In the latest blow to a major U.S. technology company in Europe, a British employment tribunal ruled on Friday that Uber drivers are owed minimum wage and paid time off, throwing a wrench into the ride-hailing company’s business model.
Uber has long asserted that it does not employ its drivers, and is instead an intermediary that connects self-employed drivers with passengers. If Uber fails in its appeal of the decision, it could be on the hook for minimum wage payments and paid time off for some 40,000 Uber drivers in Britain, which could cost the company millions of dollars.
Uber is considered the world’s most valuable privately held company — with a valuation of about $70 billion — in part because of its business model, according to industry experts, who have said that any changes that require it to recognize drivers as employees would adversely affect the company’s bottom line.
The tribunal’s decision comes two months after regulators in London said they would not renew the ride-hailing company’s license to operate in the city.
It also follows the European Union slapping Google with a record $2.7 billion fine in June for allegedly violating antitrust rules, fining Facebook $122 million in May for misleading the union’s governing body about its 2014 acquisition of WhatsApp, ordering Apple in August to pay $14.5 billion in back taxes, and demanding in October that Amazon pay $295 million in back taxes after the e-commerce giant was found to be unfairly benefiting from special tax conditions.
Europe’s tougher stance on Silicon Valley has been emboldened by growing calls in the U.S. to question the industry’s monopolistic power. Regulators can also point to Russia’s use of social media to meddle in the U.S. presidential election and the recently released Paradise Papers, which detail rampant corporate tax avoidance, to buoy their argument for strict controls, experts say.
“Competition-law enforcement can help to show that no company is above the law,” Margrethe Vestager, the European commissioner for competition, said in a speech Tuesday in Portugal about companies that don’t pay their fair share of taxes. “No company has the right to close down competition to disable the innovation of each and every one of you.”
That view hasn’t been shared in the U.S., though, where some officials and academic experts say Europe is erecting protectionist measures to compensate for the continent’s dearth of globally competitive technology companies.
“The U.S. has a successful digital economy and the EU does not,” said Larry Downes, project director at Georgetown’s Center for Business and Public Policy. “Clearly the EU is making it as difficult as possible for American companies as the last hope to prop up their own digital economy.”
In addition to what international business experts describe as the European Union’s “resentment” toward the dominance of U.S. tech companies, there are also inherent cultural differences at play.
“In the U.S., we have a long and healthy distrust of our government, so being anti-regulatory gives you a faux-hero status here, and Americans usually rally around the underdog fighting the bureaucrats,” said Greg Autry, an assistant professor of clinical entrepreneurship at USC’s Marshall School of Business.
The Silicon Valley tech mantra of “moving fast and breaking things” isn't as well received in the EU, where there is more respect for authority and tradition, Autry said.
Which isn’t to say that U.S. tech companies looking to set up shop in Europe should expect to be blocked at every turn, according to Autry, who said tech giants such as Facebook, Google, Apple and even Uber could do a better job of integrating with the local culture.
“They need to do more operations and development within Europe,” said Autry, who used the example of Japanese car manufacturers’ entry into the U.S. as a success story. “Americans are now very comfortable with Nissan, Toyota and Honda. They wave the American flag in their ads and tout their U.S. factories and workers — they don’t give a sense of being foreign.”
But Uber faces an additional hurdle, Autry said. Unlike Google and Facebook, which don’t have local competitors, the ride-hailing company has faced headwind from incumbent taxi industries.
Over the last three years, cab drivers in France and Spain have rioted and barricaded roads in protest of the service. And in London, where the local black cabs are well-liked, regulators have exercised a heavy hand at slowing down the American upstart that has, back home, been celebrated for upending the unpopular taxi industry.
To win over European regulators, Uber will need to convince locals that their business model is worth the discomfort they’re causing, said Witold Henisz, a professor of management at the Wharton School.