In the so-called "gig-economy", is Uber a "facilitator" rather than an employer?

It’s said that all publicity is good publicity, but the recent case against Uber ‒ where drivers claim they should be treated as employees of the company ‒ is one that everybody, including contractor accountants such as DNS (and no doubt HMRC), will be watching closely. It is a case that should concern contractors and freelancers because the outcome will likely affect future IR35 (disguised employment and intermediaries’ legislation) investigations, at least in terms of how the issue of “mutuality” and “control” are determined.

Employment status Freelancers and contractors know the importance of protecting their freelance/contractor status in relation to recent intermediary legislation, but the Uber case highlights the opaqueness of the law when it comes to employment status. In order to establish the existence of an employment relationship there are three tests:

• The individual must show that s/he is required to perform the service in person;
• Show that there is ‘mutuality of obligation;
• Show that the employer controls the way they do the job.

Control Determining control is not straightforward, but in relation to the Uber drivers’ case, the fact remains that if the employer can control what the worker does, then the worker is likely to be an employee, not a contractor or freelancer. However, as most contractual relationships involve some degree of control this is a sticky area.

Mutuality Showing “mutuality” is also difficult. Uber drivers will need to prove that both sides have to commit to do something, but as mutual commitment is part of any legally binding contract, the question for Uber drivers is one of how much commitment. For example, is it acceptable for the employer to not offer work and can the worker turn down work that is offered?

Uber is not an employer ‒ it is only a facilitator Uber allows users to book and pay for a cab through a smartphone app. The model is used by around two million Londoners as well as users in 351 other cities and in 64 countries. To facilitate its operations, Uber has over 1.1 million active “driver-partners”. In financial terms, this adds up to the world’s most valuable start-up: Uber is valued at $50 billion in 2016.

The “Uber view” of what is termed employment and what constitutes self-employment seems contrary to the view of many experts in employment law, who argue that Uber drivers are at least “workers”, if not employees, under UK law. If workers, therefore, they should be entitled to aspects of employment legislation, such as the minimum wage, sickness pay, holiday pay, as well as being protected from unlawful deductions from their pay.

Technology However, Uber separates itself from the spiky issue of employment or workers’ rights by arguing that it is a technology company. It says it neither provides a transport service to customers nor employs any drivers. Uber says it only “facilitates” the process of putting customers in touch with drivers through its app, which allows all its drivers to be independent self-employed “driver-partners”. A spokesperson from the firm of solicitors Leigh Day, representing the two Uber drivers who have brought the recent test case said it “hinged on two things: the nature of Uber’s business and the control it had over drivers”.

According to another legal professional, the “real battleground is the extent to which they [the drivers] are really in business on their own account . . . . The law says that if you are an employee, you have to deliver a personal service; you have to turn up and do the work yourself. If you’re running a business [as a freelance or contractor], you can send someone else [i.e. the right to substitution] … [but] the idea that a courier would have other people to send is fanciful.”

Uber is racking up a legal track record … Uber has already successfully argued against London Taxis (TfL) over its status, insisting that its app was not a meter and therefore did not contravene the law on licensed taxis and for-hire vehicles.

In the United States, the California Labor Commissioner’s Office ruled in June that an Uber driver should be classified as an employee rather than an independent contractor, though the company is appealing.

Currently in the UK, the GMB trade union is supporting a claim by Uber drivers that they should be paid the national minimum wage and benefit from statutory holidays. Although the basic principles of employment law are broadly similar in both countries, a significant difference is that the UK provides an intermediate status of “worker”, where not all employment rights are assured. The status “worker” is what the GMB is seeking on behalf of its Uber driver members.

Status of driver-partners or employees, is this a question of control? Whether Uber drivers can be considered workers or whether they are “driver-partners” instead, and as Uber argues, and therefore, self-employed, seems to boil down to how much control Uber exerts over them. Uber does not exert control it claims, as the Uber app stands between driver and customer and so the company itself is only the facilitator.

Employment lawyers are having none of it, however: “There are many ways in which it acts not as a partner but as an employer,” they argue, and these include:

• The way in which it controls drivers;
• How fares are determined;
• How routes are set;
• The appraisal system through the user ratings, which means that if a driver falls below a certain rating they are “terminated” from the system;
• Determining who picks up customers: drivers are told not to turn down customers on the app; if they do decline a job, then they can be terminated from the system completely.

So is this a legal test case hinging on technology and control? This is the first time that Uber will have faced legal action in the UK over whether their drivers are workers or self-employed driver-partners. The two test cases will determine a further seventeen claims against the firm, which are being brought by law firm Leigh Day on behalf of the GMB union.

How might the Uber case affect contractors and freelancers in the UK? It is easy to see how the outcome of this case will inform future legislation on intermediaries, the question of control being central to this argument. More salient, especially post-Brexit is how UK employment law will try to re-define the distinction between freelancer/contractor, worker, and employee.

Justin Bowden, national secretary of the GMB union, told the BBC: “The issue here is not about taking away the flexibility… but the high degree of control that Uber exercises over their drivers …. You either have employment laws that people have to follow or you don’t.”

A new “gig economy” Given that drawing a clearer line around what is a contractor, a freelancer, a worker, and an employee is bound to have an affect on how intermediaries’ legislation and IR35 evolve, and the outcome of future cases over this issue, all eyes will be on the case and the precedence it may set.

On the business front, some pundits argue that Uber is heralding the age of the new business model to support the “gig economy”, or on-demand, freelance, or the sharing economy. Changing how businesses commission and pay for services, expertise, and labour could, some analysts suggest, cut employer’s overheads by 30%. It seems that the traditional model of “business” and “employer” is morphing into something new; it is easy to imagine more service providers putting an app between their business’s labour needs and the services they provide clients.

Conclusion In legal circles in the UK, apparently, there is a saying: “If it looks like an employment relationship, then it probably is”. The Uber case is likely to test that assertion. Has Uber introduced a new business model centred on its app that calls for a redefinition of the relationship between employer and worker in the UK?

Following a report published by Uber in January, its head of economic research claimed that Uber facilitates workers who choose to provide car rides using the Uber platform. He said that what they most definitely are not are Uber employees: “The report helps to detail how much these part-time contractors value their flexibility, and ability to make a living, while not performing duties as an employee.”

In the end, Uber needs to show that technology apportions work to driver-partners. It needs to show that the app simply facilitates the relationship between customer and worker, that drivers are free to refuse or accept work via the app and do other work alongside driving (bearing in mind that having several contracts is central to being a freelancer or contractor). If it can do that, then Uber could win the test case. However, if it is found that although the app facilitates the relationship, Uber itself hold employers’ control over its workers/employees, driver-partners, call them what you will, then Uber could find it has to fall into line and accept the redefinition of their “driver-partners” as “driver-workers”, providing them with all the protection that the law offers “workers” in the UK.

It is an interesting case and we will keep you posted . . .

About the author

Sumit Agarwal
Sumit Agarwal (ACMA ACA India), the Managing partner of dns accountants is a highly respected accountant with expertise in helping owner-managed businesses.