Uber Technologies Inc. will reclassify all 70,000 of its U.K. drivers as workers, entitling them to the minimum wage, vacation pay and other benefits after a landmark ruling from the Supreme Court last month.
The ride-hailing app’s drivers will receive at least the national living wage of 8.72 pounds ($12.11) per hour starting Wednesday. This will be the minimum drivers can earn, in what Uber described as an “earnings floor, not an earnings ceiling.”
The U.K. will be the first country in the world where Uber will have this business model. The firm didn’t specify how much the reclassification will cost, but said it doesn’t expect to change its earnings forecast for the quarter or the year. Uber shares declined less than 1% in after-hours trading on Tuesday.
The changes are limited to the U.K., Uber’s biggest European market, but raise questions about whether management is willing to consider adapting its business in other countries. The San Francisco-based company faces legal challenges in its home state of California as well as pressure from European policy makers to improve conditions for gig-economy workers.
“This is an important day for drivers in the U.K,” said Jamie Heywood, Uber’s regional general manager for Northern and Eastern Europe. “Uber drivers will receive an earnings guarantee, holiday pay and a pension, and will retain the flexibility they currently value.”
The ruling also has ramifications for the wider gig economy and other firms that use third-party services to employ freelancers. Heywood said he hopes “all other operators will join us in improving the quality of work for these important workers who are an essential part of our everyday lives.”
The changes could wreak havoc on some tech business models. “The ripples from this decision will travel far and the decision goes to the heart of the gig economy structure,” said Mary Walker, employment lawyer at Gordons, who wasn’t involved in the case. “The lean, low-cost model is eroded by the need to pay minimum wage and to allow holiday,” she said, adding that “some businesses will simply be unable to continue trading with the increased cost base.”
In a stinging ruling last month, the U.K. Supreme Court unanimously rejected Uber’s arguments that the drivers weren’t workers, giving the company little choice but to offer expanded benefits. Uber said after the court ruling that the decision only applied to the handful of people that filed the initial suit. Since then, it’s kept tight-lipped over its future plans for the U.K. business, as it carried out a consultation with its drivers.
“Uber had to be dragged kicking and screaming to do the right thing, but finally they’ve agreed to follow the ruling of the courts and treat their drivers as workers,” said Mick Rix, national officer at GMB, one of the labor unions that supported the case.
“Other gig economy companies should take note — this is the end of the road for bogus self employment,” Rix said.
Under the changes announced Tuesday, the minimum wage will apply after accepting trip requests on the app. Drivers will be awarded vacation based on 12.07% of their earnings, paid out every two weeks.
The workers will also be automatically enrolled into a pension plan that will include contributions of 3% of a driver’s earnings from Uber. This is on top of insurance — which covers sickness, injury and parental leave — that has been available since 2018.
“I’m very shocked to see this. It’s a step in the right direction but it’s something they should have done in 2016,” said Yaseen Aslam, one of the drivers who first brought the case five years ago.
He’s still concerned that because Uber says drivers will be entitled to minimum wage after they’ve accepted trips on the app, they won’t be paid while they’re sitting in their cars, waiting for a job. “They should be saying, the minute you log on to when you log off, you should be earning minimum wage,” Aslam said. “They haven’t fixed the situation like they’re saying.”
The added costs to the company will mostly come from holiday payments and pension contributions, rather than the minimum wage. On average, Uber drivers already earn 17 pounds per hour in London and 14 pounds in the rest of the country, the company said. Its U.K. driving business represented about 6.4% of its global mobility gross bookings in the fourth quarter.
In addition, Uber says it will set up a process for drivers to seek compensation for back-dated holiday pay and lost earnings, without the need to go through the employment tribunal where the case started.
U.K. law is unique in that it distinguishes between employees, who are entitled to statutory employment rights such as severance pay, and workers, who are eligible for the living wage and holiday pay, but not the full range of benefits. Uber has been lobbying for a separate labor classification with limited benefits in the U.S.