Uber lost a major legal battle on Wednesday, when the European Union’s highest court declared that the ride hailing app must comply with tough rules governing traditional taxi associations, a significant setback for a company already grappling with a string of scandals.
The decision by the European Court of Justice, that Uber is a transportation company rather than an online platform that simply matches passengers with drivers, could thwart Uber’s expansion plans in the region, by making it pay costly licensing fees and employee benefits.
Uber will have to start treating drivers more like taxi chauffeurs, rather than independent workers with no link to the company aside from a smartphone app.
The ruling is a landmark in the hazily regulated world of the gig economy, a growing part of the work force in which people work as freelancers or on short-term contracts as opposed to holding permanent jobs.
Policymakers around the globe have been struggling with how to frame labor rules for a new style of employment, as rapidly shifting business models outpace regulations that for decades were formulated around traditional 9-to-5 jobs. Legislation in many countries has lagged rising trends toward atypical work arrangements that companies use to cut costs.
The uncertainty has fueled a wave of litigation, leaving the courts to create a patchwork of regulations.
“It’s normal that authorities don’t know what to do — they can’t just issue regulations any time somebody claims to operate a new business model,” said Valerio De Stefano, a law professor at the University of Leuven in Belgium. “The litigation will lead authorities to better understand what is the reality of the work in the platform economy.”
In Uber’s case, the company has faced or brought lawsuits in a number of European Union countries and in North America, ranging from anti-competitiveness claims to labor disputes.
The case before the European Court of Justice on Wednesday centered on a complaint brought by a taxi group based in Barcelona, Spain. The group argued that it was unfair that Uber did not have to adhere to the same rules it did while operating in the city.
The latest ruling comes at a crucial time for Uber. The company’s new chief executive, Dara Khosrowshahi, has said he wants to take the company public as early as 2019, but the ride-hailing service has instead been in the spotlight for largely negative reasons in recent months, including accusations of sexual harassment in the workplace and being barred from operating in London. Just last week, court documents confirmed that federal authorities in the United States were pursuing at least one criminal investigation into the company.
Still, the case may provide a benchmark for countries seeking to regulate the realm of independent work, whereas much as 30 percent of the working age population in the United States and Europe labors, according to the McKinsey Global Institute.
Some worry, though, that such a group of workers could soon become an underclass.
Mohaan Biswas, 24, a student earning a master’s degree in information technology in London, suffered a broken foot this year after a car knocked him from his motorbike while he was conveying food for Deliveroo, the online food delivery start-up.
He wasn’t paid sick leave while recovering and his insurance refused to cover the cost of scooter repairs. To earn badly needed cash, he started riding for Deliveroo again, this time on a bike, and driving part time with Uber. But he had to work long hours to make ends meet.
“You end up trapped in this kind of cycle,” Mr. Biswas said. The biggest shock, he added, was to “feel you’re in the hands of other people who ultimately just don’t care: They don’t care until you come back in as a cog.”
For policymakers, the challenge is to strike a balance between imposing labor protections and heeding warnings by businesses groups that tighter regulation will increase costs and thwart innovation. Revenue from sharing businesses in the region reached an estimated 28 billion euros, or $33 billion, in 2015, the European Commission reported.
But such numbers may mask the precarious side of atypical work. In Spain, for example, the government reported that 18 million temporary contracts were handed out last year, compared with 1.7 million long-term jobs.
“The financial crisis took away a lot of permanent stable employment and skewed statistics to say we have record high employment,” said Jeremy Coy, a partner and labor law specialist at the London based law firm Russell-Cooke. “People may be forced to get that work because it’s the only work out there.”
Efforts are underway to modernize the rules. A British review of “modern working practices” urges changes such as reclassifying gig economy workers as “dependent contractors” who would be entitled to employee benefits and social security. The European Commission is also backing proposals to combat declining standards for those with ultra-flexible working hours and no regular salaries.
Some companies are leading change. In Sweden, an Uber competitor called Bzzt, an app-based transport service, employs drivers on regular contracts with social security, health insurance and other benefits.
“We don’t need to exploit our staff to be profitable,” said Sven Wolf, the chief executive.
In the absence of clearer rules, workers in the freewheeling world of gig work are also turning to unions to help wrest concessions from companies that have grown into juggernauts on the back of flexible labor.
Riders for Foodora, a food delivery service with operations in Europe, Asia and elsewhere, set up a works council this year in Austria. Crowdsourcing platforms in Germany recently co-signed a code of conduct with IG Metall, the country’s largest trade union.
Mags Dewhurst, a former architecture student in London, said she never thought of joining a union until she became a self-employed courier at CitySprint, a British delivery network.
When the company did not grant her holiday pay, she took CitySprint to a labor tribunal and won back pay of 200 pounds, or $270. But the battle cost more than it was worth: Trying to pursue a claim while bicycling 50 miles a day to earn her basic wage was exhausting. She has since joined the Independent Workers Union of Great Britain.
“If governments are confused, they could literally get a job at a courier company for a week as a van driver or on a bike,” Ms. Dewhurst said.
Then, she added, “they’ll realize exactly what they need to do.”