UK: UK Uber Ruling Has Serious Implications For Gig Workers And Employers

The Court ruled Uber drivers must be classified as "workers," not independent self-employed contractors. The ruling upheld prior decisions of the Employment Tribunal, the Employment Appeal Tribunal and the Court of Appeal.

The recent decision means UK-based Uber drivers are entitled to employment rights such as rest breaks, holiday pay and a minimum wage. The Court's findings will affect the UK's entire gig economy, including international businesses with UK operations.

The Court's ruling relates to a set of facts that are specific to the Uber case and affects only UK-based Uber drivers, but it may reflect a global trend. Uber are currently facing similar claims in other countries, and some jurisdictions have even banned the ride-hailing app.

UK worker status: The crux of the Uber case

The claimants in the Uber case were the drivers themselves. They claimed they had been misclassified by Uber as contractors, and therefore had been wrongfully denied protections and benefits guaranteed under UK law.

Under UK law, an individual doing paid work generally falls into one of three categories: 

• An employee;
• A worker; or
• A self-employed individual

An "employee" usually has an express contract of employment and gets regular work they are obliged to do themselves. They are entitled to statutory employment rights and pay provisions such as notice, sick pay, holiday leave and pay, and parental leave and pay. They are also protected from unfair dismissal and discrimination.

A "self-employed individual" is usually responsible for arranging how and when they work. They might engage directly or through a consultancy or personal service company. They invoice for the work they do. A self-employed individual may have some protections regarding health and safety and discrimination, but they do not have employment rights.

A "worker" is widely regarded as being midway between an employee and a self-employed individual under UK law. Unlike a self-employed individual, a worker is required to do the work personally and may not outsource it. On the other hand, a UK worker has minimal obligation to receive or undertake work compared to UK employees, and is not eligible to the same protections as UK employees.

Supreme Court findings

When making its decision, the Court looked to relevant UK statutes rather than attempting to interpret the contracts Uber had in place with its drivers. These statutes set out a minimum level of workers' rights and seek to protect vulnerable workers with unequal bargaining power. The Court ruled these rights and protections must be upheld, regardless of contract language. The Court discussed clauses commonly included in contractor agreements that it considers attempts to avoid having to extend statutory protections, and indicated that such language should be disregarded.

What the decision means for Uber and its drivers

UK Uber drivers are now entitled to receive at least the national minimum wage, paid through PAYE. They will also be entitled to holiday pay for time worked, which the Court deemed to be any time drivers are logged in to the Uber app to indicate they are ready and able to take riders. Drivers are able to backdate related claims for up to two years.

According to Uber, not all drivers are entitled to the same rights. Immediately following the judgment, the company released a statement maintaining that the Court's decision was limited to those individuals who brought the claim, and that Uber have subsequently improved their terms with their remaining workforce.

Despite this attempt to limit the judgement's impact, we anticipate more claimants will challenge their employment status with Uber.

What the case means for UK employment status determinations

The recent ruling fundamentally changes how UK businesses should assess worker status. The starting point in any worker-status discussion must now be the statutory definitions and a realistic assessment of the working relationship. Template contracts with stock clauses that give the appearance of a compliant, genuine self-employed arrangement are not sufficient to ward off legal challenges. While the Court did not suggest that contracts are no longer relevant, the degree of control that any business has over its workers will likely have a significant impact when a court makes worker-status determinations, regardless of contract language.

Employment and tax misalignment

The Court's decision aligns with the longstanding approach taken by HMRC, which favours examining the actual working relationship when making a worker-status determination. That does not mean that employment and tax-status assessments always align. HMRC only recognizes two categories when making a tax-status assessment: employed and self-employed. Since UK employment law recognises three categories, scenarios can arise in which an individual is an employee for tax purposes, but is classified as a worker from an employment perspective and is not entitled to employee rights and benefits.

With the new off-payroll IR35 rules coming into force for the UK private sector on 6 April 2021, worker status will remain a contentious issue. The status determination required under IR35 legislation is founded in tax legislation, and is therefore not directly affected by the Uber decision. However, the Court's decision may resonate with HMRC as it moves to expose disguised employment relationships put in place to avoid paying high tax rates. Furthermore, in cases where an individual working through a personal service company (and therefore potentially within IR35's scope) secures worker status as a result of the Uber case, that individual's status determination from a tax perspective would then almost certainly be "employed."

For UK employers, the Uber decision reinforces the importance of exercising care when making worker-status determinations. As Uber discovered, getting it wrong can be costly.