The U.K. Supreme Court shook up the gig economy when it ruled that Uber must classify drivers as workers rather than independent contractors.

U.K. judges classified drivers as workers after considering the reality of how drivers interacted with Uber, which is in conflict with the Uber contract drivers sign. The language in Uber contracts explicitly identifies drivers as self-employed and implies certain freedoms. Yet, Uber dictates drivers’ rates, gives penalties for too many declined rides (thus monitoring drivers), and controls how they’re evaluated, among other factors that are not consistent with self-employment.

Uber has fought similar cases and class-action lawsuits for years. Will U.S. courts reach the same conclusion as those in the U.K.? No matter what happens, employers need to be aware of the worker classification implications that might follow.


What This Ruling Means for the U.K. Economy

With this ruling, Uber must treat drivers as workers, providing the associated worker rights that go along with it. This includes minimum wage for all hours worked and active on the app (not just time spent driving), holiday pay, rest breaks, and so on. Given how the U.K. Supreme Court arrived at its decision, other gig economy companies could also see costs skyrocket if their contractors are reclassified as workers or employees.

However, because gig workers run the gamut of industries and services provided, the U.K. Uber ruling does not have clear-cut implications for others in the gig economy. For example, self-employed workers assigned to short-term projects might still have control over how, when, and where they provide their services. In those cases, the courts would still likely classify them as self-employed.

What’s clear at this point is that simply identifying an individual as self-employed in a work contract isn’t enough in the eyes of the law. The reality of the engagement has to align with how the law defines self-employment.

The era of the independent contractor isn’t over, however. Companies can and will still rely on them. For the companies (and entire industries) that rely on self-employed workers, changes surrounding how to determine independent contractor status could force changes to the business model if the reality of how they are engaging these workers doesn’t align with the definitions of self-employment.

U.S. businesses should closely follow these developments. After all, the same forces at play in the U.K. also exist stateside.


What This Ruling Means for the U.S. Economy

The question the U.K. courts ruled on — What does it mean to be self-employed? — is one that’s hotly debated in the U.S. right now.

Uber has already faced multiple class-action lawsuits over how it treats drivers. However, California drivers recently voted to pass Proposition 22, which contains an exception for gig-economy drivers to remain classified as independent contractors. Passing with nearly 60% of the vote, Proposition 22 suggests there’s also a push to retain a broad definition of self-employment.

Indicators about the future of U.S. employment law continue to emerge. For example, 4,800 drivers filed the latest class-action lawsuit against Uber as recently as January 2021. The U.S. House of Representatives also recently passed the Protecting the Right to Organize Act of 2021 to protect workers seeking to unionize and penalize companies that violate workers’ rights.

This legislation would impact freelancers and gig workers, as it incorporates a more stringent definition of self-employment than the federal test that’s currently used.


Looking Ahead

Even if the Senate votes down the legislation or the lawsuits against Uber cease, the way we define employment will continue to evolve. For companies using gig workers and independent contractors, proper worker classification will be critical from here forward.

Everyone needs to understand how their employment needs intersect with the gig economy and how they currently handle gig economy worker classification. Both will likely change in coming years, though exactly how they will evolve remains to be seen. But the companies that prepare for change early are the most equipped to adapt whenever and however necessary.

If you’re not sure whether your workers are classified accurately in the U.S., use our free interactive assessment tool, the Risk Calculator, to help determine your misclassification risk factors. In just a few short steps, learn your risk level and any associated penalties and fees.


Written by: Sara Jensen, Vice President of Business Development at IES

Sara Jensen is the vice president of business development at Innovative Employee Solutions (IES), a leading global employer of record in more than 150 countries that specializes in payrolling and contractor management services for today’s contingent workforce. Founded in 1974 in San Diego, IES has grown into one of the city’s largest women-owned businesses and has been named one of its “Best Places to Work” for 10 years in a row.

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