Hot on the heels of consumer complaints in the UK about credit card fraud, ride-hailing app Uber has filed an appeal against a decision that an Uber driver in California was an employee rather than a self-employed contractor. In March this year the Labor Commission found in favour of the female driver and awarded her over $4,000 for the costs she incurred running her car. Lyft, a similar app, also faces employment status claims from its drivers in California.
Uber operates in more than 250 cities across 55 countries and is valued at more than $40 billion (£27 billion). It is a smart phone app which enables drivers to connect with passengers and pay for the ride by credit card. Uber claims it merely provides its self-employed drivers with a platform for connecting with potential customers and carrying out a private transaction with them for which they are paid directly. Opponents argue, however, that in reality Uber is operating a fleet of drivers and effectively hiding behind technology to deprive them of their employment rights.
If Uber loses its appeal and the driver is found to be an employee with full employment protection rights, Uber will have to pay all her costs – fuel, tolls and running costs, minimum wage, holiday pay and other employment benefits, social security, unemployment insurance and workers’ compensation. Such a finding would potentially mean that Uber and Lyft face the possibility of class actions in the US and that would inevitably reverberate globally. Uber, Lyft and apps such as Kabbee, Hailo, GetTaxi, Addison Lee and Green Tomato as well as other “sharing economy” service providers operate on very tight margins and these additional costs would potentially shoot a hole right through their business model.
The Uber and Lyft test cases on employment status in the US will not have a direct impact on similar businesses in the UK because the legal systems are very different. In fact Uber and Lyft might use the opportunity to build up their on demand businesses in less regulated economies including the UK and the rest of Europe.
The legal tests for employee versus independent contractor status are very different in the UK and depend on who is considering issue – the courts and employment tribunals or the tax authorities/HMRC. In the UK, the focus is on a number of factors but really boils down how the risk is shared and how much control the organisation has over how the individuals work.
Uber makes very clear on its website that its drivers are self-employed and are viewed as independent contractors. The drivers supply their own cars, pay their own fuel and running costs and only work when they want to. Uber operates strict rules about standards and conducts checks on all its drivers (though the robustness of these checks is currently under investigation by Transport for London). That would put them very firmly in the independent contractor camp over here.
In the UK most taxi drivers are self-employed and the only industry which has more self-employed contractors is the construction and building industry. Their margins are also tight and many could not operate if they were forced to pay full employment costs.
In some cases the cab company will exert a lot of control over the way the drivers work and how and what they are paid as well as the type of cars they drive and the branding on those cars. These companies face regular challenges to the employment status of their drivers and that is a trend we are now seeing carried over into the [UK-based] ride hailing app companies.
On demand services, which have flourished in the global economic crisis, rely heavily on low operating costs and having a flexible workforce of independent contractors. They will either need to adjust their business model to comply with local legal requirements or ensure their contractual relationships with their workers can withstand legal challenges.
Questions? Contact Helga Breen