Switzerland: UBER-Drivers Are Entrepreneurs, Not Employees - A Liberal Pleading

Last Updated: 11 January 2017
Article by Thomas Rihm

The question whether an UBER driver is an entrepreneur or an employee affects a variety of legislative areas in Switzerland (like in other countries): amongst others, if Swiss employment laws apply, the employee has a basic right to perform the agreed upon work and the employer must accept such work and pay for it (the "mutuality of obligations test"). There are specific termination notice periods to be observed, holidays must be granted and salary compensation entitlements exist in cases of illness or accident.

Public labour laws in Switzerland including its staff brokerage and leasing legislation apply as well (basic Sunday work ban, compulsory provisions on daily and evening work and on mandatory rest periods). The gross salary is subject to deductions for various social security insurances covering the risks of age, invalidity, death or unemployment, whilst similar deductions take place under the mandatory pension fund schemes. Employees are mandatorily insured against the financial risks of accident. Public transportation laws both on the federal and cantonal (state) level apply to the UBER business model too. And tort laws are also at stake though not yet much discussed in Switzerland (e.g. affecting the question whether UBER or the independent taxi driver is targeted in the case of a car crash with personal injury and/or property damages).

"The term "sharing economy" is a misnomer as we are by no means back to a pre-capitalistic barter society."

Our further remarks focus on Swiss employment and labor laws though UBER contracts in Switzerland contain a choice in favor of Dutch laws and have an ICC-arbitration clause (both are most likely enforceable in the area of private employment laws, but not in terms of public employment laws). Swiss staff brokerage and leasing legislation requires Swiss employment contracts as well and are not discussed any further.

UBER as part of the "sharing economy"

The business model of UBER is just one of numerous business models in the fledgling "sharing economy". The term "sharing economy" is perhaps a misnomer: we are by no means back on the way to a pre-capitalistic barter society, as the "sharing economy" still means the mercantilistic brokerage of products and services (at least in most of its business cases). Whilst Airbnb is the most prominent broker of residential rentals, the sharing economy rapidly expands into other areas such as personal services, clothing, car and bicycle renting, lease of parking lots, the provision of food and beverages, and corporate finance (just to name a few examples). At the end of the day, it is still the brokerage of products and services against consideration, thereby applying most modern digital technologies what allows a variety of additional revenue streams in comparison with traditional brokerage. According to somewhat reliable estimates, about 4 million workers are currently engaged in the sharing economy in the United States (this number rapidly rising; no figures around for Switzerland).

"In the eyes of many, UBER is a globally operating transport company with 10,000 employees in approximately 60 countries."

Now, nobody would dare to call the business model Airbnb as a globally active hotel group with 2 million employees - engaged in 192 countries and 34,000 cities respectively. Nevertheless, in the eyes of many, UBER is a globally operating transport company with 10,000 employees in approximately 60 countries. At the center of the worldwide judicial and/or administrative disputes is the question of whether the UBER Group controls and subordinates the drivers to an extent that makes them employees.

Integration and subordination of UBER drivers as legal litmus test

The question to answer in almost all jurisdictions is to what extent UBER-drivers are integrated into UBER, so that one can legitimately speak of a workforce. The United States Fair Labor Standards Act of 1938 (which is undoubtedly employee friendly) takes this approach by requiring employer's control and the employer's instructional rights including the need for physical integration into the employer's work environment. Governmental agencies and courts in the United Kingdom follow the same route.

"Integration and subordination are primarily given where the employer has a broad and detailed authority as to how the employee must perform its work."

Similarly, the Swiss Federal Supreme Court in a long-standing practice assumes an employment relationship when a person is integrated and subordinated into the employer's work organization which position is backed unisono by Switzerland's legal commentators. The test for integration and subordination is also the legal litmus test for the country's social security and pension fund legislation.

Integration and subordination are primarily given under Swiss employment laws where the employer has a broad authority as to how the employee must performed its work in detail. Amongst others, this means a physical presence obligation, which applies as well to the increasingly popular home telework. This test is related to the obligation to be available for work for a certain time frame within a day, a week or month. In turn, the employee has a fundamental right to perform his or her work. Both workers and employers have (if at all) only limited discretion in shaping these two last-mentioned aspects.

"It is important to note that UBER-drivers are not obliged to provide a certain number of hours of work per day, week, month or even per year."

