French Court’s Decision, the end of the Uber Business Model?

French Court’s Decision, the end of the Uber Business Model?

Andrew Abou Khater - Associate

French Court’s Decision, the end of the Uber Business Model?

Since its establishment Uber technology Inc. (‘Uber’) argued that it is simply a platform linking self-employed drivers with riders, an argument that allowed Uber to avoid taxes, social charges, compliance with labor laws and standard labor costs. Such model as presented by Uber (the “Model”) allowed Uber to quickly become one of the most profitable entities in the world, as low costs met with high returns are the foundation of every successful business.

Despite this Model’s pick, it was increasingly subject to legal critics, as some considered that Uber was acting like an actual employer, without actually incurring the restrictions and expenses that a normal employer usually encounters In some jurisdiction such as France those might become dissuasive.

However, such critics remained without ground until such Model took its first big hit, on March 4, 2020 as the French Court of Cassation (the “Court”) ruled in its decision no 374 (the “Decision”), in favor of an Uber driver, who had asked that his contractual relationship with Uber be changed into an employment contract, the Court being the supreme court in such case, rendered the Decision unappealable by Uber and reclassified driver as an employee.
The Court stated that the relationship of “subordination” is characterized by the workers performing work under the authority of an employer who has the power to issue orders and directives while controlling their execution and penalizing their failures.
Moreover, according to the Court working within an organized service where an employer has the power to give orders and directives, to control the execution and to punish the failings of his subordinate may constitute an index of subordination as the employer unilaterally determines the conditions of performance.

In its reasoning, the Court held that an employment contract exists between Uber and the driver using the digital platform and an application to connect customers and drivers based on the following grounds:
1-    Drivers do not have their own clientele;

2-    Drivers do not choose their tariffs;

3-    Drivers do not choose the exact service they provide (they don't have freedom choosing the itinerary and suffer penalties if they differ);

4-    In the event a driver refuses to obey instructions, such as refusing to take several orders; receiving reports of problematic behavior; or cancellation rate exceeded, Uber might take away the driver’s license and suspend him; and

5-    Uber unilaterally defines the binding terms and condition of the agreement with its drivers.

In addition, the Court argued that independent contractors are characterized by their ability to choose their clients, their tariff, and the service they provide, outside of any kind of subordination to an entity giving instructions and sanctions.

By reviewing the agreement between the drivers and Uber, it is very clear that the drivers are outside every single one of those norms.

Effects of the Decision:

Uber said the court’s ruling would not trigger a spontaneous reclassification of all drivers.

Further, Rym Saker, a spokeswoman for the Uber company in France, said Uber does not expect the ruling to change the settings of contracts between the company and its drivers.
However, even if such decision does not impose any obligation on Uber to sign employment contracts with their drivers as of now, it paved the way to other Uber drivers to demand the same, which might consider filing similar demands. This decision was awaited and might affect the whole “Gig Economy” and similar business models.

“This is a first and it will impact all platforms inspired by Uber’s model,” said Fabien Masson, the lawyer of the former driver.
Moreover, a spokesman said that costs per driver could surge by thousands of dollars if the company must treat drivers as employees and not independent contractors. In London, the company is already in fear of losing its license to operate in the city.
The aforementioned, would leave us wondering if (i) this the end of the Uber business Model; (ii) it will influence the other European jurisdictions or no; and (iii) it will be copied in the United States of America, where a similar decision taken by the highest court would have the force of law, and thus will impose on Uber in the USA to sign employment agreements with their drivers and in such event would not such matter spread all over countries where Uber operates.
What is sure, that this is the beginning of the Model’s decay, which will definitely push Uber into finding an alternative model, otherwise it will be facing profit losses whilst having to abide with many restrictions.

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