1 April 2021

The recent ruling from the UK Supreme Court that Uber drivers must be treated as workers rather than self-employed could spell the end of the gig economy, writes Corentin Curchod.
Man driving a car

Let us look at the two sides in the case.

On one hand, the drivers pointed out that the time they spend in their car waiting for a request is not leisure time. It was compared to waiters waiting for orders, or sales assistants waiting for the next client. If one accepts this comparison, Uber’s definition of work amounts to paying waiters only when they serve a drink, or sales assistants when they advise clients. Drivers would need to be immediately available more than the standard 40 hours a week to make a living.

On the other hand, one can point out that the comparison with pub waiters and sales assistants is not valid, as it compares traditional employment with modern gig work.

Uber drivers in the UK can earn the minimum wage despite unpaid waiting time. If one takes the average fare of £14 per hour, one can assume that the net salary per hour of work, including waiting time, is £8.40 (accounting for 40% salary missed due to waiting), which is almost the minimum wage.

In London, the net salary is £10.20 per hour, which is above minimum wage. One can assume that for most drivers, waiting time is less than 40%, hence their net salary can be higher than that (academic research has shown that Uber drivers spend a higher fraction of time with a passenger in their car than taxi drivers do).

So, where does this leave the company?

If drivers are paid for their waiting time, the Uber model becomes less of a gig model, and more of a pay-by-the-hour model. This raises the question of whether the gig model is valuable to our societies, and if we want to keep it or not.

For Uber, this raises the question of the capacity of the company to switch to another business model. If it shifts towards hourly salary instead of a pay-per-gig, it may need to reduce drivers’ payments per ride. This will equalise wages across drivers.

However, many drivers appreciate the competitive environment that Uber creates and the feeling of being responsible for one’s salary. If the app is reduced to counting the number of hours and allocating rides, this may not be as appealing for some.

There is the risk for Uber that drivers go to quiet parts of town instead of busy ones, if they are certain of receiving a minimum hourly wage despite doing very few rides. If this happens, Uber may not be able to survive at all, or may need to control its drivers more.

Uber needs to finance the additional costs associated with the Supreme Court decision. It could increase the price of its rides, but there is a competition problem, as its competitors (for example Bolt or FreeNow) are not impacted by the decision.

It could cut the share for the drivers, but that would make it less attractive for them. Besides, Uber is not profitable yet, and therefore has little room for manoeuvre.

And where does this leave the wider gig economy?

The decision, by increasing the pressure on platform operators, may curb the expansion of the gig economy and platform-based work. Some will rejoice and consider it good news for workers. Others will see this as a blow to innovation and a step backwards.

The decision, by keeping the matchmaking capacity of platforms but removing the market-pricing capacity, may change the gig economy. One can imagine similar decisions taken for freelancing companies (Amazon Mechanical Turk or Upwork), or food delivery (Deliveroo or Just Eat), inciting them to drop the market-pricing model and adopt a more standard pay-by-the-hour model. This may lead some actors to exit the market.

Further down the line, the solution for companies would be to eliminate human intervention entirely. If the work could be done by machines, the question of how to pay humans would become irrelevant.

In the case of Uber, the decision could accelerate their research and development of driverless cars (for taxis) and drones (for delivery). Uber and Hyundai have recently signed a partnership to develop autonomous electric air taxis.

Last July, Uber tested its delivery drones in San Diego with success: the drone delivered two McDonald’s burgers and chips to a customer! If this trend is confirmed, there may be no more 'work' in 'gig work' within a few years.

Corentin Curchod is a Senior Lecturer in Strategic Management and Organisation at the University of Edinburgh Business School.

World of Work