The Supreme Court rules that Uber drivers are 'workers': what does this mean for 'worker' rights?
Modern business and working models have changed the face of the employment landscape.
"Employment status is a complex and wide ranging subject that many have said has no real solution - and that if we did manage to "solve it", we should immediately move on to world peace as we'd clearly be on a roll."
John Whiting OBE, Tax Director, Office of Tax Simplification, March 2015
On 19 February 2021, the Supreme Court ruled that Uber drivers are 'workers' for the purpose of rights under the Employment Rights Act 1996, the Working Time Regulations 1998 and the National Minimum Wage Act 1998. But what does this mean for 'worker' rights? Are we any closer to moving on to world peace?
Here, our employment law experts take a look at this important Supreme Court judgment on determining 'worker' status and how this fits with other recent cases.
The Employment status spectrum
Employment protection legislation seeks to distinguish between dependent and independent labour. The intention is to exclude from protection self-employed entrepreneurs and professionals whose relationship with the 'employer' is in reality a commercial relationship between two businesses.
In broad terms, there are three main categories of employment status: employees, workers, and the self-employed. The rights and obligations in relation to each category of individual flow from their employment status.
At one end of the employment status spectrum are 'employees' who are afforded the greatest level of protection. Rights that apply only to 'employees', include the right to claim:
- unfair dismissal;
- statutory notice periods;
- redundancy pay;
- the rights to maternity/paternity/parental leave; and
- the right to request flexible working.
At the other end of the spectrum are the self-employed, who are not entitled to any employment protection rights. Somewhere in the middle are 'workers,' who are entitled to some valuable employment rights including National Minimum Wage; holiday pay; discrimination and whistleblowing protection and don't forget pension auto-enrolment.
A point to note is that employment status for employment law purposes is different to employment status for tax purposes. As far as the taxman is concerned, you are either employed or self-employed. HMRC's binary view of employment status is of no help in identifying 'workers'. It has long been established that while HMRC takes a similar approach to the employment tribunals in determining employment status, they may well reach different conclusions on the same facts.
Statutory definitions of 'worker'
Under s230(3) of the Employment Rights Act 1996 (ERA), a 'worker' is defined as "as an individual who has entered into or works under:
- a contract of employment [limb a], or
- any other contract... 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 [limb b]".
So, while the definition of a worker includes an 'employee' (limb a), it is wider under limb b, which consists of two elements:
- the individual must be obliged to do the work personally (i.e. do it himself or herself); and
- the person for whom the work is done must not be a client or customer of a business being run by the individual (not in business on their own account, i.e. independent contractor).
This definition of 'worker' can be found in similar forms in the Working Time Regulations 1998, the National Minimum Wage Act 1998, the Part-time Workers (Prevention of Less Favourable Treatment) Regulations 2000 and the National Minimum Wage Act 2015.
The Uber case
Uber operates by means of a smartphone app, by which passengers can book rides from drivers who also have the app. The drivers own their own cars and are free to choose when they make themselves available to accept bookings. A number of Uber drivers brought claims against Uber including for failure to pay the national minimum wage, failure to provide paid annual leave and whistleblowing detriment. In order to bring any of these claims, the drivers had to be 'workers' within the meaning of the relevant legislation. Uber's position on the legal relations between it, the drivers and passengers was that it is a technology platform facilitating the provision of private hire vehicle (PHV) services. Uber maintains that it does not provide these services itself; rather, they are provided by the drivers under a contract concluded between driver and passenger for each journey, with Uber acting as agent.
Back in 2016, an employment tribunal rejected that position. In the tribunal's view, this characterisation of Uber's business model and the extensive contractual documentation created to support it did not accord with the reality of the working arrangements, which was that Uber relies on a pool of workers to provide a private hire vehicle service. The notion that Uber in London was a mosaic of 30,000 to 40,000 small businesses linked by a common platform was in the tribunal's words 'faintly ridiculous'.
Both the Employment Appeal Tribunal (EAT) and the Court of Appeal rejected an appeal by Uber, largely on the basis that much of the contractual documentation could be disregarded as it did not reflect the reality of the working relationship.
The Supreme Court now has also rejected Uber's appeal on a number of grounds.
No agency arrangement
Uber's main argument was that Uber BV acted solely as a technology provider with its subsidiary (Uber London in this case) acting as a booking agent for drivers who are approved by Uber London to use the Uber app. To support its case, Uber relied on the wording of its standard written contracts between Uber BV and drivers and between the Uber companies and passengers.
