Why Uber drivers are ‘workers’ and whether it matters to the direct selling industry

Since 2016 we have reported upon a succession of cases in which ‘gig economy’ workers, including Uber drivers, CitySprint couriers and Pimlico plumbers, have sought to claim ‘worker’ status instead of the independent contractor status accorded to them under their contracts.

The case involving Uber drivers reached the Supreme Court in February 2021 and, whilst the Court’s judgement that the drivers are workers is at core a factual decision (which Uber initially even suggested only applied to those specific drivers and not to all of its drivers!), the Supreme Court is the highest court in the land and so, as usual, took the opportunity to lay out the relevant legal principles at play here and, as usual, it pays to take heed of the Supreme Court’s conclusions.

But first, a quick reminder as to why ‘worker’ status matters to those involved. Being a ‘worker’ rather than a ‘self-employed contractor’ for the purposes of employment legislation entitles the individual to certain statutory rights and protections including the national minimum wage, holiday pay, a maximum working week and rest breaks, and protection from discrimination and whistleblowing. Workers’ rights are not applicable to the genuinely self-employed; but nor is it necessary for a worker to be an employee, and ‘workers’ are not entitled to the full array of rights that employees receive.

So in the Uber case, the main driver (sorry) behind the claim for worker status was to be paid the national minimum wage and for that wage to be based on working time which included any period whilst logged in to the Uber app within the licensed area and ready and willing to accept trips as well as being paid for the time spent actually engaged on trips.

The Supreme Court first helpfully described the approach that should be adopted in determining whether an individual is a worker or a self-employed contractor.

The written contract is not the starting point in determining worker status. Workers’ rights are created by law, not by contract, so deciding whether a person is a worker within the meaning of the relevant law and so entitled to those rights is a question of statutory, rather than contract, interpretation Then, when interpreting the statute, its purpose should be considered and its wording interpreted, as far as possible, in the way which best gives effect to that purpose (the ‘purposive’ interpretation).

The purpose of the relevant legislation in this case is to protect vulnerable workers and it is the very fact that an employer is often in a position to dictate contract terms, and the individual has limited ability to influence those terms, that gives rise to the need for statutory protection. The legislation would be seriously undermined if the employer could, in the way the written contract was drafted, determine whether or not the other party was a worker. The written contract should not be ignored, but there is no legal presumption either that it contains all the parties’ rights and obligations towards each other or that a contract signed by the individual really represents the parties’ true agreement.

When determining whether an individual is a worker in any particular case, the factual aspects of the relationship are to be considered in the context of the purpose of the statute. Here, those vulnerabilities of individuals which create the need for ‘worker’ protection are their ‘subordination’ to and ‘dependence upon’ another person in relation to the work that they do – and the ‘touchstone’ of such subordination and dependence is (as has long been recognised) the degree of control exercised by that other person over the work performed.

So the determining factor is the level of control exercised over the person carrying out the work. This is, of course, the traditional test, and the Supreme Court did not make new law in saying this but simply restated with authority the current state of the law in this respect. Interestingly, the Supreme Court also noted that this approach is consistent with that of the European Court of Justice (e.g. in the recent case of AFMB -v- Raad in 2020).

The Uber case has one unusual factor in that, whilst there was a set of relatively complex contractual documentation establishing a tripartite relationship between two Uber entities and the drivers, there was no one written agreement between Uber and the drivers. That documentation seemed very much designed to support Uber’s own version of the arrangements, which was that (i) Uber is a platform which facilitates the provision of taxi services but it does not provide those services itself; (ii) the taxi services are provided by the drivers who are contracted by a passenger for each ride; (iii) Uber acts as the booking agent for the drivers through their use of the Uber app; and (iv) the drivers are all self-employed.

