Uber suffers blow as High Court ruling triggers overhaul of London business model

Uber has lost a High Court case over whether its operations were compatible with transport operating laws in London, in a decision that will trigger an overhaul of the entire ride-hailing sector in the capital.

The High Court ruled on Monday that it was unlawful for a private hire vehicle (PHV) operator to act as an “agent” between a driver and a passenger. This means that Uber and other ride-hailing companies, not individual drivers, will enter into contracts directly with passengers and will be held liable for anything that goes wrong with the service.

Until now, Uber has claimed it acted as an agent in passenger bookings and that any contract for transportation services was made between drivers and passengers.

The decision means that drivers are in effect working for the operator, a move that could trigger further worker claims across the ride-hailing sector in London. It is also likely to put Uber and its rivals on the hook for paying value added tax.

The ruling is set to make waves in the private hire industry in London as almost all the estimated 1,832 Transport for London (TfL) licensed operators — not just Uber — have used the existing model of operation since regulatory supervision began in 2002.

Uber brought the legal action after the UK Supreme Court in February ruled that Uber drivers were workers and therefore entitled to the minimum wage and holiday pay.

It sought clarity on a point of law after a Supreme Court justice, Lord George Leggatt, suggested that Uber was not only in violation of employment law, but might also be in violation of transport law administered by TfL.

Leggatt had said there was “no factual basis” for Uber’s contention that it acted as an agent for drivers. TfL remained neutral during the legal challenge.

Mr Justice Peter Fraser and Lord Justice Stephen Males concluded in Monday’s ruling that “to operate lawfully, an operator must undertake a contractual obligation to passengers”.

Uber said: “This court ruling means that all the details of the Supreme Court decision are now clear. Every private hire operator in London will be impacted by this decision, and should comply with the Supreme Court verdict in full.”

TFL put out a notice on Monday to private hire firms saying that all operators will need to take steps to ensure that they comply with the High Court judgment, “including considering whether any changes to their way of working are required”.

James Farrar, general secretary of the App Drivers and Couriers Union, claimed that the legal action was a “failed collateral attack” on the Supreme Court ruling by Uber. “Rather than fix its broken business model, Uber was determined to double down,” he said. “It clears the way for all drivers in the sector to seek worker rights protection.”

Mick Rix, national officer from the GMB trade union, said the ruling provided “clarity” in determining private hire drivers were workers. “It means TfL’s guidance is now incorrect and it means most operators are acting illegally and must get their house in order,” he said. Rix urged other private hire operators, such as Bolt and Addison Lee, “to change their business models in light of today’s judgement”. 

George Maier, a fellow at the London School of Economics specialising in platform economics and worker relations, said that if Uber is forced to pay VAT in relation to the full amount charged to passengers, “it would land them with a substantial tax bill that will force the platform to either increase prices, and risk reducing demand, or face even larger losses than it is already dealing with”.

In a filing to the Securities and Exchange Commission in 2019, Uber warned that HMRC could impose a 20 per cent VAT bill on gross bookings or on the service fee that the company charges drivers, both retroactively and prospectively, if it determined it was a transport provider. At the time, sources told the Financial Times that the bill could be more than £1bn.

This article has been amended to correct the title of Lord George Leggatt