The Supreme Court’s judgment in Uber BV and others v Aslam and others (the Uber case) handed down on 21 February 2021 is likely to have wide-ranging implications for businesses, particularly those operating in the ‘gig economy’. The Supreme Court upheld the employment tribunal, Employment Appeal Tribunal and Court of Appeal decisions that, when the Uber drivers had the Uber app switched on and were ready and willing to accept passengers, they were ‘workers’.

The definition of a ‘worker’

The definition of a ‘worker’ includes employees as well as those who fall somewhere on the scale between an employee and a self-employed independent contractor. The concept of a worker was created by statute with the intention of offering a level of protection to individuals who do not necessarily fall within the definition of ‘employee’ (and who are therefore entitled to wide-ranging statutory protections) but whose roles place them in a position of vulnerability and subordination. For example, legislation affording rights to receive the national minimum wage, paid annual leave and whistle blower protection is intended to apply to workers as well as employees.

The term ‘worker’ is defined by section 230(3) of the Employment Rights Act 1996 to mean: ‘an individual who has entered into or works under (or, where the employment has ceased, worked under)

1. a contract of employment, or
2. any other contract, whether express or implied and (if it is express) whether oral or in writing, whereby the individual undertakes to do or perform personally any work or services for another party to the contract whose status is not by virtue of the contract that of a client or customer of any profession or business undertaking carried on by the individual’.

Uber’s agency argument

Uber sought to rely on written agreements between both it and its drivers, and between it and its passengers, to argue that it acted only as an electronic service provider and as the driver’s agent. This argument ultimately failed because there was no agreement in place by which the drivers appointed Uber to act as agent and there was no conduct through which such an appointment could be implied. The Supreme Court also noted that the taxi licensing regime in the UK would likely preclude Uber (the licence holder) from contracting with passengers solely as agent. The Supreme Court did not need to reach a conclusion on this point given that it had already established the absence of agency appointment.

Principles of interpretation

A key aspect of the Supreme Court’s judgment, and the part likely to be of most interest to other employers, was its extension of the principle from the 2011 Supreme Court case, Autoclenz Ltd v Belcher (Autoclenz). The Court in Autoclenz ruled that, in an employment context, where the written terms of the parties’ agreement do not reflect the reality of the relationship then the ordinary principles of contractual interpretation should not apply and instead the courts should consider the true agreement in place between the parties.

The Supreme Court in Uber went further. It determined that the starting point should not be the agreement between the parties but the legislation itself, which was drafted with the intention of conferring rights on workers. In the Uber case, the relevant legislation was the National Minimum Wage Act 1998, the Working Time Regulations 1998 and the Employment Rights Act 1996. Whilst it is true that the relationship between employer and worker is one of unequal bargaining power, this can also be the case in commercial relationships. The Supreme Court in Uber therefore reasoned that the rationale behind the Court’s decision to stray from ordinary contractual principles of interpretation in the Autoclenz case must have been to give effect to the legislative intention behind the relevant statutes, i.e. to grant rights to workers.

Contracting out provisions

The Uber decision confirms that clauses purporting to exclude or limit statutory rights conferred on workers will be void. Whilst it was previously understood that express clauses of this nature (e.g. a clause stating that all or part of a statute will not apply to a contract) would be void, the Uber judgment goes further by ruling that provisions which impliedly deprive workers of their statutory rights will also be void. For example, a clause in the services agreement between Uber and its drivers stating that Uber will not be deemed to direct or control drivers was found to be void as its object was to deny the drivers of their statutory rights.

New test: degree of control

In order to determine whether someone does fall within the statutory definition of a ‘worker’ there are three key elements that must exist in the relationship:

1. a contract between an individual and another party under which the individual agrees to work or provide services to the other party;
2. an obligation for the individual to perform the work or services personally; and
3. the other party to the contract cannot be a client or customer of the individual.

