Plan Insurance Blog

What Impact Will Uber’s Supreme Court Loss Have On Uber’s Fares?

This month, The Supreme Court decided that Uber drivers are workers and are entitled to all of the privileges being a worker entails. These include the national minimum wage and annual leave. Will this result in price rises and increased waiting times that drive passengers back towards traditional private hire operators and black cabs?

In 2016, Uber drivers James Farrer and Yaseen Aslam took the ride-hailing giant to an employment tribunal. They were the first ones to declare they weren’t self-employed but instead workers. Uber denied this, saying that Uber drivers were ‘partners’, using the app to find riders for their own driving business.

Uber appealed, but the Employment Appeal Tribunal upheld the ruling in 2017. Uber then took the case to the Court of Appeal, which upheld the decision in 2018. On 19th February 2021, The Supreme Court dismissed Uber’s final appeal.

The Supreme Court is Britain’s highest court. Quite simply, Uber reached the end of the road.

How Much Will The Supreme Court Ruling Cost Uber?

According to our rough calculations below, Uber could potentially be facing a liability of over £3.8 billion. This includes backdated payments for 5 years, with a HMRC penalty of £20, 000 per driver. HMRC are known for collecting on the money that they are owed, but never at this scale.

 Full TimePart-Time
Hourly Income£13.77£13.77
Hours Per Week6030
Weeks Worked Per Year4848
Annual Income (Excluding Holiday & Waiting Time)£39,658£19,829
Average Waiting Time 12 mins/hour = 20% Uplift£47,589£23,795
Holiday Pay (Equivalent 28 days)£5,125£2,562
ER NI£6,062£2,425
ER PENSION £1,394£604
Total Employment Cost£60,171£29,386
Number of Drivers2000020000
Total Amount Pre Ruling£793,152,000£396,576,000
Total Amount Post Ruling£1,203,413,255£587,712,542
Additional Amount£410,261,255£191,136,542
Total Additional Amount (Full & Part Time Drivers) £601,397,797
Multiple Number of Back Dated Years 5 £3,006,988,985
HMRC Penalty £20,000 Per Driver £800,000,000
Total Potential Liability £3,806,988,985*

Given how closely Uber guard their information and data we have had to use some broad assumptions (the logic of which is explained at the bottom of the blog.) Whether the liability reaches the £3.8 billion total is very much up in the air but there’s a distinct possibility that a sizeable sum will be required to settle the issue. This comes at a time when Uber has sold off assets following the financial impact of Covid-19.

How Will The Uber Decision Affect The Private Hire Industry?

So how will this decision affect private hire and taxi drivers. Industry veterans will have observed how Uber has significantly impacted the market. Prices are lower across the board and Uber’s ability to side step regulation has in many people’s eyes negatively affected the reputation of private hire drivers.

Lord Leggatt outlined that ‘working time’ wasn’t limited to trips only (as Uber argued) but any time the driver is logged into the app and ready to accept trips. If drivers can demand holiday pay, sick pay and a national minimum wage (even while just having the app on), surely this will affect Uber’s prices?

In his summary, Lord Leggatt first mentioned was that Uber sets fares. The ease of using an App combined with fares lower than traditional private hire and taxi rides are the reasons for Uber’s rapid and exponential growth. Fares are kept low to increase market share, a common practice among disruptive and ambitious tech companies.

Cheap fares attract users, who form a reliance as they find that Uber fits perfectly into their life. Tech companies that aim for market share often operate at a loss. Yes, you read that right. Uber loses money and still has never made a profit. We have steadily seen fares creep up, along with the practice of fare ‘surging’ during peak times like weekends and evenings.

Uber’s Prices May Not Be Able To Stay Competitive

Cheap fares could become impractical for Uber because they have to pay drivers more. Plus, another potential implication of the case is that Uber will now be deemed a transport company in a different long running dispute, rather than a tech firm, which will result in the company having to charge VAT on top of fares. So prices could rise and start to resemble standard private hire rates. Uber already operates at a loss, so something has got to give. Any decrease in pay from the driver’s side will cause an untold backlash, so prices will undoubtedly rise.

The tech giant’s market share works in the same way as having majority shares in a company: they control the market. The fares that Uber set for their drivers affects the entire private hire and taxi industry. This tactic, common with other tech companies looking for dominance, has been accused of negatively effecting hard-working people and their ability to receive fair pay.

Uber’s presence has prompted many smaller fleets to become app-based. With local marketing, customers may see local private hire and taxi companies as more trustworthy and likely to provide a better service than a faceless Silicon Valley tech company. Without the temptation of lower prices, Uber doesn’t seem so attractive to users.

Black taxis will also be positively affected, with Uber premium options like XL likely becoming more pricey than traditional black cabs. London loves black cabs, as do the tourists that flock to the city (pandemic notwithstanding). Black cabs are reliable, trustworthy, and their prices are transparent.

If hailing a taxi is similarly-priced, people won’t think twice about ditching the app and putting their hand out on London’s streets (or using taxi-based apps like Halo or Gett).

Will Uber Eventually Become A ‘Normal Employer’?

If The Supreme Court’s judgement means that companies like Uber simply can’t set fares, then perhaps one day drivers will be able to set their own prices. That seems the natural progression if Uber opts to move to a model where drivers are genuinely independent and self-employed.

