Driven 'round the bend

For a company that has a business model based on contracts, Uber has paid surprisingly little attention to them. Acting as a digital aggregator platform, Uber connects passengers who need a ride, with drivers who are willing to accept the ride request. In facilitating this, Uber has historically classified their UK drivers as independent contractors who work for themselves with Uber simply acting as an agent for them.

The obvious goal behind such a business model is to cut overhead costs. By acting as the drivers’ “booking agent” and taking a percentage of their fee, Uber was able to generate revenue without facing increased costs. However, as Uber continued to scale up, their contracts failed to keep up, sowing the seeds of trouble.

What went wrong?

Chasing rapid growth, Uber became increasingly preoccupied with commercial expansion at the expense of internal due diligence. However, as the company grew, they found themselves dealing with a large and rapidly growing number of contracts, across different jurisdictions. As contracts continue to increase in number, efficient contract management becomes crucial to ensure operational success and steady growth.

Uber's initial business model focused on being a "members only" platform that offered luxury cars to a specific clientele. Specifically, they focused their target group to company executives in the West Coast. However, within two years, they had expanded across target groups and entered international markets such as Paris. Uber was no longer a platform just for business executives, but was accessible to anyone who owned a smartphone with the Uber app in it. Going global meant that new jurisdictions would be at play and, consequently, different legislations and statutory rights would also be applicable. Such global expansion and redirection in their vision meant that their contracts, which are at the foundation of their business model, needed review.

As Uber grew, courts and legislators around the world simultaneously started to develop the law to keep up with them. For example, in Uber’s home base, the California Assembly put forward the California Assembly Bill 5 (AB 5) which requires independent contractors, such as Uber’s drivers, to be reclassified as employees. Closer to home in the UK, frustrated Uber drivers started filing claims with employment tribunals to be identified as Uber’s employees. This culminated into the UK Supreme Court’s ruling in Uber BV v Aslam where the Court held that Uber drivers were no longer “independent contractors”, but Uber employees.

In delivering the judgment, the Court felt motivated to recognise the drivers as employees because Uber’s business practices are in stark contrast to what their contracts claim. The degree of control exercised by Uber, its price-setting mechanism and the way it uses customer ratings to manage drivers’ performance, makes it legally impossible to classify their drivers as independent contractors. Specifically, the main reasons driving this judgement?were - 1) Uber sets the fare price for each ride and the drivers cannot change this 2) Uber’s terms of services are imposed on the drivers who have no power to change them 3) Uber exercises significant control over the way in which drivers deliver their services, which includes using the passenger rating system to decide if the driver can continue driving for Uber and imposing penalties for declining too many rides, and 4) Uber restricts communication between the driver and the passenger, taking active steps to ensure that the driver does not form an individual relationship with a passenger, allowing them to generate further business on their own.

For Uber, these changes were necessary to keep up with their evolving business model. However, what they failed to do simultaneously was to ensure that their contracts were also evolving alongside the business. Effective contract management involves accurate stakeholder analysis and reconciliation of different interests. This means that as a company continues to grow, it needs to ensure that their contracts align with stakeholder interests and the laws implemented to protect workers’ rights. However, Uber continued to expand internationally with little regard for contract management, resulting in two issues with respect to their contracts - 1) it no longer reflected reality 2) it was no longer in compliance with the law. This lapse in contract management has now caused a ripple effect for Uber and inevitable damage to its brand, including the recent UK High Court decision on 6 December 2021, when the bench ruled that Uber’s business model is unlawful.

What could Uber have done differently?

In one sentence, Uber should have reviewed and revised their contracts. Independent contractors and their contracts are not new to the courts. As gig-economies continue to grow in relevance, the courts have been watching with a keen eye, constantly developing the law to keep up with such businesses. This change in market sentiment meant two things for a global company like Uber - 1) at the macro-level, different jurisdictions will approach these contracts differently and 2) at the micro level, your contractual clauses need to be constantly reviewed and redrafted.

Varied approach to gig-economy contracts across jurisdictions

Looking at how different jurisdictions approach these contracts, in Uber BV v Aslam, the UK Supreme Court made it clear that in cases involving the protection of vulnerable workers’ rights, the starting point will no longer be the contract, but black letter law. This would mean that, moving forward, Uber’s Services Agreements will now no longer be viewed on its own. In interpreting these contracts, the courts will now view them in light of the relevant employment laws and the rights provided in these laws to protect workers. This ruling has now set a new precedent for both, businesses and employment lawyers in the UK.

Meanwhile in California, while the Assembly put forward AB 5, effective lobbying resulted in another Assembly Bill - AB 2257 - which exempts many workers from AB 5. Uber and other similar companies were further able to declaw AB 5 by providing massive support to Proposition 22, which declares app-based drivers to be independent contractors. Crucially, while lobbying helped curb the impact of AB 5 in the USA, the UK Supreme Court ruling has set a precedent that gig-economy companies cannot steer from, proving to be a huge blow for Uber’s operations in the UK.

As Uber grew from being a Silicon Valley startup to a global organisation, they failed to recognise that different jurisdictions approach these employment arrangements, differently. In addressing this, Uber should have been adept at managing their contracts and quickly reviewing them, to ensure compliance with constantly evolving regulations.

The need to regularly review your contractual clauses

Uber’s contracts contain certain key clauses that fail to reflect reality. For example, clause 2.4 of Uber’s Services Agreement says, “Uber and its Affiliates in the Territory do not, and shall not be deemed to, direct or control Customer or its Drivers generally or in their performance under this Agreement specifically, including in connection with the operation of Customer’s business, the provision of Transportation Services, the acts or omissions of Drivers, or the operation and maintenance of any Vehicles.” If one were to break this clause down, it says that Uber will not dictate how drivers provide transportation services or attempt to direct their performance. Yet, Uber’s price-setting mechanisms that dictated fare rides and their use of customer ratings to review drivers’ performance, did exactly that. This caused the Supreme Court to declare that the contract does not accurately represent the working arrangement Uber had with its drivers.

Deliveroo on the other hand, successfully used the “substitution clause” in their agreements, to argue that their drivers are not their employees. Substitution clauses allow the person named in the contract to send someone else to do the “work”. In effect, this clause would allow a Deliveroo driver to send in a substitute driver to complete deliveries, without requiring Deliveroo’s permission. This clause was held to be valid by the Central Arbitration Committee because it was viewed as “genuine”. The key lesson, according to Jane Amphlett of Howard Kennedy, is that businesses that want to engage independent contractors must ensure that “their contracts tread the fine line between clever drafting and legal fiction”.

To achieve this, companies such as Uber need to continue to review their contracts and key clauses. In simple words, do your contracts reflect what your workers actually do? Such proactive contract management will allow businesses such as Uber to defeat claims for worker status.

In a nutshell

In Uber’s defence, for a company with offices across 85 countries and several jurisdictions, the simple task of searching through your contracts for key clauses and reviewing them, becomes a Herculean one. This issue is no longer solvable with “ctrl + F”. Large-scale expansion requires a solid contract management infrastructure that is able to review multiple contracts existing and functioning across different jurisdictions, at a single time. This sort of visibility over your contracts and its key clauses, is crucial for a company to achieve sustainable growth. Specifically, businesses should be able to adapt quickly and with ease to constantly evolving laws and changing market sentiment. With Uber failing to do so, its contracts-based business model is starting to bleed and shake the very foundation of the company. To cut a long story short, Uber could have avoided its many legal and business issues that are questioning its very existence, by having done just one thing: paying more attention to its contracts.