Uber drivers must be treated as workers rather than self-employed, the UK's Supreme Court has ruled.
The decision could mean thousands of Uber drivers are set to be entitled to minimum wage and holiday pay.
The ruling could leave the ride-hailing app facing a hefty compensation bill, and have wider consequences for the gig economy.
Uber said the ruling centred on a small number of drivers and it had since made changes to its business.
In a long-running legal battle, Uber had appealed to the Supreme Court after losing three earlier rounds.
Uber's share price fell 1% on Wall Street's open as investors grappled with what impact the London ruling could have on the firm's business model.
It is being challenged by its drivers in multiple countries over whether they should be classed as workers or self-employed.
In the US, California voters passed a measure called Proposition 22 that will see freelance workers continue to be classified as independent contractors in November, overturning a landmark labour law passed in 2019.
Former Uber drivers James Farrar and Yaseen Aslam, who originally won an employment tribunal against the ride hailing app giant in October 2016, told the BBC they were "thrilled and relieved" by the ruling.
Uber appealed against the employment tribunal decision but the Employment Appeal Tribunal upheld the ruling in November 2017.
The company then took the case to the Court of Appeal, which upheld the ruling in December 2018.
The ruling on Friday was Uber's last appeal, as the Supreme Court is Britain's highest court, and it has the final say on legal matters.
Delivering his judgement, Lord Leggatt said that the Supreme Court unanimously dismissed Uber's appeal that it was an intermediary party and stated that drivers should be considered to be working not only when driving a passenger, but whenever logged in to the app.
The court considered several elements in its judgement:
- Uber set the fare which meant that they dictated how much drivers could earn
- Uber set the contract terms and drivers had no say in them
- Request for rides is constrained by Uber who can penalise drivers if they reject too many rides
- Uber monitors a driver's service through the star rating and has the capacity to terminate the relationship if after repeated warnings this does not improve
- Looking at these and other factors, the court determined that drivers were in a position of subordination to Uber where the only way they could increase their earnings would be to work longer hours.
Uber has long argued that it is a booking agent, which hires self-employed contractors that provide transport.
By not being classified as a transport provider, Uber is not currently paying 20% VAT on fares.
The Supreme Court ruled that Uber has to consider its drivers "workers" from the time they log on to the app, until they log off.
This is a key point because Uber drivers typically spend time waiting for people to book rides on the app.
Previously, the firm had said that if drivers were found to be workers, then it would only count the time during journeys when a passenger is in the car.
Mr Aslam, who claims Uber's practices forced him to leave the trade as he couldn't make ends meet, is considering becoming a driver for the app again. But he is upset that the ruling took so long.
Mr Farrar points out that with fares down 80% due to the pandemic, many drivers have been struggling financially and feel trapped in Uber's system.
"We're seeing many of our members earning £30 gross a day right now," he said, explaining that the self-employment grants issued by the government only cover 80% of a driver's profits, which isn't even enough to pay for their costs.
The company said that if it had to classify drivers as workers, it would "incur significant additional expenses" in compensating the drivers for things such as the minimum wage and overtime.
"Further, any such reclassification would require us to fundamentally change our business model, and consequently have an adverse effect on our business and financial condition," it added.
Uber also wrote in the filing that if Mr Farrar and Mr Aslam were to win their case, HM Revenue & Customs (HMRC) would then classify the firm as a transport provider, and Uber would need to pay VAT on fares.
HMRC and Uber are still in dispute about the firm's VAT liability.
Rachel Mathieson, senior associate at Bates Wells, which represented Mr Farrar and Mr Aslam, said her firm's position was that the ruling applies to all 90,000 drivers who have been active with Uber since and including 2016.
Dr Alex Wood, an Internet Institute research associate on the gig economy at the University of Oxford, disagrees and told the BBC that because the UK doesn't have a labour inspectorate, these "rules aren't enforced and it falls to workers to bring subsequent tribunals".
This means that "in reality, it's very easy for Uber to just ignore this until more tribunals come for the remaining 40,000 [drivers]".
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