Uber lost a major legal battle on Wednesday when the European Union’s highest court declared that the ride-hailing app is not just a digital company and that it must comply with the bloc’s transportation rules, a significant setback for a company already grappling with a string of scandals.
The decision by the European Court of Justice found that Uber operates more like a transportation service than an online platform that matches passengers with drivers. It is likely to restrict the company from expanding services that allowed nonprofessional drivers to offer rides to clients.
While the ruling focused on these so-called peer-to-peer operations, it will most likely to be scrutinized by regulators looking more broadly at the gig economy, a growing part of the work force, in which people operate as freelancers or on short-term contracts as opposed to holding permanent jobs.
Policymakers around the globe have been struggling with how to frame 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 not kept up with the rising trend 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 anytime 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 — including anti-competitiveness claims and labor disputes — in a number of countries in the European Union and North America.
The case before the European Court of Justice 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, when Uber ran a peer-to-peer service called UberPop, which linked nonprofessional drivers with riders.
The service has since been disbanded in Spain and several other countries, and Uber said it now operated only with professional drivers in the vast majority of the European Union.
In the decision, the court determined that Uber, which connects drivers with riders through a smartphone app for payments, “must be regarded as being inherently linked to a transport service.” The 28 member countries in the European bloc will have to regulate “the conditions under which such services are to be provided,” the court added.
The 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 banned from operating in London.
Just last week, court documents showed that federal authorities in the United States were pursuing at least one criminal investigation into the company.
The ruling is the first to apply to Uber across the European Union. In a statement, the company said that it already operated under the transportation law of most European countries in which it did business, and that the ruling would have little impact. It added that it would continue a dialogue with cities across Europe for its services.
Elite Taxi, the group that brought the case, said in a Twitter post, “Today, taxi drivers have beaten Goliath.”
The Barcelona-based law firm representing Elite Taxi praised the decision and said in a statement that it could be “extrapolated to other businesses that keep trying to avoid legal responsibilities in the services that they provide.”
The case may provide a benchmark for countries seeking to regulate the broader realm of independent work, where as 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 r could soon become an underclass.
Mohaan Biswas, 24, a student working toward a master’s degree in information technology in London, suffered a broken foot this year after a car knocked him from his motorcycle while he was carrying food for Deliveroo, the online start-up.
He had no paid sick leave while recovering, and his insurance refused to cover the cost of repairs to the scooter. To earn 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, the executive arm of the European Union, 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 law firm Russell-Cooke, which is based in London. “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 the change. In Sweden, an Uber competitor called Bzzt, an app-based transportation 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, Bzzt’s chief executive.
In the absence of clearer rules, those 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 felt compelled to join a union after 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.
“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.”