The Supreme Court concluded that there was no factual basis for asserting that Uber London acted as an agent for drivers. The correct inference was that Uber London contracts with passengers and engages drivers to carry out bookings for it.
The starting point is the legislation not the contract
The Supreme Court rejected the appeal on the basis that the contractual documentation did not reflect the reality of the agreed working relationship, but has gone much further to say the contractual documents were never the starting point in the first place. Whether or not an individual is a worker is primarily a question of statutory interpretation, not contractual interpretation. When you are deciding whether a particular individual is a worker or not, you do not start with the contract and see whether that is the sort of contract a worker would have. Instead, you start with the statutory provision - for example the right to the minimum wage - and see whether they fall into the statutory definition of a worker 'irrespective of what had been contractually agreed'.
The modern approach to statutory interpretation is to look at the purpose of a particular provision and to interpret it, so far as possible, in the way that best gives effect to that purpose. In this case, the purpose of the legislation is to give protection to vulnerable individuals who have little or no say over their pay and working conditions because they are in a "subordinate and dependent position in relation to a person or organisation who exercises control over their work".
In the Court's view, it would be inconsistent with the purpose of this legislation to treat the terms of a written contract as the starting point. To do so "would reinstate the mischief which the legislation was enacted to prevent". It is the very fact that the employer is in a position to dictate the terms of the contract that means that a statutory right to a minimum wage, a limit on working time or a right to paid annual leave is needed.
In addition, all the relevant statutes or statutory regulations conferring rights on workers contained prohibitions against contracting out. The Supreme Court has added that these statutory prohibitions apply to any provision in an agreement that can be seen, on an objective consideration of the facts, to have as its object excluding or limiting the operation of the legislation, whether by direct terms or indirectly by the terms of a contract.
In the case of the Uber drivers, the Court noted that drivers are in a position of subordination and dependency in relation to Uber such that they have little or no ability to improve their economic position through professional or entrepreneurial skill because:
- Uber dictates the rate of pay.
Uber sets the fare and drivers are not permitted to charge more than the fare calculated by the Uber app. Uber also fixes the amount of its own "service fee" and has sole discretion on whether to make a full or partial refund if a complaint is received.
- Uber dictates the contract terms.
Drivers are required to accept standard terms.
- Uber constrains drivers' freedom to choose when to work once logged in to the app.
Once a driver has logged onto the Uber app, a driver's choice about whether to accept requests for rides is constrained by Uber. Uber has an absolute discretion to accept or decline any request for a ride. It also controls information such as not telling the driver of the destination until the passenger is picked up (this last aspect has now been changed by Uber). Uber also monitors a driver's rate of acceptance and cancellation of trip requests, which can lead to drivers being logged off by Uber for 10 minutes (a penalty).
- Uber controls the way in which the service is delivered.
This is by use of a ratings system that may lead to warnings and eventual termination for the driver. There could also be a potential penalty if the driver does not follow Uber's recommended route.
- Uber restricts drivers' ability to communicate with passengers.
Uber restricts communications between passenger and driver to the minimum necessary to perform the particular trip and takes active steps to prevent drivers from establishing any relationship with a passenger capable of extending beyond an individual ride.
Businesses such as Uber operate a business model under which operatives are intended to appear to clients of the business as part of the business (and heavily marketed as such). But at the same time, the business itself seeks to maintain that, as between itself and its operatives, there is a legal relationship of client or customer and independent contractor, rather than employer and worker. The Supreme Court emphasised that the 'touchstone' of subordination and dependence was the degree of control exercised - the greater the control, the stronger the case for classifying the drivers as workers.
The working time question
As for what periods would count as 'working time' for the purposes of the Working Time Regulations 1998 (WTR) and the National Minimum Wage Act 1998 (NMW), the Court upheld the tribunal's conclusion that time spent by the claimants working for Uber was not limited (as Uber argued) to periods when they were actually driving passengers to their destinations. It also included any period when the driver was logged into the Uber app within the territory in which the driver was licensed to operate and was ready and willing to accept trips. This time constituted 'working time' for the purpose of the WTR and 'unmeasured work' for the purpose of the NMW.
Is the contract completely irrelevant?
The personal service factor
Remember that to establish worker status, the individual must be obliged under a contract to "perform personally any work or services for another party to the contract." Following Uber, you start by considering who the legislation intended to protect as 'workers'. You then look at all the facts, including the contract as well as the conduct of the parties, and decide whether a person is a worker. So the contract is not determinative, but it is still a relevant factor.
