Uber and the Future of the Gig Economy

Just before Christmas the Court of Appeal held that Uber drivers were “workers” and entitled to the minimum wage and to receive paid leave. This decision follows the current “direction of travel” for those working in the gig economy and many other low-paid occupations where it is felt that the terms and conditions under which they work are unfair. A number of cases have held that where the written conditions governing the working relationship do not describe the true picture they can be set aside by a court. The high watermark of these cases was the decision of the Supreme Court in Autoclenz where individuals who worked in a car wash were held to be workers despite the fact that the contractual terms they had signed stated in terms (described as fictitious) that they were independent contractors.

In effect what happened in the Uber case was to apply the Autoclenz principles to reach a similar conclusion. While Uber maintained that passengers contracted individually with the drivers, the Court preferred the view that the contract made by the passenger was with Uber and that accordingly Uber had to retain the services of the drivers as workers to provide that service.

The Court

The judges included the Master of the Rolls and two highly experienced employment lawyers. Lord Justice Underhill is a former President of the Employment Appeal Tribunal and Lord Justice Bean, as well as having a highly regarded employment practice at the Bar, is the immediate-past Chairman of the Law Commission. It was, then, a very powerful Court. While the case will move on to the Supreme Court, these judgments repay study, especially by businesses that need to be able to determine whether those they retain have either employment or worker status.

The decision

Concerns appear daily in the newspapers that those working in the gig economy are exploited and underpaid. However, the situation has existed for many years in different industries that “casual” workers have been treated by the law as independent contractors when on a common-sense view they were employees. The law in this area is highly technical but the underlying incentive for the disputes is very simple; it is much cheaper to maintain a business using the services of independent contractors than either workers or employees. For example, the extra cost of having employees rather than independent contractors is some 13.8% in national insurance alone. This differential factor was highlighted in the Taylor review and has to be added to the additional cost of employment protection rights for employees, and paid leave and the minimum wage for workers and employees. Everyone will have their own view about the merits of this situation but this article is concerned only with the legal position. If the law is inadequate, as many believe it to be, then government should change the law. The extent to which even the very flexible common law can restrain unconscionable bargains is limited.

The most striking feature of this decision, however, is that the Court split. The Master of the Rolls and Lord Justice Bean held that the drivers were workers. Lord Justice Underhill held that the relationship of the passenger and the driver was that the passengers were contracting with the driver and not with Uber, which meant that the drivers could not be Uber’s workers. The written terms on which drivers were retained clearly described them as individual contractors. If the Court wanted to maintain they were workers, they had to demonstrate that those terms were artificial and did not reflect what was happening in fact. To a considerable degree the judges in the majority considered that the paperwork was a fiction and decided accordingly.Lord Justice Underhill, on the other hand, made a detailed analysis of all of the reasons put forward by the Employment Tribunal and relied upon by the majority in the Court of Appeal and gave cogent reasons why none of them were determinative. His view was that, whether or not the deal was fair, the relationship between passenger and driver was in fact the contractual relationship and not one between Uber and the passenger.

Lessons

The key factor that businesses have to take into account is the extent to which the paperwork they produce does or does not relate to what individuals actually do. There is no point in stating in that substitutes may be provided if in fact sanctions exist when that happens discouraging or preventing the use of a substitute. The same applies to saying that there is no obligation to work if individuals are punished in any way for their unavailability. The written terms have to be significantly in line with the understanding of those carrying out the job. Given the current climate, any deviation from this principle will result in a court deciding as the majority in this one did.