This is more likely than Uber paying their drivers PAYE and inviting them all to the Christmas party. If this happens, private hire and taxi operators’ transparent fees will seem like an oasis of convenience.

Not all drivers will want to follow a new model, as many are happy being self-employed. After all, the freedom that comes with driving for a tech platform is unparalleled. Especially for those who don’t rely on Uber as a sole income.

Will Uber’s Supreme Court Ruling on Worker Status Lead to Job Losses

Sadly the consequences of the Uber ruling may be significant driver “job” losses. If Uber is forced to employ every one of its drivers then it’s likely the firm will have to shed numbers that have access to the platform. Reduced driver numbers would lower their exposure to the additional costs of covering driver waiting time amongst the other expenses associated with being a bona-fide employer. However reducing driver waiting time by reducing driver numbers will increase customer waiting time. Potentially reducing the appeal of the service and ultimately reducing demand, especially if its combined with a rate rise.

These potential negative consequences may give hope to drivers that depend on Uber for their livelihood. An example discussed below, that was introduced by the delivery firm Hermes following a similar dispute may give hope to drivers that are worried. There are many that would argue a “job” on the existing terms wasn’t worth having. And that those struggling under these conditions will, hopefully, be better served taking the plunge back into the employment market.

What About The Uber Drivers That The Gig-Economy Model Actually Works For?

What will happen to those who are driving for Uber part-time? There is the potential that working under the current model will be allowed to if the drivers work under 20 hours a week (for example), and full-time Uber drivers would be placed under the new model.

Now that drivers are technically working from the moment they turn the app on, the costs will be huge for Uber. The most likely outcome is that Uber hires fewer drivers to balance profits. This will bring prices up, with Uber drivers having a similar work-life to full-time private hire, chauffeur or taxi drivers. With this change, Uber will likely want to appear to be a higher-end service to justify increased fares. This gives what many in the private hire and tax industry have always wanted: Uber being forced to operate just like everyone else.

The Uber Rating System Represents Control

The Uber rating system is a way for riders and Uber platforms to assess the quality of drivers. According to The Supreme Court, it’s also a way that Uber exercises control over its drivers. Those failing to maintain a good average can even have their account terminated. It’s unlikely that Uber will take ratings away. They could instead financially reward drivers with high ratings.

Lord Leggatt took issue that drivers (touted as ‘independent partners) can’t improve their economic status beyond taking more rides. Traditionally, business owners can make more money by undertaking extra training or providing a more expensive service. Offering performance incentives through the rating system or some other model would give Uber a reasonable way to do that.

The Future For Uber Drivers

The court took issue with Uber restricting communication between the driver and the rider beyond a single trip. This prevents drivers from creating mutually beneficial relationships with riders, receiving regular tips or earning more with consistent jobs or bookings.

Drivers could organise to work for customers on a regular basis. This also reduces the amount of time spent sitting on the app. Without price or communication restrictions, regular customers are likely to pay more for a personal service.

In 2019, an employment tribunal defined couriers delivering for delivery giant Hermes as ‘workers’ rather than self-employed contractors. In response to this, Hermes came to arrangement with the GMB Union where-by they created an option called ‘self-employed plus’.

Self-employed plus includes holiday pay (pro-rata up to 28 days) and individually negotiated pay rates that allow couriers to earn at least £8.55 per hour over the year – 9% higher than the current national living wage. This move was praised by union members, who felt that this scheme was sustainable and mutually beneficial.

This looks like it could be a viable option for Uber, as Hermes were in a similar position. However, Uber are the first company to take an issue like this all the way to The Supreme Court, and their statement after the judgement didn’t seem to admit defeat. Putting a scheme like ‘self-employed plus’ in place could represent an acceptance of responsibility that the leadership at Uber aren’t ready for. Their initial refusal could turn out to be an attempt at damage limitation .

Lord Leggatt’s decision represents the end of a 5-year journey for those fighting to better the working conditions of those in their industry. Despite the fact many drivers are concerned by the threat it presents to the current flexible model that they value dearly.

For Uber, it means the end of their ability to define their working relationship with drivers and their working conditions entirely in a one way dialogue. If HMRC takes action to collect their money, then there can be little doubt that Uber’s pricing in the UK will be affected. Just as Uber’s arrival affected the whole private hire and taxi industry, their struggles will make waves in the lives of private hire operators and drivers.

*Assumptions used to calculate potential liability following the outcome of Uber’s Supreme Court Ruling on worker status:

  • Assumes and even split of full and part time drivers.
  • The total hours worked and the average hourly rate are taken from James Farrar’s evidence as discussed in our blog at the time How Much Does an Uber Driver Really Earn?
  • Average wait time is an estimate based on 20% waiting time/hour.
  • Holiday pay up-lift based on statuary minimum.
  • National Insurance estimate 13.8% of qualifying part of salary.
  • Work Place Pension contribution 3% of qualifying part of salary (% will have changed part way through the legal dispute).
  • Number of Drivers as Uber used to promote its importance as an employer when its licence renewal was due.
  • Number of back dated years based on every driver during that time pursuing compensation for their the shortfall for each year since the original ruling.
  • HMRC penalty based on a fine per 40,000 drivers (but may actually be higher as the personnel making up that 40,000 will have changed during that time.)

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