In the case of the Uber drivers, whether the drivers were working under a contract in which they agreed 'to personally provide work' was not in question. Due to the regulatory environment for private hire drivers, there was no substitution clause argument. The Uber judgment therefore sits alongside the Supreme Court judgement of June 2018 in Pimlico Plumbers v Smith in which the Supreme Court confirmed that a conditional (limited) or occasional power of delegation could be consistent with personal performance being the dominant purpose of the contract.
On the facts in the Pimlico Plumbers case, the Supreme Court confirmed that the 'dominant feature' of the contract remained personal performance on the part of the individual plumber, Mr Smith. The contract was clearly directed to performance by Mr Smith, with the right to substitute significantly limited to other Pimlico contracted plumbers. The Supreme Court agreed that the right to substitute another Pimlico contracted plumber did not cancel out Mr Smith's obligation of personal performance. Instead, it was merely a means of work distribution between contracted plumbers akin to the swapping of shifts within a workforce. See 'The Worker's Evolution: Who is a 'worker' in modern workplaces?' for more on this case.
The Supreme Court's judgment in Pimlico Plumbers significantly decreases the importance of the right of substitution as a determining factor. A substitution clause in and of itself does not magically prevent worker status. It is the 'dominant purpose' of the contract that is important. On the other hand, a genuine unfettered right to substitute is inconsistent with providing services personally and so may prevent an individual establishing 'worker' status.
In February 2021, the Court of Appeal considered a case concerning Deliveroo couriers seeking trade union recognition. While most claims to establish worker status have been brought via the well-trodden tribunal route, Deliveroo riders instead sought union recognition via the Central Arbitration Committee (CAC) for which you need to be a worker. In 2017, the CAC rejected the union recognition application on behalf of Deliveroo couriers as it held that the riders, known as 'roos', were self-employed. Crucially, the CAC concluded there was a genuine substitution clause that meant roos did not undertake to do personally any work. See 'Uber drivers are "workers" but Deliveroo riders are not - what's the difference?'
Impact of Uber?
It will be interesting to see how the Court of Appeal applies not only the 2018 Supreme Court judgment in Pimlico Plumbers ('dominant purpose'), but also the recent Uber judgment in the case of Deliveroo couriers, which of course came out after the hearing of the Deliveroo case. Will the Court of Appeal take the Uber judgment into consideration in a way that further reduces the impact of any contractual substitution clause? By starting with a purposive interpretation of the legislation, will an unfettered contractual substitution clause contained in an employer's standard contract still point away from personal service and therefore away from worker status? Can it be argued that the substitution clause should be disregarded because its main purpose is to exclude worker status? The Court of Appeal judgment is eagerly awaited, expected later in the year.
Where does this leave us?
Moving on to world peace? Not yet. The Supreme Court has now provided the starting point for determining worker status. But grey areas remain such as:
- How high is the level of control hurdle set? Do all standard term contracts mean the individual is in a "subordinate and dependent position in relation to a person or organisation who exercises control over their work?"
- What factors are required to establish that the dominant purpose of a contract is the provision of personal service? A substitution clause in and of itself does not magically prevent worker status, but where does the boundary lie?
As for Uber, each of the successful drivers now needs to evidence the hours worked as the case will be remitted to the Employment Tribunal. It also remains to be seen whether HMRC will look to take its own enforcement action against Uber in relation to NMW compliance.
In the December 2018 'Good Work Plan', the then Government committed to:
- reduce to an absolute minimum the differences between the employment status tests that govern entitlement to employment rights and tax liability; and
- legislate to 'improve the clarity of the employment status tests, reflecting the reality of modern working relationships'.
BEIS & HMRC ran a joint public consultation on Employment Status in 2018 on possible codification of an employment status test and in particular the options of:
- A 'precise criteria' test: a test based on more precise and objective criteria, such as length of engagement, the percentage of an individual's income that comes from one employer, and where the work is done;
- A 'precise structure' test: a test based on a clear order, hierarchy or weighting of the criteria; or
- A less complex test by reducing the number of factors to consider.
Trying to encapsulate the nuanced factors developed over years of case law into legislation is no easy feat. Unsurprisingly, further detail is awaited on if and when a new statutory test may be introduced.
If you have any queries about anything discussed in this insight, or about employment law more generally, please contact Jane Fielding or Connie Cliff.