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The end of the road?

Heralded as a disruptor since its beginnings in 2009, today Uber is valued at more than $60 billion and operates in 68 countries. However, in many respects, Uber must feel like a city under siege, fending off attacks from rivals such as Didi Chuxing in China, violent protests across France and numerous claims from drivers for basic employment rights across the US and other countries, most recently, the UK.

As Roderick Smyth wrote last week [1] in The Staffing Stream, a UK tribunal has ruled that two “test” claimants — people who brought claims against Uber on behalf of the 40,000 drivers estimated to be operating in the UK — were in fact “workers.” The claims aimed to establish the drivers’ entitlement to be paid at least the minimum national living wage of £7.20 per hour; to receive payment for holidays; and to be protected against detrimental action for whistleblowing.

On the face of it, the ruling came from the lowest tribunal and therefore does not create a precedent. However, the impact could be felt far and wide, as the judgment provides a damning indictment of the claim that Uber is a “technology company” rather than a provider of transportation services. Referring to Uber’s documentation as containing “fictions” and “twisted language” that “bears no relation to the real dealings and relationships between the parties,” the employment judge listed 11 reasons why, in the tribunal’s judgment, drivers working for Uber had a “worker” contract.

For Uber’s UK operations, the ruling could have ramifications other than just honoring these legal rights. The potential implications are that Uber will be liable for the payment of their drivers’ tax and social security contributions, and if that be the case, also liable for drivers’ additional rights to paid maternity, paternity and adoption leave.

To understand this ruling, it is necessary to understand how English law categorizes those who are employed to provide services personally. But first, it should be pointed out that employment status for employment law rights and for the treatment of employment income for tax purposes can be different.

Employment status conundrum. Until 1997, English law only recognized two categories of employment status: employees and self-employed persons. Tax law and employment law developed in parallel, to determine whether an employer had a legal responsibility to withhold income tax and National Insurance Contributions from payments made to an individual employee; and to afford that individual rights, among other things, to a statutory period of notice of termination of the employment contract, and compensation for unfair dismissal and redundancy.

Temporary workers supplied to hirers by staffing firms (“agencies”) were a notable exception to this, as tax law passed as far back as the 1970s required agencies to treat temporary workers — supplied to a hirer to provide their services personally under the hirer’s supervision, direction or control — as employees for the payment of tax and National Insurance Contributions. Known as the “agency legislation,” this rule still exists in the form of sections 44-47 of the Income Taxes (Earnings and Pensions) Act 2003.

After 1997, when the UK government signed the UK up to the European Union’s Social Chapter, ushering in a raft of employment rights, UK employment law adopted a third category of worker’:

“An individual who has entered into or works under any contract, whether express or implied, written or oral, whereby the individual undertakes to do or perform personally any work or services for another party to the contract, whose status is not that of a client or customer of any business or profession carried on by the individual.”

In other words, the individual is not in business on their own account, or put another way, is not self-employed.

From 1998 onward, legislation including the Working Time Regulations, National Minimum Wage Act, Public Disclosure Act and many others have used the term “worker” to extend certain employment rights to a group of people providing their services personally to another, who are neither employees nor self-employed.

Not self-employed. The significance of this for Uber is the finding that the claimants are “workers,” which brings a legal judgment that their drivers are not self-employed. And if they are not self-employed, then for tax law purposes it must follow that they must be treated as employees.

It is not just income tax that Uber may well be liable for, but also the employers’ portion of National Insurance Contributions , which is 13.8% of the driver’s employment income. Business Insider UK [2] has reported a UK tax specialist, Jo Maugham, as estimating the bill that Uber could face in NICs alone, as £13 million each month – £156 million a year. In addition, workers who pay National Insurance Contributions are also entitled to statutory sick pay and statutory payments for maternity, paternity and adoption leave, all of which are funded by the employer, in some cases without government rebate.

Another potential liability arises in the form of Value Added Tax (VAT) if the taxpayer is Uber rather than the drivers. The threshold for charging VAT on services is £81,000, a sum that most drivers will not be earning in fares.

The ramifications of this decision are therefore much greater than the payment of the national minimum wage and holiday pay that the two claimants were seeking.

This would seem to describe the arrangement between Uber and its drivers, and therefore presents Uber with a much greater cost liability than simply the payment of the national minimum wage and holiday pay.

The most telling statement in the tribunal judgment was the comment of the employment judge that Uber “could have devised a business model not involving [Uber] employing drivers. We find only that the model which they chose fails to achieve that aim.”

End of the road? Is this the end of Uber’s claim that it is simply a “technology company?” Given the millions of dollars agreed to in settlements in the US to protect its claim, and the potential costs to pay taxes and social security contributions — not to mention paying out on drivers’ employment rights in the UK — it seems Uber has only two options: to accept, sooner or later, that it is a provider of transportation services; or to radically change its chosen business model to be a true facilitator, rather than a controller, of the drivers’ services.

However, Uber has managed to defend itself against many attacks in its short history to become one of the most successful companies in the world, diversifying and expanding along the way. So Uber may be temporarily down, but not out.

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