Personal service was not in issue in this case, as access to the Uber app is personal to each driver; the driver IDs required to log into the app are non-transferable and may not be shared. The Court of Appeal recently heard a case on this personal service point in the case of Deliveroo v Independent Workers Union of Great Britain (IWGB), on which we await its judgment. It was the first element of the relationship that was in question in the present case: were the drivers working for and under contracts with Uber or providing services directly to users of the Uber app? To prove its finding that drivers were working for and providing services to Uber, the Supreme Court highlighted five aspects of the employment tribunal’s findings of fact in relation to the degree of control exercised by Uber over its drivers:

1. Uber decides driver remuneration; drivers cannot charge passengers a higher fare than Uber dictates and Uber sets the service fee which it deducts from fares paid to drivers;
2. the contractual terms on which drivers provide services to passengers are set by Uber;
3. Uber controls drivers’ freedom to accept or reject passengers; it does not inform drivers of a passenger’s destination until it picks them up and if a driver rejects too many trips then they will be penalised by being locked out of the app for ten minutes;
4. the way that drivers deliver their services is controlled by Uber to a significant extent. Drivers who do not follow the route set by Uber risk receiving a reduced payment for the trip if the customer complains. Customer ratings of drivers are also used by Uber as a performance management tool and can ultimately result in the driver’s contract being terminated; and
5. Uber restricts communication between drivers and passengers so that neither party is provided with the other’s contact details.

Examining the degree of control exercised by putative employers to determine worker status was stated by the Court to be imperative: ‘The greater the extent of such control, the stronger the case for classifying the individual as a “worker” who is employed under a “worker’s contract”’. This approach was first recommended in the independent Taylor Review of Modern Working Practices published by the UK Government in July 2017; legislation to outline what ‘control’ means was recommended, so perhaps this will now be forthcoming in the long-awaited employment bill.

Uber’s reaction

Uber initially sought to argue that the decision would only be applicable to a small minority of its drivers engaged under specific terms and conditions, but on 16 March 2021 Uber announced that it would be re-classifying its drivers as workers. Whilst this will be a welcome announcement to its drivers, the move still fails to implement the full Supreme Court ruling. Uber is only committing to grant drivers worker rights for the time period between picking up and dropping off a passenger, rather than for the duration of time that the driver is logged on to the Uber app in accordance with the judgment.

Practical considerations for business

The impact of the decision and Uber’s recent announcement is likely to have ramifications for all employers (or potential employers) who purport to engage individuals on a self-employed basis, particularly those operating in the so-called ‘gig economy’, and those with platform-based business models similar to Uber. Courts around the world have reached similar conclusions acknowledging the legal rights of ‘gig economy’ workers in cases brought against employers, such as taxi firm Lyft in California, and Uber Eats and Deliveroo in Italy. There is therefore increasing pressure on those operating in the ‘gig economy’ to grant workers the rights they are entitled to.

Businesses need to think carefully about how they engage individuals to provide services sooner rather than later. Workers will certainly be more alert to their rights following the wide publication and interest in the Uber case, which is likely to increase the risk of claims, particularly in the short-term. It is clear that the manipulation of contractual terms with the intention of depriving individuals of their statutory rights will not be tolerated by the courts. If a business wants to retain control over how individuals that it engages provide services then it will have to accept its obligations to pay the national minimum wage and holiday pay (and potentially raise prices as a consequence). Alternatively, a business could opt to give the individuals that it engages more autonomy so that they can be said to be genuinely self-employed.

Businesses should also carry out a review of their contracts with purported independent contractors to assess whether they contain any provisions drafted with the intention of depriving the individuals of their statutory rights. Clauses requiring an individual to indemnify the other party for the financial consequences of them being deemed to be a worker will likely be void. Similarly, clauses granting individuals the right to send a substitute in their place (in order to avoid a finding of personal service) which are not exercised in reality may also be void. These types of clauses will not be viewed favourably by the courts and are therefore best avoided.

The potential impact on Uber’s tax position

Whilst this is an employment decision, it throws up some thorny tax issues too. It gives little clarity on the status of Uber drivers for tax purposes, and therefore whether Uber has been correctly accounting (or rather, not accounting) for any PAYE and NICs. This is because the tax rules do not recognise ‘worker’ as a status. The only tax categories are ‘employee’ or ‘self-employed’.  Following the Supreme Court’s decision, particularly its conclusions around the extent to which Uber ‘controls’ drivers, HMRC may well be considering whether self-employed really is the correct status of drivers for tax purposes and therefore whether Uber can be pursued for any PAYE or NICs liabilities. The extent of any such challenge remains to be seen.

The question of Uber’s VAT liability is also currently up in the air. It all comes down to whether Uber is directly supplying transport services to passengers. If that is the case then it should have been charging VAT on the entire journey fee, rather than just the commission that the drivers pay to Uber. It has been reported that HMRC has raised protective VAT assessments but the detail and timeline is unclear.

Whilst the Supreme Court’s decision does not directly affect Uber’s tax position, it will be interesting to see if it will have knock-on tax implications for Uber and other platform providers.