Uber Runs Into Legal Headwinds In Delhi And Luxembourg

On Monday May 9, 2017, the Delhi High Court issued notice in Delhi Commercial Driver Union vs Union of India, in a petition requesting it to direct the Union of India, the Labour Department, and the Transport Department, to set up a Committee for the monitoring of the implementation of labour and social welfare laws with respect to the relationship between Uber/Ola, and their drivers (as well as looking into pay and work conditions, and framing guidelines for compensation in cases of injury or death on the road). The next date of hearing is August 10.

The premise of the petition is that Uber and Ola drivers are “workmen”, and fall within the legal category of “employees” – because it is only if these conditions are satisfied will the range of labour laws cited in the petition – such as the Industrial Disputes Act – be applicable. These labour laws regulate the relationship between employers and employees on a range of issues, including hire/fire, changes in service conditions, and so on, and also establish a dispute resolution machinery that can be activated at the instance of either party.

Consequently, what is at stake in this petition is the threshold question of whether India’s labour law regime will apply to the relationship between Uber/Ola and their drivers, or whether – as Uber/Ola are likely to argue – these taxi aggregators are merely playing the role of online conduits, connecting drivers to customers through a mobile app (and charging a commission for this service). If the Court was to hold in favour of Uber/Ola, then the legal relationship between them and their drivers would be solely governed by the contract that is entered into between them.

In fact, the petitioner – who claims to represent 1,50,000 drivers throughout the National Capital Region – makes the precise argument that Uber/Ola arbitrarily alter their drivers’ pay and service conditions to their detriment without notice (something that is specifically prohibited by the Industrial Disputes Act).

While this case is in its earliest days at the moment, it is clear that it will present novel and difficult issues for the Court; this is perhaps the first time that complex questions involving the legal regulation of the “gig economy” are coming before the Indian courts. The question of what constitutes a relationship of employment in Indian labour law has evolved incrementally over the last sixty years (see Section C1 for an evolution of the case law) in the context of the physical world. Taking as its paradigm the factory and the shop floor, the courts have fashioned a jurisprudence where an employment relationship depends upon the degree of control exercised by the “principal employer” over the workmen claiming employee status. Control, of course, is a multi-faceted phenomenon (and there is some dispute over what the law, at present, precisely requires by way of control), and includes the power to fix wages, the power to hire and fire, the power to take disciplinary action, the power to direct not just the outcome of the work, but the manner in which it shall be done, and so on. The question before the Delhi High Court will be how to apply this concept of control to a non-manufacturing service relationship that exists almost entirely in the online domain, and involves three parties: the driver, the customer, and the online aggregator (Uber/Ola).

In its petition, for example, the the petitioner argues that its drivers have no control over fares, no control over the routes, and no control over accepting or denying ride requests. It argues that applicants must undergo an “extensive verification process” before they are hired. Vehicles must be less than ten years old, and white in colour. Drivers who decline more than three trips are “logged off” the system, as are those whose “ratings” fall below a certain threshold. Consequently, the petitioner argues that Uber/Ola’s claim that they are merely “platforms”, designed to “facilitate” the direct relationship between customers and drivers, is not borne out by reality. petitioner relies upon recent judgments by the California Labour Commissioner and the U.K. Employment Tribunal to substantiate its case. And in response, Uber and Ola are likely to argue what Uber has been arguing in courts throughout the world – that its role is purely that of an online conduit: the drivers are self-employed, individual “entrepreneurs”, simply making use of an electronic service to better reach their customers.

In fact, just last week – on May 11 – the Advocate-General of the European Court of Justice delivered an opinion on whether Uber was an “information society service” or a “transport service”. The question was referred to the ECJ by the Commercial Court of Barcelona, which was hearing an unfair competition dispute between one of the traditional taxi associations, and Uber. Leaving to one side complex issues of EU law, the case was referred because the Court’s jurisdiction to adjudicate it depended upon whether Uber was a “transport service” or an “information technology service.”

The Advocate-General recommended that Uber be treated as a transport service. His reasoning is of some interest.

An “Information Society Service”, under the relevant EU Directive, was defined as “any service normally provided for remuneration, at a distance, by electronic means and at the individual request of a recipient of services.” As the Advocate-General correctly noted, Uber’s was “a composite service, since part of it is provided by electronic means while the other part, by definition, is not.” (paragraph 28) Now, since the purpose of this Directive was “liberalising information society services, liberalisation confined to the electronic component alone must have a real impact on the possibility of pursuing the activity.” (paragraph 31) In other words, the part of the service provided by electronic means would have to be “economically independent” of the part of the service provided by non-electronic means (as in the case, for instance, online sale of goods – the delivery of the goods (non-electronic part) was incidental and economically independent).

