Uber vs. London, Round Two: Tribunal Weighs Whether Drivers Are Contractors

By Stu Woo and Greg Bensinger Features Dow Jones Newswires

As Uber Technologies Inc. tries to negotiate with London regulators over its operating license, the ride-hailing company is fighting another battle in Britain with high stakes for its broader business model.

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On Wednesday, following a monthslong dispute, Uber argued in a London appeals tribunal that its U.K. drivers should be treated as independent contractors, not as workers, and so shouldn't be entitled to benefits such as minimum wages and paid vacations.

Uber is planning to take up a separate appeals process relating to last week's decision by London's top transportation authority that it wouldn't renew the ride-hailing service's operating license citing a lack of corporate responsibility.

Both London skirmishes are adding to Uber's regulatory and legal headaches around the world. The threat to its operating license could eventually shut it out of one of its biggest global markets.

The case at the heart of Wednesday's tribunal over the legal status of its drivers also carries large, long-term repercussions. The worker-or-contractor question has been one of Uber's biggest regulatory hurdles, both in the U.S. and further afield. At the heart of the issue is whether Uber drivers should be considered employees of the company--and be granted worker benefits and rights that typically go with such status.

Many drivers and their representatives say they should. Uber has said they shouldn't. In the U.S., drivers have repeatedly sued Uber over their status as contractors. One current case could affect several hundred thousand drivers in California and Massachusetts.

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The question of whether "gig economy" workers should be treated and paid like regular employees has vexed Silicon Valley investors and entrepreneurs. Uber's business model, as well as those of startups including TaskRabbit Inc. and delivery-service Postmates Inc., relies on workers assuming costs including fuel, vehicle maintenance, registrations and insurance.

That keeps overhead costs down. Labor costs for such app-based companies could rise 20% or higher if they must treat workers as employees, by some estimates. The companies say they would have to cut workers and raise rates for customers.

Some companies, including grocery delivery service Instacart Inc., have converted some contractors to full- or part-time employees, in part to ensure they get proper training and can be told when and where to work, as well as requiring they wear uniforms.

The tribunal in London is one of the highest-profile legal cases concerning the employee-versus-contractor question. The body's decision would have no impact on Uber operations in the U.S., but it could require Uber to make costly changes to its relationship with tens of thousands of drivers in the U.K. It also carries with it the prospect of serving as a precedent across Europe and Asia, where Uber has expanded rapidly.

Uber is appealing the October 2016 British tribunal ruling that said drivers were entitled to workers' rights. The appeals-tribunal judge heard arguments on Wednesday, the hearing is planned to continue into Thursday. The claimants, two Uber drivers, have been assisted by local labor union: The Independent Workers Union of Great Britain.

As dozens of members of the union protested outside the central London tribunal, Uber's lawyer, Dinah Rose, laid out Uber's case for considering drivers contractors: they can work whenever they like, or not at all; they aren't required to wear uniforms; they can seek fares from other apps at the same time as they are looking for riders via Uber's app.

"There is no exclusivity requirement here," Ms. Rose said. "All of the claimants are free to work for as many people as they like...including direct competitors of Uber."

A decision isn't expected for weeks or months. Uber's separate appeal over its ability to renew its operating license in London would progress in parallel, and could also last months.

Last week, London regulators vowed not to renew Uber's license, citing what it said were failures in corporate governance, including in areas such as driver background checks and reporting serious crimes. Uber has contested this characterization. It says it uses the same background check process as London's black cabs, and said it follows all rules related to reporting crime.

Write to Stu Woo at Stu.Woo@wsj.com and Greg Bensinger at greg.bensinger@wsj.com

(END) Dow Jones Newswires

September 27, 2017 09:08 ET (13:08 GMT)