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Relationship Status: It’s Complicated

Relationship Status: It’s Complicated

Uber is a remarkable success story. Founded in 2009, the ride-sharing service now brings drivers and passengers together in over 300 cities in 57 countries worldwide. Recent estimates suggest it is worth a reported $40 billion, which is more than Instagram.

So in the grand scheme of things, last month’s decision by the Californian Labour Commissioner that they had to pay a former driver $4,152 should not even register on the balance sheet. However, the Commissioner also decided the driver had been an employee of Uber, and not an independent contractor. For a company with over 160,000 drivers in the US alone, this decision might have very serious implications.

The reason it matters is because the employment relationship confers important rights and obligations on both sides. This is not to mention the tax and insurance implications that need to be considered. Employees are entitled to powerful protections not available to workers or independent contractors. These include the right not to be unfairly dismissed, the right to receive statutory sick pay and an entitlement to family friendly rights such as maternity leave.

The problem is, as Uber has discovered in California, establishing whether a worker is an employee or not can be complicated. In the UK, the court relies on a number of factors to paint a picture of the true relationship. What factors are relevant will shift depending on each situation. There isn’t a single factor which is determinative by itself, and there is no magic combination of factors conclusive in all cases. Everything depends on the facts of each case. A recent court ruling has said that a Church of England minister could not be an employee because (among other things) there was no ‘legal’ person who could be said to be his employer.

Uber is just one of the new breed of tech companies who match consumers with workers and service providers directly on-demand. The key to the success of this growing ‘on-demand’ economy is flexibility. Businesses need to be able rely on pools of freelancers to deal with fluctuating demand, pulling in more during times of peak demand and fewer in quiet spells.

This flexibility has also proved popular with workers. They can be free to choose when and where to work and fit this around their own personal circumstances. They can choose how much to work or whether to accept an opportunity at all. This allows people to top up their income on their own timetable.

The worry for these businesses and workers is that these arrangements don’t suit the traditional employer-employee relationship. To cope with this, over the past decades we’ve seen a number of non-traditional relationships emerge. Workers can now choose to provide services on a casual basis, through agencies, part time, at home, seasonally and as independent contractors. In the UK there are now over 5 million people who describe themselves as self-employed.

Of course, there is still a place for the employment relationship in the ‘on-demand’ economy. Some businesses have found that they provide a better service and get better customer feedback with full time employees, rather than freelancers.

The important thing is to ensure you are creating and maintaining the relationships that you think you are. Uber has always considered that their drivers are independent contractors who are free to provide their services to competitors. They argue that they merely provide the platform to allow the transaction between the customer and the driver to happen. The Commissioner disagreed, saying the company was involved in every aspect of the operation. It will be interesting to see if any of the drivers in the UK take this as a lead to argue along similar lines.

Businesses and freelancers who rely on flexibility should ensure they don’t accidentally create employment relationships. The main factors to look out for are:

  • Mutuality of Obligation: Is there an obligation to provide work and a mutual obligation to accept it?
  • Personal Service: Does the worker have to provide his services personally, or can he appoint a substitute?
  • Control: Does the business control what a worker does, how they do it and when they do it?

If you have any questions or wish to speak to a member of the team to discuss this further, please get it in touch.

Andrew Clark
Trainee Solicitor

LChalmers