Adam Convisser, Employment Partner
Yesterday transport company Uber announced changes to the way in which their business will operate and in particular how they treat their drivers. This is following the Supreme Court decision last month to dismiss an appeal by Uber against a landmark Employment Tribunal ruling that its drivers should be classed as workers rather than self-employed. This means Uber drivers are entitled to employment benefits such as holiday pay, minimum wage, and protection from discrimination. However, they will not be able to claim ‘employee’ rights such as redundancy pay and unfair dismissal. There are still some points in dispute between the relevant parties (including in relation to when the drivers are ‘clocking on’ for the purposes of calculating national minimum wage).
The decision has significant implications for employers in the so-called ‘gig’ economy, which includes Airbnb services, freelance programmers, courier drivers, and some temporary agency workers, to name but a few.
Background to the Supreme Court’s decision
The Appellant (Uber) appealed against a majority Court of Appeal judgment upholding an Employment Tribunal’s decision that the Respondents (who were private hire vehicle drivers) fell within the definition of “worker” within the Employment Rights Act 1996 (the Act) Pt XIV s.230(3).
The Dutch company, Uber, which owned the technology behind the Uber smartphone application owned a UK subsidiary (Uber London) which was licensed to operate a private hire vehicle service in the capital.
Uber drivers, who were classed as self-employed, used their own vehicles when working. Drivers were given a written “service agreement” setting out their terms of work. Customers would request rides through Uber’s app, which would put them in contact with a driver in their location. The driver had 10 seconds to decide whether or not to accept the job. The app calculated the journey fare and Uber paid the driver the fare less a “service fee”, which the company retained. Drivers were banned from exchanging contact details with passengers or contacting them after the trip. Furthermore, Uber operated a rating system whereby the passenger and driver were each asked to rate the other anonymously on a scale of one to five.
The Respondents brought an Employment Tribunal claim stating that their employment situation meant they should be classed as workers within the meaning of s.230(3) of the Act. Uber argued that the drivers were independent contractors who contracted directly with the passenger when a ride was booked through the app, with Uber collecting payment on the driver’s behalf. Uber claimed to be merely a technology provider, with Uber London acting as a booking agent for the drivers.
The Supreme Court’s decision
In dismissing the appeal, the Supreme Court stated that in the absence of a written agreement, the nature of the commercial relationship between Uber and the drivers had to be established by examining the parties’ conduct. The Supreme Court noted the Tribunal’s finding that the drivers had given no instruction or entered into a contractual arrangement to confer authority on Uber London to act as agent in accepting bookings; nor could such a contract be inferred from the background facts known to both parties.
The Supreme Court also declared that when establishing whether a person was a worker or not, the approach to take was not to be determined by applying the ordinary principles of contract law, but by looking at the purpose behind the relevant legislation, in this case, the Act. The purpose of the Act was to prevent the exploitation of vulnerable workers by making them work long hours, for little pay, and under harsh conditions. The Court stated that such purpose would be undermined if employers were permitted to contract out of it; therefore, it would be inconsistent with the purpose created by Parliament to take a written contract as the starting point for establishing the employment relationship between parties.
In examining the relationship between the Appellant and the Respondents, the Tribunal found that the following supported that the latter were ‘workers’:
- The drivers’ fees were fixed by Uber and they could not charge more. The service charge that Uber collected was set by the app; drivers had no control over it.
- Uber provided a written contract stipulating terms of work and all drivers were required to accept with “no practical possibility of [the drivers] negotiating different terms”.
- Although drivers were free to choose when and where to work, once they had logged onto the app their choice about whether to accept requests for rides was constrained by Uber. Uber controlled the information provided to the drivers, who were not informed of the passengers’ destinations until they were picked up. Uber also monitored the drivers’ rate of acceptance and cancellation of requests and imposed penalties where the cancellation rate exceeded a certain level by removing the drivers’ access to the app for a period of time. The Court said this was “a classic form of subordination that is characteristic of employment relationships”.
- Drivers were not permitted to establish relationships with their passengers and Uber took steps to ensure communication between driver and passenger was minimal.
Lord Leggatt, who delivered the judgment concluded:
“Taking these factors together, it can be seen that the transportation service performed by drivers and offered to passengers through the Uber app is very tightly defined and controlled by Uber. Furthermore, it is designed and organised in such a way as to provide a standardised service to passengers in which drivers are perceived as substantially interchangeable and from which Uber, rather than individual drivers, obtains the benefit of customer loyalty and goodwill. From the drivers’ point of view, the same factors – in particular, the inability to offer a distinctive service or to set their own prices and Uber’s control over all aspects of their interaction with passengers – mean that they have little or no ability to improve their economic position through professional or entrepreneurial skill. In practice the only way in which they can increase their earnings is by working longer hours while constantly meeting Uber’s measures of performance.
On the facts found in the present case, and in particular those which I have emphasised at paras 94-101 above, I think it clear that the employment tribunal was entitled to find that the claimant drivers were “workers” who worked for Uber London under “worker’s contracts” within the meaning of the statutory definition. Indeed, that was, in my opinion, the only conclusion which the tribunal could reasonably have reached.”
What this judgment means for employers
It would be prudent for employers who engage self-employed contractors to examine the details of the employment relationship in light of the Supreme Court’s decision. The Supreme Court made it clear that a written contract will not be disregarded in cases where the employment relationship is in dispute; however, the Tribunal will look at the conduct of the parties as against the purpose of the legislation.
If realistically the conduct of the parties shows a worker or employment relationship as opposed to a business and self-employed contractor, then it is sensible to either adjust the relationship or the contractual framework accordingly to reflect the true nature of the relationship. This will mitigate the risk of future Tribunal claims.
If you require any advice on employment matters, please get in touch with Adam Convisser, a Partner in our Employment Team.
Please note – this article does not constitute legal advice.