Due to the development in information technology, meeting the needs of our daily lives is becoming increasingly digitalized. The new technology drastically changes how we perform and receive services. Among other things, the widespread availability of sophisticated technologies through ordinary smartphones and computers allow small businesses and individuals to compete with large companies through network platforms. This if often seen in the peer-to-peer networks where ordinary people offer services on-demand for other network users.
However, the new ways of providing traditional services does not easily fit into traditional legal concepts. This swift day-to-day change often entails legal challenges as legislators cannot keep pace and judges are left with having to reason based on law that is made without the new services and technologies in mind. One of the many legal challenges is regarding employment.
Challenges in the relationship between workers and employing entities are well known. The on-demand peer-to-peer networks does however obscure and complicate the traditional employment relationships as work becomes very flexible and is facilitated through an intermediary. Workers risk finding themselves in a grey area between being an employee or an independent contractor. The issue of categorizing employment in these cases is well described by Keith Cunningham-Parmeter, professor of Law at Stanford University:
“At first glance, the classification of on-demand workers as independent contractors might seem perfectly appropriate given that workers in the industry can accept gigs whenever they choose. But the significant influence that on-demand firms have working conditions reflects a more traditional employer-employee dynamic.”
This article will discuss this grey area between independent contractor and employees. The main focus will be case no. 2202550/2015 of the British Employment Tribunals between the “ridesharing” service Uber and some of its current and former drivers (“the Uber-case”). The case highlights the some of the difficulties in categorizing employment relationships. This article will only focus on the employments issues. Other legal problems associated with Uber, such as transportation regulations, will not be discussed.
To understand how Uber, a widely popular smartphone app, can be the centre of an employment dispute it is important to know the basic concept and legal construction. All the below stated is referred from the British case.
Uber’s main concept is simple: Customers can order trips with their mobile phone hiring private drivers who are also connected with their mobile phone. After the customer has entered the desired destination and departure point, the app finds the nearest driver and calculates a fare estimate. Drivers can then accept the request and transport the customer accordingly.
At the end of each trip, the App calculates a final price for the trip which is then paid to Uber through the App. Uber keeps 20-25 % of the calculated price while the driver receives the rest of the price paid. In case the driver agrees to a lower price than calculated, the decrease is only affecting the driver’s share of the fare. Uber pays the drivers their share of the fares on a weekly basis.
To the customer, the Uber-concept resembles in its form the usual taxi-industry while just easing the process of ordering and planning a trip. For the drivers, on the other hand, the Uber-concept differs greatly from the regular taxi-industry in terms of work flexibility, payment and control.
Uber-drivers (“Partners”) agree to drive for customers through Uber on the terms set forth by Uber’s driver contracts (“Partner Terms”). The drivers have the flexibility to drive whenever they want to just by turning on the app and accepting trips. The amount of time spend working for Uber is voluntarily decided upon by each driver, though there is a certain minimum.
In the Partner Terms, Uber defines the drivers as individual contractors (“nothing in the Agreement shall create an employment relationship between Uber and the [driver]”) who are employed individually by the customers. Drivers are not given usual employee rights and benefits by Uber, such as a salary equivalent to the legal minimum wage, insurance or sick pay.
Initially, this qualification can seem straight forward when the drivers just offer to transport people in their private car for a few hours a week on the side of their other jobs. As it has turned out though drivers often spend many hours each week driving for Uber – some even having it as their only job. This, combined with being considered and payed as an individual contractor, represents an obvious employment issue.
The Uber-case was brought forth by current and former drivers of Uber who claimed that they were employed by Uber, in contrary to the Partner Terms. More specifically, they claimed to be or having been ‘workers’ (as defined in the Employment Rights Act, the National Minimum Wage Act and the Working Times Regulations) entitling them to minimum wage and paid leave.