A labor law integration or subordination is further given if the employee must perform its work in person at the employer's work facilities. Despite all technical developments, work in Switzerland still takes place at a specific workplace, even if a globalized economy often requires its cadres and specialists to work in different work locations. The need for physical presence is not affected by the increasingly popular telework. The employer also provides the infrastructure necessary for the provision of work, i.e. the work equipment and the work devices (e.g. PCs, telephones, other office equipment such as an office table and an office chair, lunch facilities or sanitary installations, mobile phones, etc.). In Switzerland, the physical presence and infrastructure test still remains a cornerstone when assessing a working relationship.

The Swiss Federal Supreme Court also considers subordination and integration given if the worker is economically dependent. This test applies to constellations where there is a lack of legal or economic decision-making on the part of the employee, in particular where there is only one employer due to an exclusivity clause. According to the Swiss Federal Supreme Court, part-time workers with only one employer can also enjoy economic decision-making freedom.

"Both UBER and its drivers lack central employment contract rights instrumental for the defintion of an employment relationship."

Integration and subordination at UBER

The business model of UBER should be reviewed in light of these principles developed by the highest court in Switzerland. Accordingly, it is important to note in first instance that UBER drivers are not obliged to provide a certain number of hours of work per day, week, month or even per year (except for the fact that the UBER driver's contract in Switzerland is automatically terminated if no service took place during 90 days). The UBER driver does not even has a binding obligation to be available for a specific time window. It is only when the UBER-driver has, at his discretion, accepted a specific transportation job, he is obliged to perform his work.

Before this, the UBER-driver is completely free to accept or reject his or her passengers and their transportation instructions (for example, a four or five hour trip within Switzerland or even beyond the country's border, or a destination into an uncomfortable city district). Conversely, the UBER-driver has no claim to get certain transportation jobs assigned. Accordingly, both contracting parties lack central employment contract rights, which are instrumental for the definition of an employment relationship. For the courts in the United Kingdom, the "mutuality of obligations" is also the legal litmus test when classifying independent vs. dependent work performance.

Moreover, UBER-drivers do not know any integration into the work organization of UBER. They also provide significant operational capital, namely the purchase of the car and the driving recorder (the U.S. Federal Labour Act of 1938 calls this the "relative investment comparison test"). When it comes to making these entrepreneurial investment decisions, UBER drivers are largely free, apart from the fact that the car must be a well-maintained (UberPOP) or must be a middle class model (UberX) with four doors, which cannot not be older than ten years; The premium class UberBLACK is subject to higher standards). Under the "relative investment comparison test" applicable in Switzerland, UBER-drivers are not employees as they cover all other operating costs (car maintenance, motor vehicle taxes and car insurance, governmental permits, food and beverage, tolls and parking charges, mobile phone charges; just to name a few examples). In Switzerland, the assumption of substantial investment and other operating costs is also instrumental for social security purposes.

"Courts in the U.K. also apply the "mutuality of obligations"-principle as the legal litmus test when classifying independent vs. dependent work performance."

The entrepreneurial delcredere risk, which has played a certain role in Anglo-Saxon jurisdictions in the past, is of minor importance to the UBER business model (as is the case with other business models of the "sharing economy"), since the transportation fare is billed solely via credit card systems. The UBER rider is more likely to have the risk that a passenger does not appear at all, for which a charge of CHF 10 is levied as well via the credit card system. In other words, the UBER driver needs not the employment protection against the delcredere risk.

For most UBER-drivers, an economic dependency should not be apparent either. In line with this test prescribed by the Swiss Federal Supreme Court, there is no exclusivity that UBER-drivers provide his or her services only to UBER-customers. Thus, UBER waives a fundamental right as an employer, namely to prohibit the employee from a competitive activity during the current employment contract (but also post-contract), which plays a role under Swiss social insurance laws well. The vast majority of UBER drivers have other customers and they are free to leave the UBER platform at any time in order to take up a competing activity. Uber-drivers thus enjoy the legal and economic decision-making freedom required by the Swiss Federal Supreme Court. This includes the decision-making freedom of a taxi driver to make no use of the UBER's platform at all (which is the case in many places). Only if this sort of economic independence is no longer given, there is a need for governmental intervention, not by the labor courts or social insurance authorities, but rather by local governmental competition/monopoly commissions. These competition-related aspects of a potential market abuse are to be discussed further below.

