Luxembourg - Uber suffered a defeat when the European Union’s top court ruled its ride-hailing service should be regulated as a transport company, a decision that could set a precedent for the burgeoning gig economy.
The EU Court of Justice said on Wednesday that the startup should be regulated as a transport service when drivers aren’t professionals and are using their own vehicles. The company says most of its products are already covered by such regulations.
The decision, which can’t be appealed, clarifies for the first time that connecting people via an application to non-professional drivers forms an integral part of a transport service. It rejects Uber’s view that such services are purely digital.
In the EU judges’ view, “the most important part of Uber’s business is the supply of transport - connecting passengers to drivers by their smartphones is secondary,” said Rachel Farr, senior employment lawyer at law firm Taylor Wessing. “Without transport services, the business wouldn’t exist.”
Uber has argued that it’s a technology platform connecting passengers with independent drivers, not a transportation company subject to the same rules as taxi services. The case has been closely watched by the technology industry because of its precedent for how firms in the gig economy ought to be regulated across the 28-nation bloc.
While the ruling is valid EU-wide, it remains limited to Uber’s actual services and won’t directly affect other disputes Uber is facing over how its drivers are treated. One such case is pending at the UK court of appeal.
Millions of Europeans
“This ruling will not change things in most EU countries where we already operate under transportation law,” Uber said in a statement. “However, millions of Europeans are still prevented from using apps like ours.”
Wednesday’s case centred around UberPop, an inexpensive ride-hailing service in several European cities that allowed drivers without a taxi license to use their own cars to pick up passengers. Legal challenges have forced Uber to shutter UberPop in most major European countries in favour of UberX, which requires drivers to get a license.
Uber isn’t the only business model being questioned by policy makers. In Paris, regulators are clamping down on Airbnb, whose home-rental service has drawn complaints from hotels that are subject to a different batch of rules. Deliveroo, the food-delivery service, is also facing scrutiny over its treatment of workers in the UK and elsewhere.
“We regret the judgment effectively threatens the application of harmonised EU rules to online intermediaries,” said Jakob Kucharczyk, of the Computer & Communications Industry Association, which speaks for companies like Uber, Amazon.com, Google and Facebook.
“The purpose of those rules is to make sure online innovators can achieve greater scalability and competitiveness in the EU, unfettered from undue national restrictions,” he said.
“After today’s judgment innovators will increasingly be subject to divergent national and sectoral rules. This is a blow to the EU’s ambition of building an integrated digital single market.”
Europe is taking a stricter approach to regulating American tech giants. German regulators this week accused Facebook of violating antitrust laws by using data it collects on users, while France’s top privacy regulator told WhatsApp to stop sharing user data from the app with Facebook, which bought the messaging service in 2014.
The European Commission has also targeted Google, Apple and Amazon over their business practices and tax affairs.
The ruling adds to the challenges facing Uber CEO Dara Khosrowshahi, who wants to take the company public by 2019.
Since joining in August, Khosrowshahi has faced a boardroom battle with Uber co-founder Travis Kalanick, a headline-grabbing lawsuit alleging the company stole autonomous car technology from Alphabet’s Waymo, various government investigations, the threat of losing its taxi license in its biggest European market of London, and revamping a company culture considered unwelcoming for women, among other controversies.
Meanwhile, the company continues to lose money and faces a growing roster of well-funded rivals, from Lyft in the U.S., to China’s Didi Chuxing in Asia.
* Sign up to Fin24's top news in your inbox: SUBSCRIBE TO FIN24 NEWSLETTER