Uber’s Supreme court defeat hailed as a victory for inside IR35 'workers'

A Supreme Court judgment finally ruling Uber drivers to be ‘workers’ and not independent contractors is being seized on as a boon for limited company workers caught by IR35.

Issued on Friday following a virtual hearing in July, the judgment states that individuals should not be denied rights just because they can be “designated” a ‘contractor’ or ‘partner.’

Supreme Court judge Lord Leggatt said that the “whole purpose” of employment legislation was to “protect” individuals from, among other things, being ‘subjected to unfair treatment.’

'Game-changer if inside IR35'

“It surely follows that if a contract is caught by IR35,  then ‘worker’ status follows on”, reflects Philip Ross, a founder of the UK’s contractor trade body, now known as IPSE.

“Though HMRC seems to think there is no link, the court using the same rules think there is,” he posted. “[This] will change the game for gig workers, but also for inside-IR35 contracts.”

Tom Wallace, head of tax investigations at WTT Consulting sounds less convinced that the case has ramifications for off-payroll personnel ruled ‘inside’ new rules from April 6th 2021.

“Now that Uber drivers are classified as workers, they will be entitled to, amongst other things, National Minimum Wage, paid holiday, and unlawful discrimination [coverage].

“While this adds to the body of case law on employment status, in my view it does not introduce any new points of law”, he wrote on LinkedIn.

'Positive for IR35-caught individuals'

But James Poyser of off-payroll.org believes that, on its surface, the verdict against the ride-hailing company does have “positive consequences for anyone inside IR35.”

“[We now know that] Uber drivers are, in fact, workers. They’re afforded the rights and protections of workers.

“Today, if you’re inside IR35, you’re taxed as a worker, but with no rights and protections that workers get.

“This will be increasingly problematic for end-clients,” he said. “[The] ruling means it will be more difficult to justify taxing someone like a worker, without giving them worker rights.”

'Irreducible minimum of obligation'

Crucially for other gig-economy employers, Lord Leggatt strongly suggested that those rights start to accrue as soon as individuals driving for Uber logged onto the company’s app.

To try to counter that drivers switching on the Uber app is akin to undertaking a contractual obligation to work for the company, Uber’s said individuals could still choose to refuse jobs.

But the judge hit back with the ‘irreducible minimum of obligation,’ saying it’s not the right to refuse work that matters for worker status, but that there is an obligation to do some work.

'Deliveroo and others may fall in line'

Acutely aware that Uber is far from the only gig-economy employer to require its workforce to sign-in to its own application to start work, is WTT Legal trainee solicitor Leila Ghazzali.

“It will be interesting to see whether those with similar business models such as Deliveroo attempt to distinguish themselves from the decision,” she said, “or fall in line.”

Angela Ferguson, head of employment taxes at Saffery Champness, believes there are four main grounds which led Lord Leggatt to his decision.

'Deactiviate drivers who didn't improve after repeated warnings'

First, Uber set the fares and so dictated how much drivers could earn, and second, the company also set the contract terms and drivers had no say in them.

Third, Uber could penalise drivers for refusing too many rides and fourth, it monitored a driver’s service via a ‘star rating’ and could “deactivate” them if it did not improve after warnings.

“Therefore, the court found that the drivers were in a position of subordination to Uber,” Ms Ferguson added, “where the only way they could increase their earnings would be to work longer hours.”

'Clear warning ahead of April's off-payroll rules'

“The ruling should serve as a stark reminder to businesses that employment status isn’t always clear-cut,” warned Seb Maley, chief executive at Qdos.

“Decisions must be made carefully. If a firm engages an individual under the wrong status, the cost - both financially and reputationally - can be massive.”

Also clearly thinking of the ruling’s implications for engagements under the April 6th IR35 framework is Crawford Temple, chief executive of Professional Passport.

“This judgement should serve as a clear warning to any company that believes they can just circumvent the new off-payroll rules by moving workers to ‘self-employed.’

“Existing legislation in the sector, together with reporting requirements would make this a very high-risk strategy, particularly in light of this outcome.”

'Not necessarily for tax purposes'

His comments come as lawyers at Leigh Day estimate that Uber drivers could be due compensation averaging £12,000 each, but Lord Leggatt said it would be for an employment tribunal to decide how much the company will specifically pay out to each ‘worker.’

Meanwhile, amid online talk of his ruling being a boon for inside IR35 workers, Blick Rothenberg’s Heather Self took to Twitter to stress that the judge only determined the Uber drivers to be deserving of worker status, so “this does not necessarily mean that they were employees for tax purposes.”

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Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
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