Uber's UK Tribunal problem - another take

Den Howlett Profile picture for user gonzodaddy October 31, 2016
My discussion of the Uber Tribunal case in London caused something of a stir. Here is a fresh take that looks in further detail at the judgment and its ramifications.

James Farrar at UPHD demonstration

Following my last piece on this topic, one of the main protagonists, James Farrar took me to task, Tweeting that:

Let me be VERY clear. I was not reporting upon the decision but rendering an opinion as to why the decision is unworkable. I stand by that. But for the sake of argument in this story, let's return to the Tribunal's judgment which can be read in full from this PDF document.

First up - the obvious caveat - neither I nor any of the parties to this case are lawyers although I do have more than a nodding acquaintance with UK employment law. Therefore, readers can take what I say as reasonably argued opinion or ignore as the opinion of an ill-informed pundit. Your choice.

Next - as I made very clear in Tweet discussion, diginomica takes positions and in this case, we are broadly in favor of the technology enabled 'gig economy' although we remain deeply concerned about the general decline in earnings that are evident in some parts of the general economy and as has been evidenced both by one of the protagonists and evidenced from original sources by ourselves quite independently of this case.

Which law applies?

On to the case at hand.

Uber made the case that it should not be assessed under UK law but under the law where it is incorporated i.e. the Netherlands. This is a common clause in contracts for services and often gives rise to angst. In this case, the Tribunal found that this case should be decided based upon an interpretation of UK law. The reasons are relatively easy to understand although the arguments are long winded. In any event, I don't think Uber chose the right approach to this case and opened itself up to all sorts of negative criticism albeit Uber is perfectly entitled to create whatever legal framework it chooses through which to operate, as are those who drive using its application.

Now we come on to whether drivers are employees under UK law. The Tribunal cited a number of past cases but fell down on the side of drivers being employees. That surprised me given the choice of cases that were used and the facts behind those cases when compared to the Uber case. The Khan v Checkers Cars case which was used in this hearing was cited. That case is odd in the sense that Checkers agreed that Khan was a 'worker' but won on the narrow point of whether he was an 'employee.'

It is on these points where life can get murky. In common parlance, you'd expect someone to say 'I'm working on a job...' regardless of whether they are self employed or otherwise. There is no other common language that expresses activity of this nature. Be that as it may, the Tribunal went into considerable detail about the way Uber sets up its contracts and how that is manifested in actual practice, arguing that the language may say one thing but the reality is another.

There is certainly an argument to be made on this point because as has been said many times in the past, the fact you say one thing in a document doesn't necessarily mean it is something else. I suspect that Uber has fallen over itself in the sense that the contracts, as written, appear to be little more than cookie cutter US contracts, slightly adapted for the legal construction operated in the UK.  That's always going to present problems because each jurisdiction has its own idea what constitutes 'employment.'

The question of control

The central argument the judges appear to have concentrated upon is the degree of control Uber exercises over drivers and what constitutes 'work.' This is where experience across different territories tells different stories.

Every Uber driver I've met, which runs hundreds across the US, consider themselves as free agents. They do so on the basis that they choose when to work and for how long. Those same drivers acknowledge that Uber can be considered as directing them when they accept a fare but they still have the choice of doing so or otherwise when they are 'live' on the application. That is not universally accepted, as Uber has been found to act as an employer in some decided cases. Check this case from 2015 in California. And check this recent case from New York.

Let's be clear - Uber is unquestionably testing the boundaries of what it means to be an employee but still has good arguments to make if it so chooses. Farrar suggested that Uber could have constructed a model that more closely aligns drivers to being considered as under IR35 arrangements.

While that is possible, it opens up an entirely different can of worms as it relates to employment and tax treatment. For those unfamiliar, IR35 has been a long running set of tax principles, originally designed to combat UK construction industry 'lump labor' and that seeks to classify labor only construction industry 'workers' as employees for tax purposes. Since its original construction (sic) the law has undergone many changes, all with the purpose of reclassifying people as employed rather than self employed. It is a moving target.

Another question that was not explored was how this test would apply if drivers worked for multiple companies. Would that change the way the Tribunal views these cases? Possibly. It is a point I have raised with drivers in the past who see themselves as having even greater freedom when those market conditions exist. Right now, there is no evidence this applies to Uber drivers in London but it is not beyond the realms of possibility.

All of which leads me to believe that the FT has it right (sub required) when it said:

It is true that Uber does not qualify as an employer in many legal jurisdictions that offer a binary choice of employment and self-employment. But Uber’s ability to arbitrage the law by insisting to regulators that its drivers are independent contractors despite its tight control of how they work indicates that laws should be updated to match innovation.

Are Uber drivers working per hour or per piece?

One of the more gnarly arguments the Tribunal discussed was the question of whether drivers are working on a time basis or piece basis. It fell down on the side of the time argument but that's one I also find perplexing.

When a driver accepts a fare, he/she has no idea where they're going or how long it will take to complete the job. Can that be rationally argued to be a time issue? I have numerous instances where the same trip takes different amounts of time yet the fare is remarkably constant. That strikes me as one where the price is per piece of work. In fact today, Uber where I live is explicit about specific fare costs rather than providing a time related breakdown. and in any event, just how different is this from the Black Lab experience, all of whom are self employed?

