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Uber drivers in Britain should be classed as “workers” and not self-employed, the U.K. Supreme Court ruled Friday, in a decision that threatens the company’s business model and holds broader implications for the so-called gig economy.

The ruling paves the way for Uber drivers to get benefits such as paid holidays and the minimum wage, handing defeat to the ride-hailing giant in the culmination of a long-running legal battle.

The Supreme Court’s seven judges unanimously rejected Uber’s appeal against an employment tribunal ruling, which had found that two Uber drivers were “workers” under British law.

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Yaseen Aslam and James Farrar, the two drivers, cheered the outcome.

“This ruling will fundamentally re-order the gig economy and bring an end to rife exploitation of workers by means of algorithmic and contract trickery,” Mr. Farrar said by e-mail. The pair took Uber to the tribunal in 2016, which ruled in their favour. The decision was upheld in two rounds of appeals before it arrived at the Supreme Court.

Uber, which has 65,000 active drivers in the U.K., had argued that Mr. Aslam and Mr. Farrar were independent contractors. The company said it respected the court’s decision, which it argued focused on a small number of drivers who used the Uber app in 2016.

“Since then we have made some significant changes to our business, guided by drivers every step of the way,” Jamie Heywood, Uber’s regional general manager for Northern and Eastern Europe, said in a statement. “These include giving even more control over how they earn and providing new protections like free insurance in case of sickness or injury.”

Heywood said the company would consult with its U.K. drivers to understand the changes they want.

The ruling clarified that drivers are considered to be on the job when they are logged in to the Uber app in their territory and ready and willing to accept rides, which could be used to calculate minimum wage and holiday pay. Uber had argued that drivers were only working when they were making a journey with a paying passenger.

The case is now expected to return to the employment tribunal for decisions on compensation for drivers over lost pay. Drivers could be entitled to an average of £12,000 ($21,200), estimated law firm Leigh Day, which is representing drivers.

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Uber drive Conrad Delphine is looking forward to getting paid time off after years of working without holiday or sick pay.

“I am very pleased. It means I can go on holiday without having to worry about how to pay for it,” Mr. Delphine said. “Things have been worse because of coronavirus. If we catch the virus we should be entitled to sick pay. It’s about time we had some decent pay and conditions.”

Last year, Uber and other app-based ride-hailing services avoided a similar attempt in California to classify drivers as employees eligible for benefits and job protections. The companies bankrolled Proposition 22, a ballot measure exempting them from the state’s gig-economy laws by keeping drivers classified as independent contractors able to set their own hours. Voters approved it in November.

The British judges on Friday cited a number of factors in their decision: Uber sets fares and contract terms and limits drivers’ choice in whether to reject or cancel rides. It also uses passenger ratings to control drivers and minimizes communications between drivers and passengers, which results in the service being “very tightly defined and controlled by Uber.”

“Drivers are in a position of subordination and dependency to Uber,” with little ability to improve their economic position and the only way to increase their earnings is by “working longer hours while constantly meeting Uber’s measures of performance,” said judge George Leggatt, as he read out a summary of the ruling on a court livestream.

Uber said some features cited in the ruling no longer exist, noting that since 2017 drivers face no repercussion for rejecting multiple consecutive trips.

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The decision comes as Uber faces drastic changes to its operating environment amid the coronavirus pandemic. The company slashed more than 6,000 jobs last year as the virus decimated demand for trips while boosting demand for its Uber Eats food delivery service. The ruling doesn’t affect Uber Eats couriers.

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