Last month, after Uber lost its license in London, new chief executive Dara Khosrowshahi flew to the British capital to do some much-needed damage control. London, which is one of Uber’s biggest international markets, with 40,000 registered drivers and 3.5 million riders, is also the United Kingdom’s most regulated. Transport for London, the government agency that oversees the city’s transport system, had determined that Uber had displayed a “lack of corporate responsibility” in response to public safety issues, and was therefore “not fit and proper to hold a private-hire operator license.” Uber appealed the ruling, and Khosrowshahi, after meeting with city officials, tweeted a photo of himself smiling with London Uber drivers with the caption, “Determined to make things right in this great city!”

Uber has been allowed to continue operations while its appeal makes its way through court. But this week, Khosrowshahi’s goodwill tour hit another stumbling block: on Friday, a U.K. employment tribunal ruled that Uber’s drivers are not independent contractors, the designation Uber and other “sharing-economy” companies use to avoid paying workers benefits. The decision, which affirms a court ruling from last year, means that Uber will have to ensure paid time off and a minimum wage for tens of thousands of employees. (Uber London general manager Tom Elvidge said in a statement that Uber will appeal the ruling.)

Uber’s argument—that its drivers ought to be classified as contractors because the platform allows them to set their own schedule and be their own boss—is a familiar one in Silicon Valley, where the multi-billion-dollar companies that make up the so-called sharing economy use similar models. It gives workers more freedom, companies say, but it also means they’re off the hook for costly benefits like sick days, overtime, and Social Security. Contract workers are also expected to provide their own cars and pay for related expenses, and typical legal protections don’t apply.

A number of sharing-economy companies, including Uber, have faced lawsuits for allegedly misclassifying their workers; this week, a driver for the $800 million delivery service Postmates sued the company over wrongful classification. Though the tech industry remains determined to redefine labor, regulators, lawyers, and even its own workers continue to chip away at Silicon Valley’s reliance on contract work, threatening to upend the business model that has made such platforms successful and, by extension, the illusion that flashy start-ups deserve valuations far beyond those of their traditional counterparts.

The outcome of the London case could have major implications for Uber’s operations throughout Europe, and potentially in the U.S., too. “This is a hugely significant decision for Uber, and also the gig economy more generally. Increasingly, we are seeing that courts and tribunals are reluctant to allow businesses to have their cake and eat it,” British labor lawyer Tim Goodwin, an associate at Winckworth Sherwood, told The Guardian. “The test appears to remain the same. If a business wants to have significant control over its workforce, it has to be prepared to treat its workers fairly.” In the U.S., Uber has repeatedly settled with drivers who have brought similar claims, allowing the company to continue classifying its workers as independent contractors.

Winning its legal battle in London would be a morale booster for Uber, which has spent much of the past year struggling to recover from a series of scandals that culminated in the ouster of longtime C.E.O. Travis Kalanick. Khosrowshahi’s charm offensive is also part of a broader campaign to rehabilitate Uber’s reputation abroad, where the company has frequently clashed with regulators in the past. Although if Khosrowshahi’s goal is to paper a smiling face over Uber’s tarnished image, he might start by working with, not against, the army of contract labor that comprises his London fleet.