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ADCU High Court victory ends 47 years of regulatory misclassification in England that denied minicab drivers their worker rights and compromised passenger safety
ADCU High Court victory ends 47 years of regulatory misclassification in England that denied minicab drivers their worker rights and compromised passenger safety
The ADCU successfully intervened in a crucial legal action at the High Court as two major regional operators claiming to represent more than forty more, failed in their bid to seek relief for the industry’s longstanding exploitative and tax avoiding business model.
Sefton Council and regional minicab operators sought to defeat a declaration that the contract for minicab transport should be between operators and the passenger and not between drivers and passengers as has become the norm because of the failure of nearly every major local authority in England to enforce the law for the last 47 years since the original legislation governing the industry was enacted in 1976.
Read the ruling here.
Background
In 2021, the ADCU defeated Uber in a similar action in the High Court under separate legislation covering only London. As a result, Uber has been forced to change its business model contract directly with passengers rather than misclassifying itself as an agent. This has helped confirm driver status as workers with statutory protections. And since Uber becomes the principal rather than the agent, it is now liable for VAT.
By falsely designating their drivers as principal for the last decade, no VAT has been paid on Uber services since drivers do not earn enough to meet the VAT threshold of £85,000. This changed on October 31, 2022 when Uber announced that it had reached a settlement with HMRC for back VAT payment of £615 million in unpaid tax. In our opinion, this is another HMRC sweetheart deal with Uber paying only a fraction of what is really owed.
Legal action in this case
Now, in order to level the competitive playing field nationally, Uber is seeking a declaration at the High Court to the one imposed on it for London to cover the rest of England and Wales. This is opposed by the Veezu Group, Delta Merseyside and a coalition of operators they claim to represent. The ADCU is intervening in the action to ensure the worker’s voice is heard. Sefton Council is the named Defendant for the purposes of this declaration and is claiming to be neutral before the court.
Section 56 (1) of the 1976 could not be any clearer:
“For the purposes of this Part of this Act every contract for the hire of a private hire vehicle licensed under this Part of this Act shall be deemed to be made with the operator who accepted the booking for that vehicle whether or not he himself provided the vehicle.”
Yet, despite the obvious clarity of the meaning of the letter of the law, not a single licensing authority in England and Wales has bothered to enforce this provision nor has HMRC insisted upon VAT payment accordingly.
The declaration Uber seeks to clarify Section 56(1) is as follows:
In order to operate lawfully under Part II Local Government (Miscellaneous Provisions) Act 1976, a licensed operator who accepts a booking from a passenger is required to enter as principal into a contractual obligation with the passenger to provide the journey which is the subject of the booking.
Why ADCU intervened in the case
The ADCU intervened in the case because the declaration Uber seeks is too limited. Uber seeks to restrict the application of Section 56 (1) only to cases where a booking is sub-contracted from one operator to another. We say the meaning of Section 56 (1) applies to all booking, in all circumstances, at all times.
We also intervened because Sefton Council failed not only in its public duty not only to uphold the law since 1976 but also in its duty to support the claim for a declaration. Instead, Sefton Council while declaring neutrality is effectively supporting a prevailing industry model based on tax evasion and worker rights abuse. In their submissions to the court Sefton Council said:
“enforcing a requirement that operators or drivers are not to apply the agency model would not bring any additional public safety benefit, and has the potential to indirectly disadvantage the safety of the public in ways that are not possible for the Defendant to predict. If the Act is to be interpreted in the terms of the proposed declaration, this would require the implementation of new standard conditions by each provincial local authority, and give rise to complexity, the risk of conflicting conditions, and resulting increased costs to authorities, which will be recoverable by increased licence fees and ultimately passed on to passengers.”
This analysis runs counter to common sense and the judgment handed down against Uber in London last year which found that misclassification of drivers as the contract principal endangered the public and weakened consumer rights. The Council that if minicab operators are to pay their workers and tax properly they may have to raise fares and this could endanger the public who might have reduced access to abysmally low fares. In other words, the Council advocates a dangerous race to the bottom.
Uber’s motives in bringing this action are distinctly suspect given it took the opposite position just a year ago and given that it remains in defiance of the 2021 Supreme Court ruling on worker rights. And, as mentioned above, Uber has opportunistically sought a narrower definition than what we believe parliament intended.
