Deliveroo and Uber said unfavourable tribunal rulings could seriously change their business models

Uber driver

Food delivery startup Deliveroo and cab-hailing company Uber have acknowledged they would need to make fundamental changes to their businesses if they lose a series of tribunals over the employment status of their workers.

Both firms are examples of the "gig economy," employing contractors as the bulk of their employees rather than full-time staff.

Deliveroo has 15,000 delivery riders, which it defines as self-employed contractors, while Uber has 50,000 self-employed cab drivers in the UK.

The big advantage for Uber and Deliveroo — both high-growth companies which are losing money — don't have to pay costs like national insurance contributions or sick pay when they rely primarily on self-employed workers. Those reduced costs have helped them scale massively.

But each company is facing separate court battles over whether their riders and drivers are actually "workers", who would be entitled to the national minimum wage and paid holiday, and would therefore cost more. Uber is appealing a court decision that its drivers are workers, and is expecting an outcome before Christmas. Deliveroo is similarly awaiting a tribunal decision on whether its riders are workers.

Uber said it would need to become a minicab firm with set shifts and salaries

Andrew Byrne, head of public policy at Uber, told a parliamentary committee of MPs that it would cost Uber "tens of millions" of pounds if its drivers were deemed to be workers.

He said:

"If we were forced to switch all of our self-employed drivers to a worker contract, it's absolutely something the business could cope with. It would change the nature of the relationship we would have with the drivers themselves, we would exert more control between us and the driver. It would involve looking a bit more like a traditional private hire company, the setting of shifts, pay what looks like a salary, that's how we would try and balance supply and demand."

Currently Uber allows drivers to switch on the app whenever they like, meaning there are no set shifts, and no set amounts they can earn.

The company has recently changed its tune about being compared to minicab firms. In 2014, it denounced the industry as "brutally exploitative" for drivers, and said its approach was more transparent. But in its recent tribunal appeal, the firm said it was no different to a minicab company.

In its annual accounts for its UK arm, Uber also acknowledged the tribunal and any subsequent costs as a "contingent liability."

Delieroo said it couldn't sustain its massive growth if it has to pay riders more

Deliveroo said it wouldn't be able to attract enough riders to deliver food if the law changed around worker status. UK MD Dan Warne said riders primarily liked Deliveroo because of the flexibility, but an imposed worker status would change that.

He said the company would need to fork out an extra £1 per hour per delivery rider to cover additional costs. The company already operates on incredibly thin margins, and any additional costs relating to its riders would likely squeeze those margins even more.

"We run a business that has grown exponentially over the last year, we have grown 600% in 2016," UK managing director Dan Warne told the committee. "To maintain that growth, it's important we have a business model that works for the maximum possible amount of people."

He added: "The biggest impact on the model would be that we wouldn't be able to attract the same volume of riders to perpetuate that growth."

Deliveroo MD Dan Warne

Labour MPs are certainly pushing for a change in the law that would give freelancers more legal rights. Frank Field, the Labour politician who previously headed up the committee enquiry into gig economy firms, told Business Insider he was pushing for legislation. Rachel Reeves, the new head of the committee, has also said she wants to introduce a new worker status in law.

MPs said Uber had been hypocritical about losing its licence

Politicians on the committee grilled Uber over its apparent hypocrisy after the company lost its licence to operate in London.

Transport regulator Transport for London declined to renew Uber's licence in September, though the firm can operate while it appeals the decision. Uber subsequently embarked on a campaign to drum up support, accusing TfL of putting its 40,000 drivers out of work and asking customers to sign a petition.

Uber petition

Labour MP Peter Kyle asked why Uber had been so "aggressive" in its response to Transport for London.

He said: "Your initial reaction was that TfL is putting 40,000 people out of business. You are going to court denying responsibility for those people in the first place. So the word on everyone's lips was 'hypocrite,' wasn't it?"

Byrne responded: "I don't know, I think we are conscious of the fact that 40,000 people who do use Uber to make money in London. That fact weighs heavily in our response. Hopefully we can see a path forward with TfL."

Kyle added that Uber wanted to put its drivers out business in the long term because it was working on automated vehicles. "Will you be crying then?" he asked.

Bryne initially cited road safety concerns with human drivers, but then said automated vehicles were still at least a decade away.

"I think there's no suggestion we plan to move forward with total replacement of human drivers with automation. We think a fleet with human drivers will be the norm for 10 or 20 years, that continues to be the case."

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