Uber reclassifies UK drivers as workers – here’s what happens next

A person using the Uber app in London.

Peter Summers | Getty Images

LONDON – Uber’s decision to reclassify its UK executives as workers will, according to analysts, lead to increased costs for the firm, which would hurt the company’s prospects in its key European market.

Uber said on Tuesday it would start treating all 70,000 drivers in Britain as ‘workers’ entitled to a minimum wage, holiday pay and pension plans. It is worth noting that this does not mean ’employee’, a separate legal status in the UK with extra employment rights.

This comes weeks after the country’s high court upheld the ruling that managers were workers, not independent contractors. While the decision applied to a small group of executives, thousands of others took action against the company. And experts have warned that this could have far-reaching consequences for the broader conservative economy.

For Dan Ives, managing director of equities research at Wedbush Securities, the move is a ‘gut punch’ for Uber’s outlook in the UK

“We believe the company will reduce its footprint of drivers and driving by about 30% over the next 12 to 18 months,” Ives told OilGasJobz in an email on Wednesday.

“It’s just about profitability for Dara & Co., and because London is a Top 5 market worldwide, the math is not favorable for Uber on employee reclassification.”

The company says it still expects to achieve adjusted EBITDA profitability by the end of this year.

An important market

Uber’s UK driving business accounted for 6.4% of all gross mobility bookings in the fourth quarter of 2020. London is still the most important market in Europe. Uber has about 45,000 drivers and 3.5 million riders using its app in the UK capital.

This is not the first time that Uber’s business has ended up in Britain. London’s transport watchdog, TfL, has the company twice stripped its license to operate in the city due to safety concerns. Uber received an 18-month London license in September.

Meanwhile, Uber has long criticized the London black cabin industry, politicians and unions. James Farrar and Yaseen Aslam, the drivers who successfully defeated Uber in court, said the driver’s reforms did not go far enough.

“The Supreme Court has ruled that drivers should be recognized as workers with the rights to the minimum wage and holiday pay to accrue at working hours from check-in to check-out, while Uber is only committed to picking up from the acceptance of the trip to the “Farrar and Aslam said in a statement on Tuesday.” This means that Uber drivers will still be changed to 40-50% short.

The changes announced by Uber include:

  • Paid drivers at least the UK National Life Wage, which is £ 8.72 ($ 12.16) per hour and will rise to £ 8.91 next month after accepting a trip
  • Paid holiday time based on 12.07% of managers’ income, which is paid out fortnightly
  • A retirement plan with Uber contributions as well as driver contributions

The new rules do not apply to couriers in the Uber’s Eats food delivery program.

Count the cost

The move will undoubtedly lead to higher costs for Uber. Experts believe it could also lead to the giant-like giant migrating from some regions.

“In places where Uber cannot avoid giving workers benefits to executives, it is predicted that Uber’s costs will increase to 30%,” Pinar Ozcan, professor of entrepreneurship and innovation at Oxford’s Said Business School, told OilGasJobz said.

One could say that it would bring taxis and Uber in the same area to compete, with the difference between the two being based solely on technology and not on legal loopholes. This could cause Uber to adjust its growth strategy and leave fewer markets. profitable. “

Bank of America estimates that the Uber setback in the UK could cost a total of more than $ 500 million.

“Assuming an 8% increase for UK executives would translate into $ 132 million in hypothetical costs for FY21, or $ 105 million for the remaining approximately 9.5 months,” bank analysts said Tuesday. said a research note. “Uber can probably offset costs with lower incentives for drivers in the UK.”

Potential backdated benefits for Uber workers in the UK could “exceed $ 400 million, depending on the number of drivers in settlements,” they added. However, Bank of America maintains its purchase rating on Uber shares, saying the result ‘reflects evolution, not platform risk’, as new driver benefits could attract more drivers, reduce the need for incentives and increase the benchmark for competition.

“The remaining risk we see in the UK is a possible need to collect and collect a VAT tax (the ruling is expected in the next few months), which is likely to require price increases and price competitiveness. against taxis will decrease, “the bank’s analysts wrote.

Uber says it does not expect to increase rates due to the driver’s changes. However, Ives believes that increased costs for Uber “will eventually … be passed on to the consumer.”

The UK situation reflects Uber’s struggles with California regulators, who last year tried to reclassify Uber drivers and other ride-sharing services such as Lyft as employees to give them more job protection.

But voters support a polling measure called Proposition 22, which exempts Uber and other gig-economy platforms from reclassifying executives as employees.

Uber advocates a ‘third way’ for classifying gig workers who offer protection but still work smoothly. The firm has shared proposals for such a model with the EU as the bloc revises the working arrangements of gig economy platforms.

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