LONDON (Reuters) - Taxi app Uber UBER.UL should treat its drivers as employees and pay them the minimum wage and holiday pay, a British tribunal ruled on Friday, in a verdict that could hit thousands of firms and deliver a blow to the 'gig economy'.
Two drivers brought their case to an employment tribunal in July, saying the rapidly expanding app, which allows users to book and pay for a taxi by smartphone, was acting unlawfully by treating them as self-employed and not providing certain rights.
Uber said it will appeal against what unions described as a "monumental" verdict.
The decision could also affect those who work for firms such as meal delivery services like Deliveroo, in the "gig economy" where individuals work for multiple employers day-to-day without having a fixed contract.
"This is a monumental victory that will have a hugely positive impact on drivers ... and for thousands more in other industries where bogus self-employment is rife," said Maria Ludkin, legal director at the GMB union which brought the case.
Uber is valued at $62.5 billion (48 billion pounds) and its investors include Goldman Sachs (GS.N) and GV, formerly known as Google Ventures (GOOGL.O).
It has faced protests, bans and legal action around the world including in the United States and much of Europe.
British judges ruled that Uber should pay the drivers the minimum wage, currently 7.20 pounds ($8.80) for over 21-year olds, and that working hours began the moment most drivers logged into the app.
"The Uber driver's working time starts as soon as he is within his territory, has the App switched on and is ready and willing to accept trips and ends as soon as one or more of those conditions ceases to apply," they said in their verdict.
Lawyers representing the drivers said there will now be a further hearing to calculate the holiday and pay that they should receive and the firm may have to pay pension contributions.
Firms in Britain such as sports retailer Sports Direct (SPD.L) have faced a backlash over their use of zero-hour contracts which erode pay and job security.
THREAT TO BUSINESS MODEL
The ruling could have implications for thousands of businesses across Britain and may influence judges in other countries where Uber faces legal battles, according to the head of legal and advisory at Peninsula, which advises companies on employment law.
"Judges in those other countries hearing test cases like this will be mindful of the fact that their colleagues in Britain have thought this and it may influence their decision," Bertrand Stern-Gillet.
In the United States, Uber faces lawsuits and California state regulators ruled last year that an Uber driver should be treated as an employee rather than a contractor, although that has yet to be extended to all drivers in the state working on the platform.
A French court fined Uber 800,000 euros ($900,000) earlier this year for running an illegal taxi service with non-professional drivers and slapped smaller fines on two of its executives in the first such criminal case in Europe.
In Britain, the San Francisco-based firm had argued that its more than 40,000 drivers enjoy the flexibility of being able to work when they choose and receive on average much more than the minimum wage.
Uber's UK general manager Jo Bertram said it will contest the decision: "While the decision of this preliminary hearing only affects two people, we will be appealing it."
Most employees in Britain are entitled to the minimum wage but the self-employed do not qualify.
One of the two drivers who brought the case, James Farrar, said that in August 2015 he earned less than the 6.70 pounds ($8.80) an hour for those aged 21 and older which was then the minimum wage at the time.
Uber said he had picked a month in which he had logged onto the app for the longest period of time but had canceled or not accepted the most amount of jobs.
While many welcomed the verdict, some drivers worry that Uber may not win its appeal.
"If the whole model changed, where Uber had to employ drivers and then take the risk on whether there was jobs for them, it wouldn't work and therefore I wouldn't have the flexible lifestyle that I have," said 66-year-old Steven Rowe who has been with Uber for nearly four years.
"My biggest concern is that they would pull out of the U.K.," he told Reuters.
(Editing by Stephen Addison/Ruth Pitchford)