Uber lost an appeal at a U.K. employment tribunal Friday when a judge ruled that its drivers should be classified as formal workers and not self-employed.
The tribunal found that two drivers, Yaseen Aslam and James Farrar, were working for Uber and consequently entitled to a minimum wage and holiday pay, among other rights.
Uber has long argued that its drivers are self-employed rather than workers employed directly by the firm.
The tribunal's decision is not only a challenge for Uber's business in Britain, but for the so-called "gig economy" as a whole.
"For Uber's estimated 40,000 drivers in the U.K., this is another positive sign that their true employment status is that of a 'worker' and, as such, they should be entitled to worker rights," Alan Price, employment law director at Peninsula, said in a note Friday.
"The decision is also a further indication to 'gig economy' employers and companies with similar business models that they may need to reassess their treatment of their staff to ensure they are giving the correct rights."
Another firm operating in the gig economy, online takeaway service Deliveroo, was faced with a legal challenge of its own from delivery drivers earlier this month. Deliveroo's riders are seeking to gain employment rights including the minimum wage.
Uber has said it plans to appeal the ruling, either through Britain's Court of Appeal or through the Supreme Court, the nation's highest court for civil matters.
In a statement, Tom Elvidge, acting general manager at Uber U.K., said:
"Almost all taxi and private hire drivers have been self-employed for decades, long before our app existed. The main reason why drivers use Uber is because they value the freedom to choose if, when and where they drive and so we intend to appeal.
"The tribunal relies on the assertion that drivers are required to take 80 percent of trips sent to them when logged into the app. As drivers who use Uber know, this has never been the case in the U.K.
"Over the last year we have made a number of changes to our app to give drivers even more control. We've also invested in things like access to illness and injury cover and we'll keep introducing changes to make driving with Uber even better."