NEW YORK — The European Union’s highest court on Wednesday declared that Uber is a transportation business, not just a technology platform that connects drivers and riders.
The ruling, a significant setback for a company that’s grappling with a string of scandals, will force Uber to comply with the bloc’s transportation rules. It is also 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 be scrutinized by regulators looking more broadly at the so-called gig economy, a growing part of the workforce, in which people operate as freelancers or on short-term contracts, as opposed to holding permanent jobs.
Policy makers 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 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 in Barcelona. The group argued it was unfair that Uber did not 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 operates only with professional drivers in the vast majority of the European Union.
The court determined that Uber, which connects drivers and 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 court ruling applies across the European Union, but not elsewhere.
In a statement, the company said it was already operating 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 that “Today, taxi drivers have beaten Goliath.”
The Barcelona 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 independent workers, who make up as much as 30 percent of the working-age population in the United States and Europe, according to the McKinsey Global Institute. Some worry, though, that such a group could soon become an underclass.
For policy makers, 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 s0-called sharing businesses in the region reached an estimated 28 billion euros, or $33 billion, in 2015, according to the European Commission, the executive arm of the European Union.
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.