Uber app

Ride-Hailing App’s Operating Model Is Unlawful

The High Court has declared Uber’s business model in which the app platform acts only as an agent to a ‘contract’ between driver and passenger, unlawful.  This means that Uber, not individual drivers, will enter into contracts directly with passengers and will be held liable.

This is the latest in a string court of cases involving Uber and this new decision will also impact other ride-hailing apps that are operating on the same basis.  Uber has long argued that its role was confined merely to that of an internet booking agent and that it was not a party to any contract for the provision of transport.

Long-standing regulations, dating back to 1998, establish the conditions for a private hire vehicle booking to be lawful in London.  When the Supreme Court earlier this year was considering the employment status of Uber drivers it suggested Uber’s operating model was unlawful in relation to the private hire regulations.  In response Uber has sought for their model to be confirmed as lawful, however the court has found the opposite to the case.

Importantly, there are ramifications for Uber drivers and their employment status:

  1. The Court ruling states that passengers can only contract with the business providing the service,
  2. Which means that passengers are not entering an agreement with the driver per se,
  3. Which therefore means that the drivers are working for the business and not for the passenger.

This is important because if the drivers were truly self-employed they would be entering into a contract with the passengers, however the court ruling effectively states this is not the case.

An additional consequence of the ruling is that Uber is likely to need to start paying VAT.  Previously, with their drivers effectively contracting with the passengers VAT wasn’t usually incurred as most drivers would be below the VAT threshold.  However, now that Uber is confirmed as contracting with passengers then they are responsible for the income generated which will be above the threshold.  As VAT is currently 20% this could mean Uber prices rise by 20%.

There are other ride-hailing apps within the platform economy who are going to be affected by the decision and it will be interesting to see how they react.

 

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