Uber faces multiple challenges for its business model in Europe

Uber’s business model is challenged on several fronts in Europe, as an EU legislative proposal and a UK High Court ruling threaten to dramatically increase its costs.

On Monday, the UK High Court ruled that Uber’s operating model was incompatible with London transport laws. This means that Uber and other ridesharing operators can no longer see themselves as platforms connecting drivers and passengers, but must now function largely as taxi companies, with obligations to their passengers and drivers.

For Uber, which has already requalified its worker drivers, the decision could result in a hefty tax bill. Jolyon Maugham, a tax lawyer who heads the Good Law Project campaign group, said the ruling could affect an ongoing dispute over Uber’s potential VAT obligations, estimated at around £ 1.5 billion, and its future obligation to pay VAT on drivers’ receipts. Maugham said the move could also prompt HM Revenue & Customs to take a closer look at the tax positions of Uber and other operators.

Uber declined to comment on potential tax liabilities, but the court ruling risks putting its promises of continued profitability, on an adjusted basis, under further pressure. Uber earned just $ 8 million for its “profitable” first quarter in the June-August period of this year.

“It’s a global punch for the carpooling model. Uber had to adapt quickly in the UK, ”said Daniel Ives, managing director of investment firm Wedbush Securities. “The fear was that more countries would follow what we saw in the UK, and those fears are coming true.”

For the first nine months of 2021, the UK accounted for 8% of all of Uber’s global gross carpool reservations. Uber has already paid around £ 116million to its UK drivers on paid leave and set aside $ 600million earlier this year to deal with driver retrospective claims, following a Supreme Court ruling that determined that his drivers were workers and therefore entitled to benefits.

However, concerns about broader regulation have been confirmed by a new European Commission bill, due to be released this week.

Under the proposals, seen by the Financial Times, all businesses in the odd-job economy – from food delivery to cleaning services and carpooling – will be required to prove for the first time that their workforce is entrepreneurs. independent and not employees. Until now, workers in the odd-job economy were generally considered self-employed and therefore were not entitled to minimum wages, sick pay or public holidays.

The draft rules shift the burden of proof of workers’ status to platforms, such as Uber, Ola, Deliveroo and others, which must demonstrate that they do not control how workers perform their jobs. Companies will therefore have to meet several criteria, including ensuring that couriers and drivers are able to choose their own schedules and able to work for others, to challenge their claims to employment status.

“The employee model flies in the face of what the odd-job economy was built on,” Ives said. “So I think it might reduce the expansion of ridesharing companies across Europe, and obviously it’s a lot less profitable. We estimate the impact on profits to be in the hundreds of millions of dollars for the entire carpooling market in the EU, ”he added.

The change reflects a “fundamental and long-standing problem” about how companies in the odd-job economy outsource work, expense and risk, said George Maier, a research fellow at the London School of Economics specializing in economics of platforms and labor relations. is this model slowly hitting regulatory and legal barriers globally. “

Meanwhile, EU rules are expected to become law by the end of this current legislature in 2024, although the timeline may slide. If implemented by member countries in its current form, the EU, analysts and Uber agree that all businesses in the odd-job economy will experience increased costs, especially in terms of labor. artwork.

The EU estimates the changes could cost the entire industry up to 4.5 billion euros ($ 5.1 billion) more per year, according to draft proposals being considered by the FT. Uber added that there would be significant negative consequences in terms of job losses, rising consumer prices and an overall market contraction.

However, the threat to concert businesses more broadly is not “existential”, analysts say. “It is very rare that behaviors change when the Internet does, even with cost inflation. Restaurants pay an additional 25 basis points on the commission and the customer pays an additional 25 pence. That’s it, we’re all moving forward, ”said Giles Thorne, Equity Analyst at Jefferies.

The most worrying issue is the imposition of a rigid working model, Thorne said. “At this point, for platforms with a long growth path, having a flexible working model contributes to the overall scalability of your business. Fixed employment is not flexible.

Jason Galbraith-Marten, the QC who represented the App Drivers and Couriers Union in the latest High Court proceedings against Uber, said it was “now very likely that all drivers of private rental vehicles in London will be properly considered employed by the operator (or operators) they drive for ”, meaning that thousands of additional drivers would be eligible for labor rights such as the right to minimum wages, paid vacation and adequate breaks.

Mick Rix, a national official for the GMB union, said he had previously told Bolt – who maintains his drivers are self-employed, and recently announced a policy allowing London drivers to set their own fares – that he would sue for backdated compensation if the company did not change its business model.

Additional reporting by Hannah Murphy and Dave Lee

Mary I. Bruner