Blow to Uber in Europe as top court rules it’s a transport service

Europe’s top court has provided the final verdict on a multi-years legal challenge brought by EU taxi associations to Uber’s claim that it’s just a technology platform — with the CJEU today ruling it’s a transport service.

The judgement means Uber must comply with individual Member States’ transportation regulations, and cannot claim its p2p ride-hailing services are only governed by less restrictive EU-wide ecommerce rules.

In its ruling the court writes that Uber’s “intermediation service… must be regarded as being inherently linked to a transport service and, accordingly, must be classified as ‘a service in the field of transport’ within the meaning of EU law”.

“Consequently, such a service must be excluded from the scope of the freedom to provide services in general as well as the directive on services in the internal market and the directive on electronic commerce. It follows that, as EU law currently stands, it is for the Member States to regulate the conditions under which such services are to be provided.”

As we reported earlier this year, an influential advocate general opinion had indicated the decision would not go Uber’s way — with the CJEU advisor stating that Uber “exerts control over all the relevant aspects of an urban transport service”.

Responding to the court’s final verdict today, an Uber spokesperson emailed this statement: “This ruling will not change things in most EU countries where we already operate under transportation law. However, millions of Europeans are still prevented from using apps like ours. As our new CEO has said, it is appropriate to regulate services such as Uber and so we will continue the dialogue with cities across Europe. This is the approach we’ll take to ensure everyone can get a reliable ride at the tap of a button.”

The original legal challenge was filed in 2014 by a professional taxi drivers’ association in Barcelona — seeking a declaration from that court that the activities of Uber’s Spanish unit amount to misleading practices and acts of unfair competition. In order to determine that matter, the court decided it needed a judgement on whether the services provided by Uber are transport services, information society services or a combination of both. Hence the case being referred to the CJEU.

While the court’s verdict is certainly a blow to Uber’s expansion ambitions in Europe, and will feed back into other legal challenges across the region, the company does already operate under transportation regulations in some European markets, such as London in the UK. (Albeit, it has currently had its license to operate in the city withdrawn for unrelated reasons.)

So Uber’s contention is the legal verdict will not change how it operates in most EU countries.

The ruling also only pertains to Uber’s peer-to-peer ride-hailing services — which have long faced out-and-out bans in multiple European markets, such as France, Spain and Belgium.

In some of these EU markets Uber has gone on to relaunch professional services (i.e. non-p2p ride hailing, using licensed drivers) — including in Berlin and Madrid — apparently complying with local transport rules.

Although in Spain, at least, local taxi associations are still striking and protesting at the presence of Uber and other ride-hailing firms, claiming that rules which are supposed to limit the number of taxi licenses to operate are being broken.

What’s clear now is the CJEU’s decision cements the need for Uber to work with local authorities and regulators in each and every EU market and city where it operates. It also closes the door on Uber being able to restart the engine of p2p ride-hailing expansion in Europe.

So any faint hope the company might still have entertained of being given a legal green light to speed down a digital EU fast-lane and overtake local transport interests is gone.

Even as taxi association blowback and regulatory and political pressure have already pushed it to conform to existing transport rules in many EU markets.

While in others, ‘hostile’ regulatory climates — as Uber has characterized it — have resulted in it pulling its service altogether. Though, more likely, it has just done a cost-benefit analysis and determined that a small market — like Denmark — is not worth its while to put in time and lobbying cash to try to flip the regulatory regime to something less restrictive.

The company may be hoping that the legal clarity provided by the CJEU’s ruling on ride-hailing apps pushes cities and local authorities to accelerate reforms of existing rules to more generously accommodate the new generation of app-based players. Though existing taxi associations will also be pushing in an equal and opposite direction against any changes they don’t like.

New CEO Dara Khosrowshahi does represent a welcome break with the old Uber and its aggressive style of business — and has signaled a desire to work with local lawmakers, as well as apologizing for Uber’s past mistakes, and managing to sound genuinely contrite and constructive.

But the reality for the still profit-less company is that its operational costs only look set to rise from here on in, as legal rulings unpick exploitable loopholes — at the same time as regulatory roadblocks are cemented in place to close down its old rapid expansion playbook. And as the cost of still emerging liabilities come home to roost.

In the UK, for instance, Uber has just lost its first appeal against an employment tribunal verdict that ruled a group of its drivers are workers, not self-employed contractors — and are therefore entitled to benefits such as holiday pay. Opening the company to additional legal challenges from other drivers.

Uber has said that if it has to fund such benefits for all ~50,000 of its local drivers it would cost its UK business “tens of millions” of pounds.

The UK government is also looking at changing employment law to reflect “modern” gig economy platform work — and will clearly be keen to protect its tax takings which have been dented by an algorithmically accelerated boom in ‘self-employment’.

“Uber does not charge VAT on the basis that it is for the self-employed drivers who supply the services to register with HMRC to charge VAT,” notes Rachel Farr, senior employment lawyer at international law firm Taylor Wessing, commenting on the implications of the ruling in a statement.

“Now that the ECJ has said that Uber itself is a transportation company, that will put further pressure on Uber to charge VAT. This would immediately increase the cost of fares by 20%, even before the extra costs such as the minimum wage and paid holiday if the drivers are treated as workers.”

Add to that politicians in Europe and elsewhere appear increasingly willing to give tech firms a public hosing — whether it be over tax, safety or wider societal problems being exacerbated by their products — and there’s a sense that the tide of public opinion is no longer going to be swayed just because you have a shiny app.

Even less for Uber whose reputation has been shredded in recent years by a string of corporate governance and internal scandals — including its disclosure last month of a data breach in 2016 affecting 57 million of its users and drivers. Instead of informing regulators when it learnt about the breach, Uber’s then management sought to conceal it by paying off the hackers.

That decision is yet another that seems likely to be an expensive one for Uber — both financially and, perhaps more importantly, in the eyes of the regulators and lawmakers which it increasingly needs to have on side.

Its competitors are certainly wasting no time in painting themselves as ‘constructive disruptors’ and jockeying for favor as more reliable local partners for cities to work with.