knowledge 22 July 2016 |

Uber, Employment Status and the “Collaborative Economy” 

The so-called ‘sharing’/’collaborative’/’gig’ economy are the terms used for new business models designed to facilitate the use of goods or services via online collaborative platforms. Examples include on-demand cleaning services, transport and taxi services, accommodation, home deliveries and home maintenance. This phenomenon is contributing to the evolution of the legal concept of an ‘employee’ as it is based on short-term flexible work, rather than traditional employment. With the rise of the collaborative economy and the creation of more flexible working relationships, it has become more difficult to legally determine the difference between employment and self-employment. It is also likely that these new business and working relationships will have some characteristics of the traditional employer-employee relationship. As a result, the distinctions between an employee and an independent contractor are becoming unclear.

The expansion of the sharing economy also illustrates the limitations to having only two distinct and inflexible legal categories of employment status at opposite ends of the spectrum and there is a need to broaden the number of categories of “workers”. Commentators in the US have called for the recognition of a hybrid third category, the “independent worker” or the “dependent contractor.” The UK has legislated for a “worker status” which sits between employment and self-employment status. “Worker status” entitles individuals in that category to certain basic employment rights, such as national minimum wage and paid annual leave. In Ireland the Protected Disclosures Act 2014, dealing with whistleblowing, extends its protections not only to employees, but to “workers” which includes consultants, agents, civil servants, interns and trainees.

Uber Disputes

The employment law issues associated with the “collaborative” economy are highlighted by the recent legal disputes involving Uber.

US

In May 2016, class-actions were filed in Illinois and Florida, seeking to alter the classification of Uber drivers from independent contractors to employees and to recover unpaid overtime, wages and compensation and the reimbursement of expenses. The Illinois and Florida suits are among a number of similar suits being filed across the U.S., including Indiana, Texas, Boston and New York. Uber’s drivers contend that they are more akin to employees than independent contractors largely based on the level of control Uber exercises over its drivers. On the other hand, Uber argues that it merely operates a software platform that connects drivers and passengers while making a small profit from the transaction. In April 2016, Uber announced a settlement of similar lawsuits for a potential $100 million with 385,000 drivers in California and Massachusetts. It is reported that as part of the settlement terms, Uber will not be entitled to dismiss drivers without a reason, and Uber will recognise a drivers’ association. However the settlement maintains Uber drivers as independent contractors, thus avoiding the reclassification issue in this instance. The settlement awaits approval by Judge Chen, the federal court judge overseeing the litigation. It is reported that Judge Chen may reject the deal, citing concerns that the settlement may make it more difficult for drivers to sue the company in the future.

UK

Uber drivers in the UK have also filed an employee misclassification claim, arguing that they are entitled to “worker status”.

France

In France, the social security authority, (URSSAF), has instituted legal proceedings against Uber seeking the payment of social security contributions on the basis that Uber’s drivers are employees and not independent contractors. The French authority has also instituted criminal proceedings against Uber for allegedly illegally misclassifying drivers in an attempt to circumvent employment law.

Ireland

Disputes involving Uber are not as relevant in this jurisdiction for the moment, as current regulations in Ireland mean that Uber and other similar apps are restricted to only engaging licenced taxi drivers and chauffeur-driven cars, although this regime itself could be subject to challenge. Uber also faces strong competition from Hailo in Ireland and Hailo’s business model restricts registration to licensed taxi drivers. However, it has recently been reported that Uber has sought amendments to the regulations along with a temporary repeal in Limerick to trial-test its ride-sharing model in the city.

The Uber cases highlight the potential complications for companies whose business model is based on engaging independent contractors, including the myriad of start-ups in the technology sector that rely on independent contractors as a means of reducing costs.

A European Agenda for the Collaborative Economy

The Commission recently outlined its support for the collaborative economy stating that “these new business models can make an important contribution to jobs and growth in the European Union, if encouraged and developed in a responsible manner.” On 2 June 2016, the Commission published a Communication entitled “A European agenda for the collaborative economy” which is intended to provide guidance to EU Member States engaging with and regulating the collaborative economy and on the application of existing EU law to the collaborative economy.

The Communication provides non-binding guidance and policy recommendations to assist the balanced development of the collaborative economy. The Communication has invited Member States to review and where appropriate revise existing legislation according to this guidance. The Communication states that collaborative platforms should only be subject to business authorisations and licensing requirements where they are non-discriminatory, necessary to attain a clearly identified public interest objective and proportionate to achieving this interest. In addition, absolute bans on any activity should be a measure of last resort.

On the issue of employment status within the collaborative economy, the Commission states that labour law generally falls under national competence, complemented by minimum EU social standards and jurisprudence.

However, the Commission notes that in considering whether an employment relationship exists in this context, Member States may wish to consider criteria such as the existence of a subordination link, the nature of the work and the presence of remuneration. In order for subordination to be met, the service provider must act under the direction of the platform, with the platform determining the choice of activity, working conditions and remuneration. On the basis of this analysis, Uber drivers may arguably fall within the definition of an employee for the purposes of EU law.

The Commission has requested Member States to provide guidance on the applicability of national employment rules in light of labour patterns in the collaborative economy.

What does this mean for business?

While all of this is food for thought for businesses, particularly those engaged with tech start-ups and the collaborative economy, it is important to remain aware of existing guidelines and tests adopted by adjudicating bodies in determining whether an individual is engaged as an employee or an independent contractor.

The Revenue Commissioners and the Department of Social Protection (the “Department”) refer to the criteria set out in the Code of Practice for Determining Employment or Self-Employment Status of Individuals when considering employment status for tax and social insurance purposes. In September 2015, the Department found that a number of individuals engaged as “self-employed sub-contractors” by a prominent construction company were in fact employees for tax and social insurance purposes. The reasons cited for the decision note that the employer provided the individuals with personal protective equipment; the individuals were given tools to perform their duties and were expected to work a certain number of hours per week at certain times, in line with industry practice. Importantly, the company in question was found to have the right to control what, how and when work was done. While criteria such as the “provision of equipment and tools” are readily applicable to the construction industry, this is not necessarily the case for the collaborative economy, where the only “tool” is an online app.

It remains to be seen how digital business models and business relationships can sit with the traditional employment status tests. Following the Commission’s publication, the Government will need to address this issue as a matter of urgency. In the meantime businesses need to clearly set out the terms of engagement when supplying or accessing such resources as the law has not caught up with the collaborative economy.