The Advocate-General then asked:

“What is Uber? Is it a transport undertaking, a taxi business to be blunt? Or is it solely an electronic platform enabling users to locate, book and pay for a transport service provided by someone else?” (paragraph 41)

He then observed:

“In its written observations, Uber claims that it simply matches supply (the supply of urban transport) to demand. I think, however, that this is an unduly narrow view of its role. Uber actually does much more than match supply to demand: it created the supply itself. It also lays down rules concerning the essential characteristics of the supply and organises how it works. ... Uber makes it possible for persons wishing to pursue the activity of urban passenger transport to connect to its application and carry out that activity subject to the terms and conditions imposed by Uber, which are binding on drivers by means of the contract for use of the application. There are numerous terms and conditions. They cover both the taking up and pursuit of the activity and even the conduct of drivers when providing services.” (paragraphs 43 – 44)

The Advocate-General then went on to detail the terms and conditions, including roadworthiness of the car, the possession of a license, no criminal record, Uber’s ability to tailor its supply to its demand, control over quality (through the ratings mechanism), and price-setting (through an algorithm). Consequently, the Advocate-General found that:

“Thus, Uber exerts control over all the relevant aspects of an urban transport service: over the price, obviously, but also over the minimum safety conditions by means of prior requirements concerning drivers and vehicles, over the accessibility of the transport supply by encouraging drivers to work when and where demand is high, over the conduct of drivers by means of the ratings system and, lastly, over possible exclusion from the platform. The other aspects are, in my opinion, of secondary importance from the perspective of an average user of urban transport services and do not influence his economic choices. Uber therefore controls the economically significant aspects of the transport service offered through its platform.” (paragraph 51)

(As an aside, it is interesting to note that in Hussainibhai’s Case, overall economic control was one of the tests laid down for determining whether a relationship of employment existed).

Importantly, immediately after this, the Advocate-General linked his finding with the traditional concept of control in the “real world”, drawing an analogy with the physical shop floor:

“While this control is not exercised in the context of a traditional employer-employee relationship, one should not be fooled by appearances. Indirect control such as that exercised by Uber, based on financial incentives and decentralised passenger-led ratings, with a scale effect… makes it possible to manage in a way that is just as — if not more — effective than management based on formal orders given by an employer to his employees and direct control over the carrying out of such orders.” (paragraph 52)

Consequently, he found:

“… Uber’s activity comprises a single supply of transport in a vehicle located and booked by means of the smartphone application and that this service is provided, from an economic standpoint… by Uber or on its behalf. The service is also presented to users, and perceived by them, in that way. When users decide to use Uber’s services, they are looking for a transport service offering certain functions and a particular standard of quality. Such functions and transport quality are ensured by Uber.” (paragraph 53)

The Advocate-General was careful to clarify that this finding had no bearing on the question of whether drivers were employees of Uber, since a transport service could just as well be provided on a contractual basis (paragraph 54). What it did imply, however, was that Uber could not simply be treated as an “intermediary” between drivers and passengers:

“Drivers who work on the Uber platform do not pursue an independent activity that exists independently of the platform. On the contrary, the activity exists solely because of the platform… without which it would have no sense.” (paragraph 56)

Consequently, because “the supply whereby passengers and drivers are connected with one another is therefore neither self-standing, nor the main supply, in relation to the supply of transport. Consequently, it cannot be classified as an ‘information society service’.” (paragraph 62)

Although – as pointed out above – the Advocate-General specifically stated that his finding on whether Uber was a “transport service” or an “information society service” had no bearing on the question of whether there existed a relationship of employment between Uber and its drivers, there is little doubt that there exists a significant degree of overlap between the two, as was evidenced by the Advocate-General’s own concession that what his finding did imply was that Uber was not a mere “intermediary”. Other overlapping issues are evident from the excerpts cited; it now remains to be seen how the Delhi High Court will eventually analyse the issue.

This article was first published on The Public Sphere.

Gautam Bhatia practices law in Delhi, and is the author of ‘Offend, Shock, and Disturb’. He blogs about the Indian Constitution at indconlawphil.wordpress.com.

The views expressed here are those of the author’s and do not necessarily represent the views of BloombergQuint or its editorial team.