Uber and the concept of driver classification made it into the news again in a big way. This time it happened in the United Kingdom. The UK Supreme Court ruled that Uber drivers are to be given the designation of “workers” rather than independent contractors.
Didn’t we just go through this in California? And didn’t Uber, Lyft, and a few delivery companies prevail last November by passing Proposition 22? Well, yes, and yes again. But that was in the US. The latest news is all about the UK… but it could have repercussions here, and elsewhere.
In this blog post, we’ll cover the latest news about a major court decision that could very well open the can of worms that is the independent contractor vs. employees issue for drivers everywhere. Here’s what we’ll review and analyze:
- The case of two English Uber drivers
- What did the decision do for drivers?
- What the UK decision means for Uber and the gig economy
- After the UK decision: What do drivers really want?
The case of two English Uber drivers
“Is this the right (court)room for an argument?” The old Monty Python sketch seems to have come to life, and might go something like this: The government tells Uber and Lyft that this driver is not an independent contractor, but an employee. They go back and forth. Uber says “No, he isn’t.” The government says, “Yes, he is.” “Isn’t!” “Is!”
Like the two professional argument artists in the Python sketch, legal experts and government courts have been going back and forth over this issue for years. The decision by the UK Supreme Court on February 19, 2021, stems from a lawsuit filed in 2015 by former Uber drivers James Farrar and Yaseen Aslam.
Farrar and Aslam contended that although Uber claimed to be no more than an intermediary party between themselves and the passengers who rode with them, as drivers for Uber their relationship with the company was more like employer–employee.
In the years since the lawsuit was filed, the lower courts found in favor of the two drivers. Uber appealed each decision all the way to the UK Supreme Court, claiming (as they did and still do in the US) that they are just a technology company, an intermediary between drivers and passengers. Uber contended this role did not constitute a relationship with drivers that would qualify them as employees.
The UK Supreme Court did not agree with that contention.
Here are the grounds the Court used to support its decision:
- Uber set the fares, which means Uber dictated how much drivers could earn.
- Uber set contract terms, and drivers had no say in them.
- Uber could determine which drivers got requests for rides, and penalize drivers for rejecting too many of them.
- Uber’s star rating service, along with the ability to dismiss drivers who don’t score well, showed Uber’s influence was more like an employee than an intermediary.
These conditions put drivers in a subordinate role in relation to Uber. Because drivers can’t set their own prices, the only way they could earn more money is by working more hours.
What did the decision do for drivers?
While the decision by the UK Supreme Court seemed like vindication for drivers, no one should arrive at happy conclusions too quickly. Uber could still work its way around this decision. How’s this for openers? When asked about his reaction to the February decision, Jamie Heywood, Uber’s Regional General Manager for Northern and Eastern Europe, said:
“We respect the Court’s decision which focused on a small number of drivers who used the uber app in 2016. Since then we have made significant changes…”
Heywood went on to describe how Uber has made efforts to give drivers more control over how much they can make, and new perks such as free short-term disability pay. He agreed, at that time, to consult with active drivers across the UK to understand what they want from the company.
By March 17, Uber agreed to pay all 70,000+ UK drivers minimum wage (about $12.12 per hour) and holiday (vacation) pay amounting to 12 percent of their pay, awarded weekly. UK drivers will also be invested in a pension plan sponsored by Uber. But, believe it or not, the controversy still isn’t over.
Yes, there are more kinks in the decision and the aftermath that need to be ironed out. When the Court ruled that Uber must consider its drivers as workers and pay them a minimum wage, the stipulation was for as long as they are logged on to the app. Uber agreed to pay drivers as workers, but only for the time when they were actively on a trip, meaning from when they accept a trip until they drop off the passenger at the destination.
Every driver knows that their hourly earnings include downtime waiting to get ride requests, as well as waiting time for passengers to find and get into the vehicle. Drivers, along with the attorneys who represented the drivers in the UK Supreme Court case, contend that this is not in compliance with the Court’s ruling, and that the UK government or TfL (Transport for London) should get involved in order to enforce it. Farrar and Aslam doubt this will be effective, however, because they believe these government entities don’t want to get involved.