In response Uber upheld the Partner Terms and claimed that the drivers were not employed by Uber and, therefore, not entitled to minimum wage or paid leave. Their main argument was that Uber only acted as an intermediary providing “leads” between the drivers and the customers. This argument was backed by the claim that Uber is not transportation company and that the transportation contract only existed between the driver and the customer. The transaction between drivers and Uber was similar to a license agreement allowing drivers access to Uber.
The Tribunal decided in favour of the claimants determining that the drivers could be considered as “workers”. Therefore, there was an employment relationship between Uber and its drivers despite the Partner Terms’ wording. In the following the reasoning of the Tribunal will be referred and discussed.
Initially, the Tribunal argued that the claimed binding agreement between the driver and the customer was a fiction. The Tribunal found that the drivers provided their personal work for Uber pursuant to a contract, and that they are recruited and retained by Uber to enable it to operate its transportation business.
Uber was found to be a transportation company – not just a technology company – and was contracting with the customers. This was backed by Uber’s own marketing and a “simple common sense” perception of Uber’s function. It was central that drivers had little influence on essential parts of the transportation agreement as both destination and identity of the customer was unknown to the driver at the time of contracting and, also, as the price and route was de facto determined by a third person (Uber). Additionally, it was unreal to regard Uber as working for the drivers.
On basis of the case facts, the actual relationship between the drivers and Uber could be subsumed as a limb (b)-contract, though the drivers could only be characterised as working when the app was turned on allowing Uber to send them trip requests.
I would argue that a common characteristic of the facts, emphasized by the Tribunal in its subsumption, is Uber’s control over the service. This control regarded the customer relations, execution of the service and the drivers’ access to the Uber-app (i.e. access to perform the service). Though the Uber concept is very flexible and seemingly performed independently by the drivers these control aspects point towards an ordinary employment relationship.
Starting with the control over the drivers’ access, Uber has vast powers that are easily compared to those of an employer. Drivers must go through an interview and be accepted by Uber in order to perform services through the app. During their work for Uber, drivers are subject to a direct and indirect performance control which may have consequences for their onwards access to the app. Also, Uber has the right to unilaterally amend drivers’ terms.
Uber sets forth specific requirements for which cars to use as well as advisory instructions for the drivers on certain behaviour towards customers. Some types of behaviour are regarded by Uber as breaches of the Partner Terms and can ultimately lead to drivers being excluded from Uber. This included not accepting trips or contacting passengers after a trip, when not in the context of returning lost property. The exclusion is not unlike an employer’s power to dismiss.
The execution of the trips is also controlled, or at least greatly influenced, by Uber. First of all, the App will generate a default route for the drivers to use. The route is not mandatory for driver to follow but will be presumptively correct in case of a complaint from a passenger over an inefficient route where the driver deviated from Uber’s route. At the end of trips, the app calculates a maximum fare which the drivers can only lower at their own expense. Overall Uber’s routes and fares were to be followed by the drivers as a general rule.
As for customer relations, only Uber has information on the customers as drivers will only know the customers’ first names and the destinations of pick-up and delivery. In addition, only Uber can handle customers’ complaints and will often do so without hearing the drivers. From time to time Uber will unilaterally reduce the fare if a customer complains. Also, Uber bears the risk of loss in case of customer fraud.
Based on the described facts Uber was found to exercise control and functions that normally would be considered those of an employer. Thus, Uber was employing the drivers.
This reasoning and decision falls in line with another employment case against Uber from California in which drivers were presumptively found to be employees of Uber. The main case points were that drivers performed their service to Uber while Uber would exercise substantial control over them and, therefore, Uber was in fact a transportation company employing drivers. The qualification was presumptive as the proper qualification would depend on the specific facts of each case.
A broader perspective: securing workers or sabotaging innovation
Considering the facts and the potential opposite outcome, the decision seems fair. If Uber was found only to be a digital intermediary to which the drivers would pay a service fee for each lead provided, drivers would be contracting directly with the customers. Such a contract between driver and customer seems illusive when essential transactions of payment and information are made between Uber and the customer without the involvement of the drivers.