"UBER waives a fundamental right as an employer to prohibit the employee from a competitive activity."

Minimal-invasive control rights of UBER

In July 2016, the major Swiss trade union UNIA published a legal opinion by a Swiss social law professor, who identified extensive control rights of UBER headquarters over its taxi drivers. The alleged "smoking guns" are the UBER-driver's obligation to inform his passenger on his or her arrival at the agreed starting point of the taxi ride, a waiting time of ten minutes (if the passenger does not appear in time), as well as the reporting back on the journey once executed. According to the expert opinion, UBER's customer feedback system is also a control tool, because when the UBER-drivers get lower grades they could also be assigned fewer transportation jobs.

"End-price fixing by UBER in its vertical distribution channel is rather a cartel or competition law issue."

All these allegedly onerous control instruments are found in the Swiss contract reality a thousand times. To name only a few examples: the self-employed gardener, garage owner or tailor must also take instructions as to how the garden, car repair or tailoring should be carried out. Gardener, garage owner and tailor may face potential price reductions, if customers are not entirely satisfied with their work, or they will even have less or no work in the future. The small-time distributor, who has committed himself "nolens volens" for minimal sales under a rigorous quality management, has the same fate. None of the gardeners, garage owners, tailors or small-time distributors would consider themselves as employed workers (and they would even fiercely dispute such classification). Conversely, these proud entrepreneurs would rightly oppose more extended directives as to how they should perform their work.

Price determination and payment collection by UBER

The UNIA-sponsored expert opinion does not address what is an important part of the contracts between UBER and UBER-drivers, i.e., UBER's right to dictate unilaterally the transportation fares to be charged and any discounts to be granted on those fares. One might be tempted to say that an UBER-rider thereby waives his or her instrumental entrepreneurial right to determine the value of its own service or products. This view ignores, however, the fact that any end price fixing in vertical distribution is ultimately a cartel or competition law issue. A dominant market position of UBER would not be a prerequisite for an intervention by anti-cartel commissions (at least not in Switzerland).

The fact that UBER cashes in the entire transportation price and repays the UBER-driver a so-called service fee of 80 percent is not entirely congruent with UBER's claim to be a mere platform provider. Applying Cartesian strictness, the UBER-driver would cash in 100 percent of the transportation fare and would pay UBER a 20 percent brokerage fee. Swiss employment specialists have also argued that the UBER-driver must provide its services in person, what is supposedly typical for an employment relationship. This argument fails too because for instance a mandatee-agent must perform in person too (in the absence of any other agreement).

"It is typical for a Swiss brokerage contract that the client, i.e. the UBER-driver, does not have to accept a specific job contract."

Brokerage, mandate or agency contract

UBER claims that its contractual relationship with taxidrivers is a brokerage pursuant to Arts. 412 et seq. of the Swiss Code of Obligations ("SCO"). Accordingly, UBER agrees to broker transportation jobs to UBER-drivers. According to the UBER business model, UBER is not obliged to act in any way as a broker. An obligation to broker is only assumed if exclusivity is part of the brokerage contract, what does not corespond with the UBER business model. However, there is an obvious business interest on the part of UBER to arrange for as many transport jobs as possible.

It is also typical for a Swiss brokerage contract that the client, i.e. the UBER-driver, does not have to accept a specific contract (here the transportation job), which is also in line with the UBER business concept. Under the UBER-agreement, there is no obligation on UBER's side to compensate the UBER-driver for any of its financial expenditures of whatever sort. As opposed to an employment or mandate agreement, UBER is only compensated if a success is accomplished, presently a particular transportation job. This latter consideration leads over to the transportation contract concluded between the UBER-drivers and their clients, which are considered in most cases work contracts ("Werkverträge"), whose compensation model are also success-based. In the rarer cases of limousine services concluded for a specific time period, Swiss lease provisions might apply instead.

In concluding this brief, it can be also stated that the contractual relationship between UBER and UBER-drivers is not subject to any agency contract provisions pursuant to Arts. 418a et seq. of the SCO. This view is appropriate since it is not the UBER-driver concluding any transportation jobs on behalf and on account of UBER as UBER is not in the business and not in a position of providing transportation jobs on its own.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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