It does seem like this argument will continue to go on, particularly when the ways it affects Uber and the entire gig economy are taken into consideration.
What the UK decision means for Uber and the gig economy
It doesn’t take very long to calculate that complying with this order is going to cost Uber in some big ways. In its 2019 SEC filing, when Uber went public, the company pointed out that if it had to classify drivers as workers, it would incur significant additional expense, and change its business model in fundamental ways.
Actually, Uber’s difficulties are even more complicated than simply paying minimum wage and vacation pay. In the UK, the Value Added Tax (VAT) of 20% is levied on companies that provide transportation. While classifying itself as an intermediary rather than a transportation company, Uber has escaped paying VAT on its fares … so far.
According to an article in BBC News, at least one barrister (lawyer) in the UK, Jolyon Maugham, demands that Uber pay VAT, particularly in light of the recent Supreme Court ruling. He has sued Uber for a VAT receipt, in an attempt to force the English Revenue and Customs agency (HMRC) to get Uber to pay approximately 1 billion pounds (about $1.4 billion) in Value Added Tax.
Not only is Uber facing these kinds of restrictions, and possibly taxes, in the UK, so are other gig economy companies. Because the ruling focuses on the company’s control over its workers, it can be easily applied to other companies in the gig economy, such as couriers and delivery drivers.
If companies that offer gig workers the opportunity to earn begin to crumble under the weight of decisions like this one, the entire gig economy could change drastically. According to a March 17, 2021 article in The Verge, an Uber spokesperson put it this way:
“If drivers were entitled to the minimum wage for all the time they simply had the app open, this would result in set shifts and a drastic cut to the number of drivers who can earn with Uber, at a time when the UK needs more earnings opportunities not less.”
Is it true that minimum wage, vacation pay, and other benefits that could be given to drivers if Uber is forced into reclassification might not be in the best interest of drivers? Let’s look at that question.
After the UK decision: What do drivers really want?
It’s clear that a cost increase for Uber could lead to gains for drivers that we’ve long hoped for. A guaranteed minimum wage, some benefits, and even vacation pay, could make driving for Uber and other companies seem a lot more viable.
Yet the impact on these companies could lead to results that aren’t so great for drivers. For one, there are rumblings about whether costs will rise for passengers using rideshare and delivery services. If this happens, we can’t help wondering if the demand for drivers will shrink. And even if demand remains the same, will passengers and delivery customers be as likely to tip drivers?
It’s clear that drivers need to have more stability, but are they really willing to push companies to the wall, possibly leading to their demise? This could happen, but it’s unlikely that the companies would allow it. In general, allowing these issues to escalate to high governmental levels could end up being bad for both drivers and the companies.
Uber and other rideshare and delivery companies will need to make compromises that support drivers’ needs for greater stability without wiping out their ability to bring in revenue. As things stand gig companies struggle to make a profit, so it would be a good idea for them to find ways to keep drivers happy – or at least less disgruntled.
Uber and Lyft have taken steps in this direction by offering programs such as the one they started in California after Proposition 22 passed. This Gridwise blog article explains in great depth what post-Prop 22 California drivers now receive.
Uber CEO Dara Khosrowshahi calls this plan, which includes guaranteed minimum wages and company-sponsored benefits a “third way” to classify drivers. As he writes in a February 15, 2021, Uber news release: “We believe a new approach is possible—one where having access to protections and benefits doesn’t come at the cost of flexibility and of job creation.”
It’s hard to know whether this “third way” is working for drivers yet, as it only began in January of this year. But the UK Supreme Court ruling against Uber is a clear indication that Uber, Lyft, and the other gig companies need to find a way to create an environment where drivers can earn without feeling like they’ve sold their souls so the companies can make more money.
That is the only way they can avoid being curtailed and possibly crushed by the heavy hand of government regulation. The idea of a more free-flowing give and take between the companies and drivers would definitely benefit both of them, and also continue to serve customers who depend on rideshare and delivery. Until this happens, though, we can be pretty sure that the Pythonesque argument is destined to go on and on and on for some time.
What do you think? Leave us your comment below, and tell us what you really want from the rideshare and delivery companies.
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