Meg Saksida examines the outcome of the Uber taxi case and what has happened because of it.
According to employment law, there are three kinds of workforce. The first is employed, the second is self-employed, and the third is ‘hybrid self-employed’ (i.e. self-employed but working as a part of a business carried on by someone else).
For example, a plumbing business may engage self-employed plumbers; or a department store may engage self-employed hairdressers. These are called workers. As far as Uber was concerned, the drivers were self-employed rather than employed or workers.
What is the difference between employed and self-employed?
For tax purposes, whether employed, self-employed or workers, the driver pays income tax at the same rates. However, they are paid at different times. Self-employed and worker taxpayers (with a tax bill of more than £1,000 that do not have at least 80% of their tax deducted at source) need to pay one payment in advance before the tax year is over on 31 January of 50% of their previous year’s tax (as an estimate), and 50% on the following 31 July. Employees, on the other hand, are taxed at source under PAYE as soon as their wages are paid to them.
There are also differences in the rate of National Insurance contributions (NICs). Self-employed individuals pay Class 4 NICs at 9% on profits in excess of £9,500 (for 2020/21), and Class 2 NICs of £3.05 a week. Employed taxpayers pay primary Class 1 NICs at 12% on amounts over £9,500. The employer is also liable for secondary Class 1 NICs at 13.8% on all cash payments over £8,788 earned. It is therefore more costly for an employer to engage an employee rather than a self-employed individual.
What was the problem?
In addition to the taxation issues, The Employment Rights Act 1996 gives certain rights to employees and workers that are not available for the self-employed.
It was the definition of ‘workers’, found in section 230 of the Act, that caused the problem. The drivers considered that despite their contractual conditions pointing towards a classification of self-employment, the reality of their work and the control that was held over them made the drivers workers and, as such, entitled to the additional rights.
The Uber case
Although there were over 1,000 drivers claiming against Uber, in October 2016 two of these were selected as test cases. They alleged that as workers, Uber had illegally not paid them the minimum wage or paid annual leave. The issues to be considered by the court were whether the drivers were working for their passengers (i.e. forming contracts with them and then invoicing Uber as the provider of the uber ‘app’ and the administrator of the fares), or whether they were working under a ‘contract of service’ for Uber.
Mutuality of the obligation to provide and accept work, the degree of supervision and control, the necessity for personal service and the degree of autonomy, are all essential components in deciding whether one is under a contract ‘of’ or a contract ‘for’ services. All of these were considered. In addition, the relative bargaining power of Uber compared to a driver was also considered.
Because Uber had all the control (i.e. standardised the fares, wrote the contract terms, monitored the drivers, controlled routes and the type of cars), the Employment Tribunal (ET) found the drivers to be ‘workers’. Uber subsequently appealed to the Employment Upper Tribunal (EUT), which agreed with the ET. The case then went to the Court of Appeal, which also agreed with the ET and the EUT. Finally, in July 2020, the Supreme Court heard the case. Their unanimous decision was that the drivers were indeed workers, despite the terms of the contract.
Practical tip
Although Uber will not have to operate PAYE or pay employers NICs on the workers’ income, they will be liable to the payment of extra rights such as holiday pay, auto-enrolment, and a guarantee of the national living wage.