That 'piece' price though is not without problem because the actual fare is made up of a variety of components. It certainly was the case that Uber charged based upon, inter alia, time spent on the road and so to that extent, constituted time expended by the driver fulfilling the service.

My reading of the judgment suggests that if you buy that argument then all time spent by Uber drivers is 'work' for which they need to be paid. That's clearly not the case. Most recently, one driver told me that he has to spend more time on the road because there is a surfeit of other drivers. In that sense, I find the judgment a tad muddled because the real world experience looks more like a competitive market. At the very least and in any appeal, further judgments will have to provide clarity on this point.

My concern as expressed to Farrar and elsewhere is that if we assume that the minimum wage argument holds, then there is no incentive for Uber to ever pay beyond the minimum wage. That will be detrimental to drivers alone. Uber will win because it will then argue that as an employee, you are paid what Uber are prepared to pay and nothing more. Goodbye surge pricing as a benefit to drivers or will they receive a fixed bonus?

Experience matters?

There can be little doubt that the Uber app commodifies the taxi business by deskilling it in favor of a GPS enabled application. That's not without difficulty.

One of the problems that is not addressed is that of experience. As I have shown for the full time driver, experience matters. That reasoning extends to me as a customer and is why, in London, I prefer using Black Cabs.

The Tribunal used the term 'professional' but I argue that Uber drivers are anything but professional because they are guided by an application that optimizes the route for them rather than requiring the driver to use their knowledge of routes. Is that a legitimate element of control as part of the argument in this case?

I'm not convinced. Most recently I've met with drivers who 'know' certain routes and are prepared to ignore the Uber app when they know it provides a better outcome. That suggests the driver is using his skill and experience to adjust the way he/she works for everyone's benefit. Would Uber object? Very unlikely if it means that same driver is more productive.

Is a minimum wage workable?

I still find it difficult to figure out how Uber can, under this ruling, pay the minimum wage. As I argued with Farrar, each driver has a different earnings and cost profile:

Then comes the definition of 'work,' and whether it should be based upon time, which is not wholly settled in this case. Further judgments will clarify.

Final words

The judgment contained enough florid language to grab plenty of attention and there is little doubt in my mind that Uber didn't prepare itself for this case as well as it could. It's understanding of the interaction between EU and UK law was woefully lacking and only served to antagonize the judges in this case.

It's also clear that Uber's marketing language at times works against it when considered in the context of an employment case of this kind. But to my mind those issues don't solve for whether Uber is right or wrong in classifying its drivers as self employed. The Tribunal thought otherwise as is their right but this is not the end of the road.

Contrary to what Farrar suggests, I have never argued that Uber should pay less or, as some might believe, as little as possible to its drivers. That makes no economic sense in the long haul for anyone. To the contrary, I have shown that in some cases, drivers are having to do more to make the same as Uber attempts to discover the right combination of components that make for an attractive business model.

As a side note, I am not persuaded by the long term argument of Uber providing autonomous vehicles and that what we see today is an interim measure. Part of the Uber experience is the interaction you get with drivers - if you so wish.

Supporters of the decision need to exercise care. The tone used in a number of statements suggests a style of political posturing that doesn't lend itself to much beyond hubris and confrontation. Calling out Uber as 'liars' is especially dangerous. But do Uber's practices mean that at least some drivers need protection against those who would exploit them? Absolutely. There is nothing exceptional about Uber's model that leaves me to think that it cannot accommodate a degree of flexibility that leads to better outcomes for everyone in this value chain. How it gets there is another matter altogether.

The problem for all parties involved is that the current written and case law around employment was never designed to deal with technology enabled business models or working practices of the kind we see embodied in the Uber model. Right now that doesn't matter because the judges in this case could care less about that aspect but it is not something that can be ignored.

It is hard to see how the majority of drivers benefit from this ruling in the long term. By restricting their arguments to employment versus self-employment and focusing in on the minimum wage, it seems to me the Tribunal claimants are taking away the opportunity to earn more than the law prescribes. Is that what they intended?

But the final word has to go to Sam Lessin at The Information. He says of the gig economy: (sub required)

It would be a shame for us as a society to regulate away services that help us reduce and reuse in productive ways. But I believe that if we don’t figure out big and bold ways to navigate these transitions at the federal and global level with good laws and good transitional plans, we will be dramatically worse off.

Quite. And that almost certainly means the likes of Uber, regulators and workers coming together to arrive at a mutually acceptable resolution.

Important endnote

In Tweets, James Farrar pointed out that the Tribunal made a ruling that the claimants are 'workers' and not 'employees.' This has important implications for tax and other regulatory topics. As a 'worker' the claimants can obtain the minimum wage and other rights but don't have quite the same labor law protections as employees. However, while some commenters have acknowledged that point, much of the case law used in the argument specifically referred to 'employees' or 'employment.' A good number of commenters have referred to the decision as reclassifying Uber drivers as employees and not as 'workers.'

This is horribly confusing and, in  my opinion, further strengthens the argument that it would be extraordinarily difficult for Uber to operate in such a way that it can accurately calculate a minimum wage for the reasons I have outlined above and create an environment where Uber only pays the minimum wage.

A grey colored placeholder image