The ADCU intervened because the current practice of contractually misclassifying drivers as the principal has enabled operators to set up sham self-employment arrangements to deny driver’s their rights. Clarifying the law on who is allowed and who is prohibited from contracting passengers will clarify the employment relationship. We are also intervened because the current model is a race to the bottom that is detrimental to driver and passenger safety. Finally, we intervened to prevent future unfair VAT liability being dumped on drivers by bad bosses.
The ruling
Mrs Justice Justice Foster DBE agreed with the ADCU on all points and the current industry practice upheld by negligent Councils for 47 years must now end. Private hire operators must now accept the contractual responsibility for the transport of their passengers, respect driver worker rights and pay all taxes due. In her ruling Mrs.
Justice Foster DBE provided the following legal analysis:
On worker rights:
There is considerable strength in the view that a properly regulated and remunerated pool of drivers is a benefit to public safety. It is clear also from The Maxwell Stamp Report that the agency driver model was deprecated by the Committee. ADCU advanced a series of compelling arguments to the effect that drivers’ working conditions may well improve as a result since they would at least in some circumstances, be recognised as workers with working time, sick pay and minimum wage rights. ADCU did not accept that since the old style agency model was the backdrop to the 1976 Act, it determined its interpretation: they point to the fact that Maxwell Stuart suggested reform. I agree.
On public safety:
I am not persuaded that the issue of public safety is a weak purpose and of little use for the construing of the 1976 Act. Veezu and Delta suggested the licensing mechanism and the requirement for insurance were adequate protections, and there was no drive to construe the provisions as UBL argued. Such measures in my view are, as noted by ADCU, ex post facto remedies and are no substitute: one may not insure against criminal acts. Furthermore such provision does nothing to raise standards; it is not precautionary. Thus, without such a direct responsibility placed upon operators, there is less likelihood that drivers will be trained or their performance managed: it conduces to better standards and public safety which serves the purpose of the 1976, as the 1998 Act. These were the submissions of ADCU; I agree.
On Uber's bid to restrict the declaration:
There is no reason on the wording to limit this to the first sub-contractual situation only, as suggested by UBL: the contract of hire should always be with the operator who has interacted with the hirer/passenger, since he can control the booking, the driver under the Act is, as submitted by ADCU, subordinate to the operator, working (unlike the hackney cab who plies for hire), entirely through the operator.
On rejection of Sefton, Veezu and Delta's argument that VAT and worker rights liability would damage the trade:
The VAT consequences for those who will wish to change their operating model are in my judgement irrelevant. They do not condition the reading of the provisions, it could never be said that a change in the taxation position is an absurd consequence the draughtsman could never have contemplated would result and did not intend. It, together with certain postulated economic consequences do not have relevance to the exercise of statutory construction before the Court. Nor indeed, as was canvassed in argument, is it wholly impossible that any consequent change by way of increase to fares because of an element of taxation would necessarily be passed on to the customer.
ADCU reaction:
James Farrar, ADCU General Secretary said:
“This case has arisen because, despite the clear meaning of the letter and spirit of the law, not a single licensing authority in England has enforced these regulations in the 47 years of the history of this legislation. These regulations are necessary for the safety of the travelling public, to prevent exploitation of workers and to curb tax evasion. It should not be the responsibility of unions to ensure the industry is regulated properly but we will continue to do whatever it takes to clean up the industry and make it fit for workers and the travelling public. We will now redouble our efforts to hold local councils to account for their negligence and to challenge exploitative minicab operators that have blighted the industry for decades. The ADCU is committed to cleaning up the minicab trade for once and for all. ”
Azeem Hanif, ADCU East Midlands Chair said:
“This has been a terrible, 47 year long miscarriage of justice. The purpose of the legislation is to protect workers and passengers yet local councils and operators subverted the law with tragic consequences. Part of the problem is a corrupt culture of cronyism between regional operators, council licensing committee and licensing authority staff to the exclusion of licensed drivers. Starting from Monday I will be asking tough questions of the councils in my region - including Nottingham City Council, Leicester City Council and Northampton City council - as to why this was allowed to happen. Driver licensees and the travelling public deserve a full independent inquiry into what I can only describe as a public scandal. ”
The ADCU was represented by William Kenyon at ITN Solicitors and Claire McCann of Cloisters.