The Court looked at the relationship between Uber and the drivers and highlighted the following factors which it regarded as relevant to the question of the degree of control exercised by Uber and hence to the status of the driver in the relationship:

• The drivers’ remuneration was fixed by Uber because the Uber app calculated and fixed the fare and drivers could not charge more than that fare; plus Uber fixed a ‘service fee’ which it deducted from the amount paid to the drivers.
• The terms of the contract between drivers and passengers were laid down by Uber.
• Although drivers were free to choose when and where to work within their licensed area, once they had logged in to the app, Uber in practice limited their choice about whether to accept requests for rides because Uber controlled the information provided to the driver, monitored the driver’s acceptance/cancellation rates, and disconnected the driver from the app if the cancellation rate exceeded a certain level. This all placed the drivers in a position of subordination to Uber.
• Uber owned the app and used it as a way of controlling the drivers by monitoring their acceptance and cancellation rates, stipulating the routes to be used, and imposing a driver rating system which it used as an internal tool for managing performance. Uber also exercised significant control over the way in which drivers delivered their services, for example vetting the type of car that could be used.
• Uber restricted communication between passenger and driver to the minimum necessary to perform the trip and took active steps to prevent drivers from establishing any relationship with a passenger capable of extending beyond an individual ride.

The Court found that Uber exercised a significant degree of control over its drivers and that the drivers were workers and not independent contractors.

Does the Uber case matter to the direct selling industry? In a narrow sense, we would say not. Because it does not advance or alter the existing law about ‘worker’ status nor the judicial approach to determining worker status, and most of the factors highlighted by the court are not factors that one would typically associate with a direct selling company.

But in a wider sense, it is a case of great significance. Because it shows the continuing direction of travel in terms of the protection of individuals regarded as vulnerable within a working relationship, and because the court’s emphasis that the degree of ‘control’ is front and centre to the determination of worker status presses the button of every direct selling company where a certain level of control is essential to ensuring quality standards and regulatory compliance.

Nevertheless, it remains our view that the typical direct seller is genuinely an independent contractor and not a ‘worker’. A direct seller has no obligation to work at any time or indeed at all, and can work as and when they wish to do so and, if they do decide to work at any time, then it is most likely that the direct selling company neither knows that the direct seller is working at that time or what they are doing (maybe meeting customers, preparing or making presentations, catching up on paperwork etc.). There is no gap between the contract terms and the reality in that respect. Contrast this to the Uber driver who could choose when they worked but could not choose how they worked, and when they were working (or ‘logged on’ as available to work) they had an obligation to work (what the court described as “the irreducible minimum of obligation on drivers to accept work”) and to do so in the manner specified by Uber.

The question of the level of control exercised by a direct selling company will need more consideration, and business practices will vary and will reflect different business models so the answers may be different for different companies, but in principle we believe that if the controls imposed by a direct selling company are those controls which any company might reasonably be expected to wish to exercise over its independent contractors, particularly those which are relevant to ensuring quality standards and regulatory compliance, and not as a means of subordinating the direct seller and making them dependent upon the direct selling company in relation to any work that they do then it is unlikely that those controls will lead to a determination that the direct seller is a ‘worker’.

Whilst by no means a rigid analysis, the court basically divided control into control over working conditions and control over remuneration. A direct selling company will not fix a distributor’s resale prices (although it will obviously set the commission rates when the direct seller acts as an introductory agent) and so does not control the direct seller’s remuneration in that manner. It also seems something of a stretch to describe controls which ensure quality standards or regulatory compliance as controlling the direct seller’s ‘working conditions’ although we would not place over-reliance on this point.

On the other hand, direct selling companies should be conscious that they will typically, for example, require direct sellers to use materials prepared by the company when dealing both with customers and potential new direct sellers and those materials cannot be negotiated or altered by the direct seller.

Whilst the courts have previously been cynical of the company’s ‘carefully crafted documentation’, we do recommend that when direct sellers are being required to conduct their business in a particular manner, for example by complying with the company’s Policies & Procedures, that those requirements are set in the proper context, whether that context is consumer protection, regulatory compliance or otherwise.

In terms of the Uber case being part of the direction of travel, direct selling companies operating online (and who isn’t these days) will also want to keep an eye on the European Commission’s current legislative initiative on ‘how to improve the working conditions for people working through digital labour platforms’. It is not yet known whether, or to what extent, any resulting legislation might be relevant to direct selling – including to UK direct selling companies, notwithstanding Brexit –  but the European Commission’s consultation document says that ‘people working through platforms’ means “individuals providing services intermediated with a greater or lesser extent of control via a digital labour platform, regardless of these people’s legal employment status (worker, self-employed or any third-category status” and that ‘digital labour platform’ refers to an “internet-based company which intermediates with a greater or lesser extent of control on-demand services, requested by individual or corporate customers and provided directly or indirectly by individuals, regardless of whether such services are performed on-location or online.”