Uber is the app created by Uber Technologies that allows you to hail a taxi from your smartphone. Since the company’s founding in San Francisco five years ago, it has grown into a worldwide phenomenon that operates in 58 countries.

Uber is seen to embody the “gig economy” – the trading of commissions for work online. The company’s business model relies on it acting as a middleman between drivers and passengers. It is effectively a means of organising an army of freelance workers.

Regulatory problems

A protest by black cab drivers in London

From the start Uber has had to struggle with a number of challenges to its legitimacy. Most countries have regulation that covers the operation of taxi hiring services and some states deem that Uber does not meet these stringent rules.

Taxi drivers in some cities have protested against what they view as Uber’s erosion of an established means of operation. There have also been complaints about the practice of “surge pricing” by which Uber raises taxi fares significantly during times of high demand.

Uber: facilitator or employer?

At the heart of Uber is its fleet of drivers, which the company calls “partners”. In theory, anyone with their own car can work as a Uber driver.

The key question facing many countries in which Uber operates is whether the drivers who work under the Uber umbrella are self-employed contractors or whether in reality they are employees of Uber. The distinction is important given that employees have extensive rights protected by law which are not available to the self-employed. Courts will have to consider the employment relationship as defined by law in the light of the new type of working arrangement made possible by technology which Uber has adopted.

Uber views its drivers as independent contractors, arguing that each driver works according to terms that it sets. However, a number of recent cases in the USA have questioned whether Uber’s control over work performed by its drivers means it is an employer. In June, the California Labor Commission decided that an Uber driver could be classified as an employee rather than an independent contractor. The driver was awarded US$4,000 for driving expenses. Similar lawsuits are pending in San Francisco.

Uber drivers: contractors, workers or employees?

To decide the employment status of Uber drivers, the court will need to determine the reality of the employment relationship between Uber and its drivers. This may differ from Uber’s view of the relationship and will ultimately depend on the court’s assessment of three elements:

1. Personal service – must the Uber driver provide his driving services personally or can he send a substitute to perform them?
2. Mutuality of obligation – is Uber obliged to provide work to the driver who must then carry out that work when it is offered?
3. Control – what degree of control does Uber exercise over the manner in which a driver carries out the work?

Even if the court does not consider Uber drivers to be employees, it is still open to the court to find that they are workers. Self-employed contractors may be workers if they provide services to another so long as that person is not a professional client. The GMB union has recently announced it will be launching a court claim to enable Uber drivers to receive benefits that are due to workers.

At the moment, the outcome is unclear. Other technology businesses, such as Airbnb, will be watching the impending court cases against Uber with interest as they will impact upon the viability of a new business model. It is debatable whether Uber would remain profitable if it was obliged to foot the bill for employee benefits as this would have a significant impact on the company’s labour costs.

Photograph: “London anti-Uber taxi protest June 11 2014 036” by Flikr user David Holt and Uber car interior by Flikr user Joakim Formo used under Creative Commons Attribution 2.0 license