The (“license”) argument, arguing that Uber only facilitated drivers’ access to a market platform, is not completely invalid though. It is, however, rather hollow when Uber sets forth specific non-recommendatory instructions for drivers as well as receives the fares directly from the customers. It is possible that the outcome would have been different if the drivers had more freedom to perform the service and a more direct connection with the customers.
As other companies offer similar peer-to-peer transportation or “ridesharing” services, the decision might also have impact on these companies. This said, the court quite clearly did not exclude that similar concepts are possible without necessarily employing drivers:
“none of our reasoning should be taken as doubting that [Uber] could have devised a business model not involving them employing drivers. We find that the model which they chose fails to achieve that aim”
Also, one need to keep in mind that factual circumstances play a major part in the subsumption of an employment relationship; each situation must be determined concretely on the basis of specific circumstances and characteristics of the relationship between the facilitator and the service-provider. The decision does give some guidance on how this subsumption is made, but circumstances for similar concepts may differ greatly. Though being based on different a legal basis, the Tribunal’s reasoning could be useful in similar cases in other countries as well.
At the very least, this case means that companies like Uber are forced to reconsider their exact business model as redefining employment in their contracts does not establish a legal exemption from workers’ rights. Though this is nothing new, it is certain that some courts see themselves fit to set aside written agreements in order to uphold the rights of the less strong contract parts even when contractual and employment relationships become increasingly complex and opaque due to new technology.
The Tribunal’s decision touches upon a concept that exceeds just the “ridesharing” business model, and therefore it might even have influence on other services that are based on the concept of on-demand peer-to-peer networks.
A comparison can be made to the food delivery service-app Deliveroo as it also serves as an “intermediary” between the demand of a certain service (getting food from restaurant to the customer) and the supply of the service (the deliverers). The business model is as simple as Ubers’: Through an app, Deliveroo facilitates the contact between customers, restaurants and individuals who can deliver the restaurants’ food. As seen with Uber, Deliveroo-deliverers are also now protesting for workers’ rights and benefits which Deliveroo fails to attribute. The Tribunal’s reasoning in the Uber-case could maybe be extended to this business model. A sufficient analysis of the Deliveroo-situation would be outside the scope this article.
As indicated, Uber is not a unique case. It is a symptom of something larger: disruption and the rise of the ‘gig’ economy (on-demand working), fuelled by the technologic progress. This progress allows us to use resources smarter and more efficiently as it can pair supply and demand on more levels than the ordinary market of larger companies.
Most people would probably argue that a more efficient use of resources is preferable both economically and environmentally. The disagreement arises when determining who gets the advantages and disadvantages of the efficacy. In the case of Uber, customers and Uber benefit from the business model as fares are lower and Uber saves money on drivers. The latter is quite clearly a disadvantage for drivers and the lower fares means that normal transportation services, that ensure workers’ rights, are being outcompeted.
Many services in the gig economy face this balancing of interests when services are performed in the grey area between employment and contracting between individual contractors. The core of the problem is figuring out what triggers the need for workers’ rights. As new technology allows work to be done more flexible and seemingly independent from a usual work platform it seems the “employment trigger” needs more precision.
In the end drawing the line for workers’ rights is a political question that is best answered through clearer legislation. Even though courts reason to the best of their ability and eventually might ensure workers’ protection when needed, having clear and precise employment regulation is preferable both to employers and employees. The development in technology does indeed call for legislation to ensure that workers’ rights are enforced when needed without unnecessarily inhibiting the benefits of the new technology.
 Boston University Law Review, vol. 96, s. 1686.
 The central provision was ERA s230 (3)(b) regarding so-called “limb (b) contracts”; employment contracts that are not explicitly defined as employment contracts.
 The United States District Court for the Northern District of California: Case no. C-13-3826 EMC, O’Connor v. Uber Technologies Inc. The case was also cited in the British case.