Uber is preparing to crack down on drivers who repeatedly cancel on passengers amid mounting frustration from users about its reliability.
The company recently tweaked its privacy policies to state that it may consider how frequently drivers have rejected journeys in the past when assigning them to new jobs.
The Silicon Valley giant recently raised prices in London as it seeks to address a shortage of drivers that has led to growing complaints from passengers and threatened its post-pandemic recovery.
Uber has not yet tweaked its algorithm to favour drivers who accept more rides, but the update means it reserves the right to do so.
This change could make it harder for drivers who “cherry pick” the best fares by repeatedly rejecting journeys in search of better offers, a practice that has irritated passengers in recent months as a shortage of available drivers has left them waiting longer for trips.
Uber typically assigns the nearest available driver to a passenger using location technology, but allows drivers to reject rides offered to them. Drivers can also cancel a ride after accepting it.
The company said in April it hoped to hire an additional 20,000 drivers in the UK in addition to its existing 70,000 workforce as it faces a shortfall amid record demand.
It has also found fewer drivers accepting trips because some are using other taxi apps such as Bolt and Ola at the same time in a bid to find the most lucrative fares.
Dara Khosrowshahi, Uber’s chief executive, recently flew to London in an attempt to charm more drivers into joining the service. Many stopped driving during last year’s lockdowns, when demand for fares crashed.
The company said it was making “good progress” on signing up more drivers and that demand for rides was higher than pre-pandemic levels, after recovering faster than it had anticipated.
Last week, Bolt said drivers would be able to set their own prices, which it argued would attract more to its service.
Mr Khosrowshahi recently announced that Uber had made its first quarterly operating profit as demand for rides improves and its food delivery business remains busy despite restaurants reopening.
Analysis: Uber loses its grip on London
Zamir Dreni started driving for Uber in 2013, when the transport app was a scrappy start-up new to the streets of London.
“It was the coolest kid on the block at the time,” Dreni says. “They were luring drivers on one side and passengers on the other. It took over from local offices, the chauffeuring companies, and any other competitor.
“You didn’t have a controller breathing down your ears on a two way radio. If you didn’t want to do the job it was fine. To myself and everyone else, it was an escape route.”
Fuelled by billions in venture capital dollars, Uber took over London as well as hundreds of other cities worldwide. With a signature tenacity, it saw off legal challenges from taxi unions and won over Transport for London.
The company’s chief executive Dara Khosrowshahi celebrated a milestone earlier this month when Uber recorded its first operating profit.
But in the UK, it is on a potential collision course. The company faces a new set of legal challenges and deep-pocketed competitors, not to mention the tricky task of keeping both its drivers and passengers on side.
In February, Uber suffered defeat in a years-long battle to classify its drivers as self-employed, a decision that has cost it hundreds of millions of dollars, and which remains the subject of legal challenges. It will this week go to court in a follow-up case that could influence whether it owes billions to the taxman.
Meanwhile, Uber is contending with a worrying shortage of drivers and growing complaints from passengers. The company recently raised prices in the capital in an attempt to attract more drivers to its service, but for Dreni, this is unlikely to be enough.
“It was like a sugar rush, but the sugar’s started to die down,” says Dreni, who is also the vice chairman of a driver union.
Britain accounted for around 8pc of Uber’s rides business in the last three months, or around $790m (£586m). London is one of its top five markets globally, although also one of its most troublesome. In 2017 and 2019, Transport for London refused to renew its licence, threatening to take it off the road. The company won on appeal both times, and never spent a day offline in the capital.
It has been less successful in the employment courts. After multiple appeals, the Supreme Court ruled in February that drivers should qualify as workers, rather than independent contractors, meaning they are entitled to a minimum wage, holiday pay and pension contributions.
Uber set aside $600m earlier this year – more than two months of bookings in the UK – to cover historic payments. However, thousands of drivers have challenged the company’s compensation scheme. While Uber says the minimum wage ruling applies to the time drivers spend on a trip, complainants say this should cover the time they are logged into the app, which would be significantly more expensive. A hearing on the matter is scheduled for June.
But the Supreme Court ruling could have other implications for Uber. Tomorrow (Monday 22), the company will go to the High Court alongside TfL seeking confirmation of its status as an “agent”, rather than a “principal” as Supreme Court justice Lord Leggatt declared.
The distinction – which centres on whether Uber deals with customers or merely facilitates transactions – appears minor, but could be central to a £1.5bn tax case against Uber.
HMRC is seeking to classify Uber as a transportation provider, which would mean rides would face 20pc VAT, and has admitted that the interpretation of the Supreme Court decision could influence proceedings. Uber has said it disagrees with the classification.
Jolyon Maugham, a barrister who has led the campaign for Uber to be charged VAT, said Uber was attempting to secure the ruling to sidestep HMRC. “I can’t help but think Uber sees this as an easy way to improve its enormous contingent VAT liability – the billions I believe it owes to taxpayers – by picking a fight with a disinterested opponent like TfL,” he said.
Uber has struggled for years to prove that its business model – it takes a 25pc cut of most rides – can be profitable, given its huge engineering and legal costs. It had hoped that the $8m operating profit it reported in the last quarter would silence these concerns. But the prospect of higher driver costs as well as VAT charges could spark new questions, especially if other countries were to follow suit.
Investors have been willing to support Uber’s losses for years. Perhaps a more troubling prospect is that the company is struggling to do what it has always done best: manage the balance of supply and demand between drivers and passengers.
As Britain’s cities have reopened, passengers have flocked back to the app faster than drivers, creating a demand bottleneck. Those drivers who are on road have complained that a tweak to the app introduced last year, which fixed the prices of rides before they start, rather than calculating them using the journey’s time and distance, has made rides less profitable and drivers more likely to cancel journeys.
Uber now has competition from Estonia's Bolt
“There are enough drivers on the road,” says Abdurzak Hadi, an Uber driver who chairs a trade body for private minicab drivers. “There are not enough drivers who are willing to take a terrible rate.”
Khosrowshahi recently flew into town in an attempt to recruit drivers. “We need more of you, so tell your friends”, he said. The company also raised fares in London in an attempt to rebalance demand.
Its licence to do so is unclear. Social media is rife with complaints that Uber is no longer cheaper than London’s traditional black cabs. For the first time, the company also has a serious local competitor in Estonia’s Bolt, which this year raised €600m (£505m).
Uber has always had to walk a delicate tightrope between the competing demands of regulators, passengers and drivers. Keeping that balance may soon prove harder than ever.