The "so what" implication of the Uber ruling

blog-publish-date

01 Nov 2016

blog-read-duration

Back in the day, sitting next to Moses, I can still remember our Economics teacher droning on, incessantly interrupting my dreaming and causing me to momentarily listen to what he said. During one such visit to earth, I can recall “The Theory of the Firm” with great lucidity.

I learnt that it’s not just about making profit, asset strippers can do that (can’t they, Sir Shifty?). It’s about being in business next year, and the year after that, and so on. The arithmetic for this (”what I call”) viable sustainability, is easy. As a minimum, a firm must earn an amount to cover all costs, and then some. To thrive and grow, it must also earn profits to pay for investment in the future, such as marketing and product development, and give their investors a return.

The difference between employment classifications

This is where this decision from the London Tribunal will have the biggest “so what” implication: the cost of running a business. Let’s look at why that is. There is a hierarchy of benefits, regulation and protection covering the categories of Employee, Worker, and Self-employed. Here are the key aspects, starting with the Self-employed. Self-employed people have virtually no employment rights. They do not have protection from The Working Time Regulations (WTR), The National Living Wage (NLW), have no entitlement to Statutory Redundancy Pay (SRP), no unfair dismissal rights, and do not accrue length of service. However, for a genuinely self-employed person running a successful business, the sky’s the limit for earnings potential. Worker. They do have protection from WTR, NLW, and unlawful discrimination. Unlike the self-employed, that gives them the right to 5.6 weeks holidays, a minimum wage, and entitlement to breaks. Employee. Every protection offered by UK employment law is there for employees. They get the same as workers, plus unfair dismissal rights, Statutory Sick Pay (SSP), SRP, TUPE, and are able to build length of service.

The Uber Drivers case

In the Uber case, the tribunal has deemed the Uber drivers as workers, instead of self-employed. Uber’s business model (and the business model of similar companies operating the same sort of labour arrangements) has, at a stroke, had its cost structure massively altered.  Its workforce is now entitled to the National Living or National Minimum wage (dependent on age), and 5.6 weeks paid holiday. Only Uber, and the drivers concerned, know the exact wage which has been paid, but there have been press reports that it has paid amounts equal to only half the £7.20 of the NLW. If that is the case, the wage bill would double as a result of NLW regulation, and then further increase by 12.07%, which amounts to the cost of 5.6 weeks holiday.  That’s a total increase in labour costs of 56%. The success and rapid growth of Uber clearly indicates that it operates in a market segment where the supply and demand curves are elastic (an economics term, which means that sales and price are closely linked, in that when the price falls, the sales rise, and vice versa). And why wouldn’t that be so? Faced with a choice of traveling in a black cab for £20, or a saloon car for £15, why choose the black cab? But the arithmetic is changing. Unless Uber can triumph at appeal (and having read the tribunal decision, to me, seems unlikely), it will have to significantly raise the price of its service, (and all of the administration and contractual changes which follow).  It’s difficult to see anything but a substantial reduction in their market penetration, with a corresponding resurgence in the black cab trade. There will be major cost implications for other companies operating a similar model of labour use, and each one will now be looking at their specific cost structures and resultant implications for their business. Certain businesses will not face a challenge as great as Uber’s, there are many business sectors where the supply and demand curve is less elastic.  If weekly grocery delivery costs were to ascend from £5 to £10, how many people would choose to travel to the supermarket instead and endure the queues, to save the difference?

Key Findings and Implications:

  • Uber, and most of the “gig economy”, will see a significant increase in labour costs, both direct and administrative.
  • Businesses operating in markets where the supply and demand curves are elastic will see a decline in their operation, with a commensurate decrease in labour utilised.*
  • Those businesses operating in markets where the supply and demand curves are not elastic will see a much smaller decline in their operation (or even no decline).*
  • Much of the labour force, currently classed as self-employed, will retain their “jobs” and enjoy increased pay, paid holidays and work breaks.
  • The Exchequer will benefit from increased PAYE (income tax) and National Insurance revenue.
  • Like the outrage that Commerce UK outpoured over the WTR, the NMW, the NLW, and the Agency worker Regs. 2010, things will settle down and it will be regarded as quite normal that a group of workers, formally the pseudo self-employed, have been brought into the fold as “workers” to enjoy the entitlement this decision bestows.
  • There will be some job losses.
*As there are many new entrants in the "gig economy", they may, as early entrants in an immature sector, be making "super-normal profits". If that is the case, those organisations are more likely to surrender some profit in order to retain greater market presence. This will be by funding the on-costs from profit, thus releasing less labour than a similar sized organisation making "normal profits".

Free to Download Employer Resources

  • Pay Awards & Forecast (September 2018)

    FREE DOWNLOAD

    Pay Awards & Forecast (September 2018...

    Read Croner Reward's expert settlement and forecast report for September 2018

    Read more
  • Sample Health & Safety Policy Statement

    FREE DOWNLOAD

    Sample Health & Safety Policy Stateme...

    Here we’ve included a free sample Health & Safety Policy Statement that UK business owners can refer to.

    Read more
  • Pay Awards & Forecast (June 2018)

    FREE DOWNLOAD

    Pay Awards & Forecast (June 2018)

    Read Croner Reward's expert Settlements and Forecasts report for June 2018

    Read more
  • How Much Does Employee Turnover Cost Your Business?

    BLOG

    How Much Does Employee Turnover Cost ...

    A recent Glassdoor survey revealed that almost 35% of hiring professionals expec...

    Read more
  • Staff Turnover: What Do You Need to Know?

    BLOG

    Staff Turnover: What Do You Need to K...

    Having a high worker turnover can have mean two things: A negative impact on you...

    Read more
  • What is Wrongful Dismissal?

    BLOG

    What is Wrongful Dismissal?

    If you breach an employee’s contract, you could be liable for wrongful dismissal...

    Read more
  • bemrose-school-derby

    CASE STUDY

    Bemrose School Derby

    “Having Croner-i saves us a lot of time and money, as we do not have to use cred

    Read more
  • wmtr

    CASE STUDY

    WMTR

    “I’d definitely recommend the Croner OnSite services and I have done already, I

    Read more
  • certikin

    CASE STUDY

    Certikin

    “Our Distribution Manager had a particularly technical query relating to respira

    Read more

Ready to focus on what you do best?

Get your free consultation and speak to an expert today.