Uber’s defeat in the Supreme Court: A cautionary tale for tech companies with ambitions to upscale | Paul Jennings, Partner at Bates Wells

Dynamic technology platforms are the embodiment of the moto ‘move fast and break things’. Uber is an exemplar of this philosophy; it acquired a dominant market share in London at an incredible pace, however, at precisely the same time, it has faced a prolonged legal challenge which goes to the heart of its business model.

On Friday 19 February 2021, after a six year battle, the Supreme Court unanimously ruled that Uber had misclassified its drivers.

On one view, the case concerns something quite mundane – the law of employment status. In broad terms, employment law draws a distinction between three categories of individuals: employees, workers, and self-employed contractors. Employees enjoy a wide range of statutory protections. Workers are entitled to a more modest suite of basic rights, including the right to the national minimum wage and paid annual leave. Self employed contractors have no substantive protections under statuary employment law and are regarded as commercially autonomous and able to look after themselves.

This somewhat dry area of the law is, however, an enduring and critical focal point in the gig economy. Clearly, a business comprised exclusively of self-employed contractors enjoys a huge competitive advantage. It can rapidly flex to match demand, keep its costs-base low, and avoid much of the cost and bureaucracy of statutory compliance.

However, the difficulty with characterising a workforce as a mosaic of self-employed contractors (to borrow a phrase from the original ruling against Uber), is that it does not sit comfortably with a separate commercial imperative – namely, the need to provide a consistent service and the need to control the people delivering the service. Autonomy and control are – in legal and practical terms – antithetical.

The Supreme Court Judgment runs to nearly 50 pages; but the essence of the decision can be expressed simply. If you have a workforce that is economically dependent, and if you exercise a high degree of control, it is almost inevitable that you will have to observe a basic set of statutory obligations (including the duty to pay the National Minimum Wage and to provide paid rest breaks and holidays). If you misclassify your workforce, or a significant proportion of your workforce, you are sitting on a ticking bomb. Not only is this a contravention of the law, it has a host of unforeseen consequences which can range from tax penalties to competition law violations. Put simply, the status of your workforce is a foundational issue, and if you get it wrong – or if you consciously attempt to manipulate the reality of working dynamics within your organisation – the building blocks of your business are deeply compromised.

Deutsche Bank has estimated that (worse case) the potential adverse tax consequences of the Supreme Court’s decision against Uber on are in the region of $2.5 billion. This figure does not take into account the enormous costs associated with class actions, which will inevitably follow in the coming months. Despite Uber’s attempt to downplay the significance of the Judgment; the reality is that the implications for Uber are nothing short of profound.

Clearly Uber is not alone in seeking to cultivate a workforce comprised of self-employed individuals. The model is prevalent, spanning everything from food delivery companies to commercial couriers. Uber is however both a bellwether and a catalyst. Uber’s experience in the Supreme Court should be seen as a cautionary tale. In the light of this decision, and in anticipation of the litigation it will generate, businesses must look realistically at their operating models and assess the consequential risk.

Looking further ahead, an interesting question that remains unanswered is what bearing this Judgment will have on individuals who – at any point in time – work via multiple apps. At present, the practical reality seems to be that consistent and semi-exclusive engagement as between workers and platforms is optimal. If that picture fragments and people start to operate via a number of apps concurrently, the legal analysis becomes more intricate. As the gig economy evolves, it is very likely that the issue of ‘multi-apping’ will become an important focus.

Post Script: Paul Jennings successfully represented the lead Claimants in the Supreme Court.

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