Uber suffers major legal blow in the UK

Following twelve months of significant financial losses, Uber is now facing serious regulatory challenges across Europe that threaten to significantly increase its operating costs. The company’s future viability may now depend on the extent to which it can dominate in markets outside the continent.

In a landmark decision last month, the Supreme Court of the United Kingdom ruled that Uber must consider its drivers as “workers” entitled to minimum wage and vacation time. The court unanimously dismissed Uber’s claim of being a booking agent that hires self-employed contractors. Instead, the justices found that drivers are subordinate and dependent, because Uber unilaterally sets contract terms and conditions, dictates how much drivers earn by setting fares, and is free to terminate the relationship if passengers consistently rate driver performance too low. Most dramatically, the court ruled that Uber must consider its drivers as “workers” from the minute they log on to the app, until they log off.

The Supreme Court’s ruling comes after nearly five years of legal battles between Uber and a small group of former drivers. James Farrar and Yaseen Aslam first took the company to an employment tribunal back in 2016 and successfully argued that they “worked” for Uber. The company appealed, but the Employment Appeal Tribunal upheld the ruling. In 2018 the company took the case to the Court of Appeals but lost again. Friday’s ruling was Uber’s final appeal. Although the decision initially affects only the 25 drivers who brought cases, the ruling is expected to set precedent for the remaining 60,000 drivers across the UK.

Although Uber is no stranger to legal problems in the UK, having been twice banned from London over safety concerns, experts say this ruling could be a “nightmare” for the company. Uber is still not profitable, and Covid has strained their finances further; in 2020 the company reported a net loss of $6.8 billion. Increased labor costs in a top five market could push profitability even farther away. The ruling might also revive discussions about whether Uber should now be classified as a transport provider in the U.K. (rather than as a booking agent), and thus be liable for 20% VAT (Value Added Tax) on fares. Moreover, now that drivers become workers upon logging into the app, Uber will need to adjust its systems to avoid oversupplying markets with too many idle vehicles. The market certainly seems nervous; Uber’s share price dipped 1.6% after the ruling.

The UK Supreme Court decision is not an anomaly. Recently, countries across Europe have been moving towards protecting and strengthening workers’ rights in the gig economy. Last year, France’s top court ruled that an Uber driver did not qualify as self-employed, and earlier this year judges in the Netherlands and Spain ruled that some of their cycle couriers and food delivery riders are employees. Last month Uber released a white paper urging Europe to adopt a Proposition 22-style “third way”, where drivers remain contractors but have access to benefits funds. So far, the European Union isn’t listening. At the end of February, the European Commission began a six-week public consultation period seeking feedback from trade unions and employer groups on how to better protect gig-worker rights. The EU is even said to be considering relaxing its competition laws to allow gig workers to collectively bargain. Increasingly, some companies do not believe that the freelance model is sustainable in Europe. Dutch food delivery company Just Eat Takeaway stopped using gig workers on the continent, but will continue to do so in the U.S.

Back in the U.K., Uber is seeking to narrow the Supreme Court’s ruling, arguing that it has made a number of changes to its business since 2016, and that the ruling should not apply to all drivers. However, it is more likely that the decision will have very broad implications, challenging similar gig economy companies across the country to make changes to their business models before drivers and couriers bring suit. Will Uber stay in the U.K.? Departure is unlikely; Uber dominates the country’s rideshare market. More likely, the company will alter its business model, possibly passing higher operational costs onto customers. Regardless, last month’s ruling will certainly strengthen and accelerate Uber’s pre-emptive efforts to protect itself from regulatory risks in markets outside Europe.