide Matthew Taylor to produce a report on the implications of the gig economy and a Parliamentary committee’s report planned for the end of the year.

The current cases concern online platforms and will fuel the debate about regulating the tech industry. But the impact will not end there. Other non-standard work is subject to similar legal principles and “old economy” participants such as healthcare workers and foster carers are understood to be considering a challenge for worker status.

The costs of these rights can significantly affect the State as a business partner.

What’s next?

Uber have already announced their intention to appeal the decision to the Employment Appeal Tribunal (EAT) which, unlike employment tribunals, creates binding precedents with its decisions. Uber have 42 days from the judgment in which to appeal. Currently, the EAT estimates an appeal will be heard within three to four months of the date on which it is lodged, although it can take longer for the judgment to be made.

Meanwhile, as mentioned above, a number of other cases are due to be heard. Next up is Dewhurst v CitySprint, concerning a cycle courier who believes that she and her colleagues are entitled to “worker” status. It will be followed by a number of other cases against other courier companies and a Court of Appeal case about plumbers in January 2017. A union representing Deliveroo drivers have asked to be recognised for collective bargaining purposes – something available only to those representing workers.

Businesses now looking at the status of those who work for them and wondering if the label matches what’s in the tin, will need to consider whether to factor into their own business plan the additional costs and risks of a finding that they too, use workers. Will we now see changes in the operating model of such businesses?