On Friday 19th February, it was reported that Uber lost its contractor workers’ rights appeal to the Supreme Court. After initially losing employment tribunals and the Court of Appeal, Uber appealed to the Supreme Court. Uber maintained that their drivers are self-employed, and attempted to persuade the Supreme Court of this. However, the Supreme Court ruled that Uber drivers must be treated as employed workers, with rights to holiday pay, breaks and sick pay.
A real blow to Uber’s business model, lawyers commenting on the case estimate that thousands of Uber drivers could be entitled to up to £12,000 each. No doubt this result will cause Uber, and other gig economy employers, to reflect on the way their business operates.
We take a look at why Uber lost the appeal and what this could mean for the IR35 reform due on the 6th April this year.
Why did Uber lose the appeal?
Ultimately, the Supreme Court unanimously dismissed Uber’s appeal. The loss was based on five grounds:
1. Drivers have no discretion over the fare charged as this is dictated by Uber.
2. Drivers have no power of negotiation over the contractual terms.
3. A driver’s choice about whether to accept requests for rides is constrained by Uber. The driver is not informed of the passenger’s destination until the passenger is picked up and therefore has no opportunity to decline a booking on the basis that the driver does not wish to travel to a particular destination. A penalty is imposed if too many trips are declined or cancelled by automatically logging the driver off the Uber app for 10 minutes, thereby preventing the driver from working until allowed to log back on.
4. Uber exercises a significant degree of control over the way in which drivers carry out the services. Uber vets the types of car that can be used and wholly owns the technology which is integral to the service. Although a driver does not have to follow the route indicated by the Uber app, customers can raise objections to the route chosen and the driver bears the financial risk of any deviation from the route indicated by the app which the passenger has not approved. Passengers are invited to rate the driver on a scale of 1 – 5 after each trip. Any driver who fails to maintain a required average rating will receive a series of warnings and, if their average does not improve, have their relationship with Uber terminated.
5. Communications between driver and passenger are restricted to information relating to the journey and is channelled through the Uber app in a way that prevents either from learning the others’ contact details. Drivers are specifically prohibited by Uber from exchanging contact details with a passenger or contacting a passenger after the trip is complete other than to return lost property.
What could this mean for other employment tribunals?
Whilst this will be added to the library of employment status case law, it is not particularly influential for tax purposes. In fact these drivers would be self-employed for tax purposes by virtue of the fact that they provide their own vehicles, i.e. an essential piece of equipment fundamental to performing the services.
However, this big news story could result in other businesses, particularly in the gig sector, reviewing their own working practices to ensure they don’t get caught out like Uber. The ruling may well cause engagers, involved in that sector, to revisit their own business model and make changes where necessary. However, this may be a case of shutting the stable door after the horse has bolted and those engagers may be left sweating over whether their workers may have grounds for launching their own historical claims as limb workers.
Limb workers stuck in the middle
The Uber case was to determine whether or not Uber drivers were limb workers, a third category of status that is recognised by employment law, but not tax law. For tax purposes it is only necessary to decide whether someone is employed or self-employed and tax them accordingly. Limb workers are a breed of worker who are caught in the twilight zone between employment and self-employment, but are entitled to certain employment rights such as NMW, paid holiday, and certain other protections. They are better described as dependant contractors who typically personally provide a service as part of somebody else’s business.
Tania Bowers, APSCo Legal Counsel, believes that an overhaul of employment status is needed to consider limb workers fairly.
“While the position on employment rights for workers is now clearer, in that the ruling states drivers are entitled to be paid at least the National Minimum Wage for the time they are available for work, and not just when they are driving passengers, there is still the anomaly of a different employment status for tax purposes and there is no definition of a worker status for tax”, Bowers states. “One’s status is either employed or self-employed leading to the artificial construct of ‘deemed employee’.”
“We have long argued that an overhaul of employment status would remove the current differentiation in law between employment status for rights and taxation and despite today’s judgement an overhaul of employment status is long overdue.”
What could this mean for the IR35 reforms?
The outcome of this case could result in end-clients/fee-payers reconsidering their approach to the IR35 reforms, and whether blanketing contractors inside may lead to problems down the line.
With the introduction of the off-payroll rules for the private sector just over a month away now, this ruling may provoke some engagers to think long and hard about their own relationships with contractors whom they have deemed ‘inside’ IR35 and maybe leaving themselves open to similar employment rights claims.
In 2018, a marketing contractor, Susan Winchester, had been working for HMRC, via her own PSC, for a number of months prior to the introduction of the off-payroll rules for the public sector. However, once the rules took hold, HMRC deemed her ‘inside’ IR35 by virtue of CEST and she was forced to become an agency worker. As she had effectively become an employee she claimed employment rights and received a £4,200 in unpaid holiday pay on the morning before the case was due to be heard by the employment tribunal. Susan Winchester said the case was never about the money but more about justice and not being bullied into a position because of flawed tax law.
With the IR35 reforms due to take place on the 6th April, we here at Kingsbridge recommend that you check your IR35 status now, if you haven’t done so already. Kingsbridge’s award-winning status tool is a hybrid tool which generates an automated result, with any indeterminate results sent to our IR35 expert team for review. Find out more about the tool by clicking here, or contact our friendly team on 01242 808 740.
