What the Uber ruling means for start-ups in the gig economy

On Friday, the GMB Union ruled Uber drivers are NOT self-employed. Employment solicitor Steven Eckett discusses the implications of the landmark case...

The Employment Tribunal has at last confirmed that Uber taxi drivers are not self-employed, as the company has always claimed, but are in fact workers.

This means that, as workers, drivers are entitled to an array of basic employment rights such as the right to be paid the national living wage, the right to join a company pension scheme and the right to statutory holiday pay and rest breaks.

Drivers could also be eligible for compensation for backdated holiday pay and arrears of the national living and minimum wage.

The case against Uber

The drivers argued that they had to work long hours and accept jobs from Uber, and that there would be repercussions if they cancelled a pick up. This meant that Uber was effectively controlling the drivers who did not have the authority to come and go as they pleased, or to work elsewhere as truly self-employed contractors.

Uber, on the other hand, argued that its drivers were self-employed and that the majority wanted to enjoy the freedom and flexibility of being able to drive and work when and where they want.

What the decision means for businesses in the ‘gig’ economy

The decision is ground breaking. It will not only impact Uber drivers but all workers that are are part of ‘the gig’ economy.

The ‘gig economy’ references businesses that operate by work being contracted out on a freelance basis to fulfill short term projects; businesses in the ‘gig’ economy often use technology such as mobile apps to connect workers with the end user.

Therefore, start-up businesses such as Deliveroo and those businesses who hire out contractors are likely to be affected by the Tribunal’s decision.

Uber and start-ups operating with similar business models will now have to put in place mechanisms to ensure that their workers receive the basic employment rights that they are entitled to. This may mean having a proper payroll systems to ensure that pay is in line with minimum legal requirements and that workers can be placed into a qualifying pension scheme; now mandatory for almost all businesses in the UK who employ staff.

The downside is that the increased costs are highly likely to be passed on to the consumer, and therefore the cost of Uber fares will not be as competitive.  Another possibility is that Uber might increase the commissions that it takes from each fare so workers receive less, although clearly pay must not fall below the national living/minimum wage requirements.

Interestingly HMRC, said to be suspicious of the fact that businesses in the Gig economy are cutting corners to deny workers their basic employment rights, is setting up a new unit – the ‘employment status and intermediaries team’ to look into these practices.

The concern is that if Uber drivers -and those in similar industries – are workers then income tax and Employer and Employee national insurance should also be paid and not avoided.

It is expected that there will be many more challenges from workers in the Gig industry who will be encouraged to demand basic workers’ rights. However, itt cannot of course be guaranteed that every challenge will succeed as it depends on individual arrangements and practices.

Concerned by the ruling? This is the action your business should take:

Businesses concerned by the ruling should seek legal advice on their recruitment policies and procedures to ensure compliance with the law. You should issue written terms and conditions to workers clarifying pay rates, hours of work, role and responsibilities, sickness provisions, holiday entitlement and health and safety and equal opportunity policies.

Don’t think about getting round the law either: It’s no good just having a succession of fixed term contracts as, after the fourth renewal of a fixed term contract, it will be deemed permanent.

Even though Uber has announced that it is appealing the Tribunal’s decision, you shouldn’t delay in taking action if you operate in the gig economy.

Whilst there wouldn’t be complete certainty on whether gig companies will be bound by the court’s ruling until all appeals have been exhausted, you should do all you can to protect your business from suffering a similar fate to Uber!

Steven Eckett is an employment solicitor at Gardner Leader Solicitors.

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