By Sam Schechner

The U.K.'s top court ruled that a group of former drivers for Uber Technologies Inc. were entitled to a minimum wage and other benefits while working for the company, dealing a setback to Uber and other gig-economy firms in world-wide battles over their employment model.

The U.K.'s Supreme Court, in a unanimous decision issued Friday, upheld lower court decisions that granted the group of 25 drivers a type of U.K. employment status at Uber. The company had appealed those rulings, maintaining that its car-service and food-delivery drivers are independent contractors, without employee rights.

While Friday's decision directly applies only to the former Uber drivers involved, labor activists say it sets a potential precedent for others in the U.K. who work for companies in the gig economy, where apps distribute individual tasks to a pool of people that the app makers regard as independent contractors.

Uber said that the decision doesn't automatically reclassify all of its U.K. drivers, and that it is unrelated to its Uber Eats food-delivery business. The company said that since the case was filed it has added driver benefits such as insurance for sickness and injury.

"We are committed to doing more and will now consult with every active driver across the U.K. to understand the changes they want to see," said Jamie Heywood, Uber's regional chief for Northern and Eastern Europe.

The precise impact of Friday's decision on current Uber drivers, and workers for other apps, will likely have to be litigated in future cases.

Still, the U.K. decision offers a boost to labor activists in Europe and the U.S. who have been sparring with Uber and other companies such as DoorDash Inc. and Deliveroo Inc. over the employment status of gig workers. Uber drivers and workers from other companies will be able to bring new cases to claim benefits on behalf of gig workers, said Rachel Mathieseon, a lawyer at Bates Wells who argued on behalf of the drivers.

Uber and other gig-economy companies say reclassifying workers as employees would add to costs, result in job losses and reduce flexibility that their workers prize. The labor activists say companies are shifting business risk to precarious workers without other employment opportunities.

"This ruling will fundamentally reorder the gig economy and bring an end to rife exploitation of workers by means of algorithmic and contract trickery," said James Farrar, one of the former drivers who led the case and who is now general secretary of the App Drivers & Couriers Union.

Labor advocates have recently notched some other legal victories in Europe. Swiss courts have forced Uber Eats to stop using independent contractors in the Geneva area. A French court reclassified a former Uber driver as an employee.

In the U.S., President Biden campaigned on a pledge that he would ensure gig economy workers receive the legal benefits and protections they deserve and stop employers from intentionally misclassifying workers as independent contractors.

But the ride-hailing and delivery companies won a major battle in California last fall when voters approved a ballot measure that protected their contract-worker systems. The measure allows companies including Uber, Lyft Inc. and Instacart Inc. to avoid complying with a California law that would have reshaped the way they operate in the most populous U.S. state.

Companies such as Uber have also been sweetening their benefits as the pressure has increased. Uber has in recent years increased benefits for its drivers, including new coverage for things like sick leave and parental leave.

Some gig-economy companies have also started trying to strike deals with labor unions that give workers some benefits but stop short of making them employees.

Earlier this week, Uber published a white paper for European policy makers outlining its proposals for how to regulate gig work, something the European Union is set to consider this year. Among its proposals are pooled eligibility for benefits and mechanisms to ensure minimum earnings -- while maintaining gig workers as independent contractors.

Uber says any precedent set by the U.K. ruling will be limited because it has changed how it handles its relationships with drivers since 2016, the beginning of the case that led to Friday's decision. At that time, Uber had roughly 40,000 drivers in the U.K., the court said Friday.

For instance, Uber says that drivers currently get to see the destination and fare for rides before they accept them, and they face no penalties for repeatedly turning down fares. In 2016, drivers weren't given such information, and would be temporarily locked out of the app as a penalty if they repeatedly declined fares.

On Friday, the Supreme Court cited that penalty as among the reasons it found that the former drivers were workers, though it was one of several criteria listed.

The U.K. court also said that the group of Uber drivers weren't independent contractors because Uber decided how much they are paid, controlled how they work using a customer-rating system and imposed contractual terms upon them. The court said those factors entitled them to status as workers, a legal employment status in the U.K. that falls between a full employee and an independent contractor.

The court also found that the Uber drivers' working time -- when they are entitled to worker rights -- extended to whenever they were connected to the app in the relevant territory, and were ready and willing to accept fares. The court said Uber had contended that their working time should be limited to when they were driving passengers to their destinations.

"Drivers are in a position of subordination and dependency in relation to Uber such that they have little or no ability to improve their economic position through professional or entrepreneurial skill," said George Leggatt, a judge on the Supreme Court who read a summary of the decision Friday.

Uber has said that its drivers are their own bosses and choose the hours they work, citing surveys showing that the majority say that flexibility is the most important reason they work for Uber.

Write to Sam Schechner at sam.schechner@wsj.com

(END) Dow Jones Newswires

02-19-21 1810ET