Uber has lost its appeal in the UK Supreme Court which has found that, for employment law purposes, its drivers are workers rather than self-employed.
The Supreme Court’s judgement means that these Uber drivers will be entitled to the national minimum wage, holiday pay and other rights. This decision will have implications for the wider gig economy.
Former Uber drivers had won an employment tribunal claim brought against Uber on behalf of a group of 19 other drivers in October 2016. The drivers contended they were “workers” for the purposes of the Employment Rights Act 1996, the National Minimum Wage Act 1998 and the Working Time Regulations 1998. As such, the drivers claimed they were entitled to the national minimum wage, paid leave and other legal protections. Uber argued that the drivers were self-employed contractors who contracted directly with customers and were therefore self-employed and not "workers" of Uber.
Uber lost its appeals against this decision in the Employment Appeal Tribunal and the Court of Appeal, in November 2017 and December 2018 respectively. Uber appealed to the Supreme Court.
The Supreme Court unanimously dismissed Uber’s appeal and backed the original October 2016 decision.
There were three key aspects to its decision:
The written contract is not the starting point to determine status
Uber argued that it ran an app that connected the self-employed drivers directly to their customers and that its contractual terms reflect this. Therefore, the drivers could not be its workers.
The Supreme Court found that this contractual position did not reflect the reality of the situation, and that the reality is that Uber runs a transportation business and drivers provide the skilled labour through which that business delivers its services and earns its profits.
As such, the Supreme Court took a purposive approach to the legislation: giving protection to what the Supreme Court designated as ‘vulnerable’ individuals who have ‘little or no say over their pay and working conditions’ because they are in a subordinate position to the organisation that exercises control over their work. The Supreme Court believed it would be inconsistent with this purpose to treat the contractual terms as the starting point to determine if an individual is a worker, particularly as a worker cannot contract out of statutory rights.
Control and sub-ordination
The Supreme Court also considered the following in reaching its decision:
The Supreme Court concluded that all of these factors meant that the drivers were in a position of sub-ordination and dependency in relation to Uber such that they had little to no ability to improve their economic position through professional or entrepreneurial skill. On this basis they were held to be workers.
Perhaps most importantly, the Supreme Court also upheld the tribunal’s conclusion that the time spent working for Uber included any period when the driver was logged into the app and ready and willing to accept trips. As such, working time was not limited to individual rides. Measuring working time in this way may lead to significant historic claims from drivers for back pay and is consistent with HMRC’s approach to measuring working time during its national minimum wage enforcement activity.
Impact on gig economy and considerations for businesses
This case is one of several determining whether individuals working in the gig economy are self-employed or workers. While it hinged on Uber’s specific business model and fact pattern, consideration should be given to how the principles may be extended to others as the Supreme Court has sent a clear message: the purpose of the legislation is to protect what it deems to be ‘vulnerable’ individuals ‘subordinate to and dependent on’ an organisation. This chimes with the recommendations made by the Government’s Taylor Review back in 2017.
The Supreme Court will look through contractual arrangements which do not reflect the reality of that relationship. This resonates strongly with the approach taken by tax tribunals in relation to tax avoidance.
Gig economy businesses should consider the impact of the findings on their business models, and businesses more broadly should review the terms and conditions and working practices of all off payroll workers to understand whether they are capable of successfully withstanding a challenge that they are employed or workers.
Failure to afford basic rights to individuals who have been incorrectly classed as self-employed may be costly in terms of historic and ongoing liability. Such liabilities will depend on what cause of action individuals bring (e.g. in relation to national minimum wage, accrual or payment of holiday payment) and in which forum they bring it as well as whether they are workers, employees or self-employed individuals reclassified as workers or employees.
While this is an employment law/rights decision and not determinative of employment status from a tax perspective, businesses should be aware of any future HMRC scrutiny and potential employment tax liabilities as well as broader tax impacts, including VAT, on any changes to business models.
Please speak to your usual KPMG Employment Law or Employment Tax contacts if you have any queries.
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