Uber drivers have won the right to be classed as workers rather than self-employed.
The ruling by a London employment tribunal means drivers for the ride-hailing app will be entitled to holiday pay, paid rest breaks and the National Minimum Wage.
The GMB union described the decision as a "monumental victory" for some 40,000 drivers in England and Wales.
Uber said it would appeal against the ruling that it had acted unlawfully.
The San Francisco-based company had argued that its drivers were not employees but self-employed contractors.
The landmark ruling could affect tens of thousands of people who work for companies with similar business models such as Deliveroo.
"This is a monumental victory that will have a hugely positive impact on drivers," said Maria Ludkin, legal director at the GMB, which brought the case.
The TUC said the case had exposed the "dark side" of the UK's labour market.
General secretary Frances O'Grady said: "For many workers the gig economy is a rigged economy, where bosses can get out of paying the minimum wage and providing basics like paid holidays and rest breaks.
"What is happening at Uber is just the tip of the iceberg. Lots of people are now trapped in insecure jobs, with low pay and no voice at work. We need the government to get tough on sham self-employment."
Jo Bertram, Uber's UK manager, said: "Tens of thousands of people in London drive with Uber precisely because they want to be self-employed and their own boss.
"The overwhelming majority of drivers who use the Uber app want to keep the freedom and flexibility of being able to drive when and where they want. While the decision of this preliminary hearing only affects two people, we will be appealing it."
Two drivers, James Farrar and Yaseen Aslam, argued that their actions were controlled by Uber, which meant they were employed by the firm - but that they did not have basic workers' rights.
Mr Farrar said his net earnings in August 2015 after expenses were £5.03 an hour.
Mr Aslam no longer drives for Uber.
'Ground-breaking'
Nigel Mackay from law firm Leigh Day, which represented the two drivers, said: "This judgment acknowledges the central contribution that Uber's drivers have made to Uber's success by confirming that its drivers are not self-employed, but that they work for Uber as part of the company's business.
"This is a ground-breaking decision. It will impact not just on the thousands of Uber drivers working in this country, but on all workers in the so-called gig economy whose employers wrongly classify them as self-employed and deny them the rights to which they are entitled."
Alex Bearman, Partner at Russell-Cooke solicitors, said Uber could look to meet any additional costs by increasing the percentage of each fare that it kept as commission.
"Given what's at stake, it seems likely that this decision will be appealed and we may not see a final determination for some time to come," he said.
The ruling by a London employment tribunal means drivers for the ride-hailing app will be entitled to holiday pay, paid rest breaks and the National Minimum Wage.
The GMB union described the decision as a "monumental victory" for some 40,000 drivers in England and Wales.
Uber said it would appeal against the ruling that it had acted unlawfully.
The San Francisco-based company had argued that its drivers were not employees but self-employed contractors.
The landmark ruling could affect tens of thousands of people who work for companies with similar business models such as Deliveroo.
"This is a monumental victory that will have a hugely positive impact on drivers," said Maria Ludkin, legal director at the GMB, which brought the case.
The TUC said the case had exposed the "dark side" of the UK's labour market.
General secretary Frances O'Grady said: "For many workers the gig economy is a rigged economy, where bosses can get out of paying the minimum wage and providing basics like paid holidays and rest breaks.
"What is happening at Uber is just the tip of the iceberg. Lots of people are now trapped in insecure jobs, with low pay and no voice at work. We need the government to get tough on sham self-employment."
Jo Bertram, Uber's UK manager, said: "Tens of thousands of people in London drive with Uber precisely because they want to be self-employed and their own boss.
"The overwhelming majority of drivers who use the Uber app want to keep the freedom and flexibility of being able to drive when and where they want. While the decision of this preliminary hearing only affects two people, we will be appealing it."
Two drivers, James Farrar and Yaseen Aslam, argued that their actions were controlled by Uber, which meant they were employed by the firm - but that they did not have basic workers' rights.
Mr Farrar said his net earnings in August 2015 after expenses were £5.03 an hour.
Mr Aslam no longer drives for Uber.
'Ground-breaking'
Nigel Mackay from law firm Leigh Day, which represented the two drivers, said: "This judgment acknowledges the central contribution that Uber's drivers have made to Uber's success by confirming that its drivers are not self-employed, but that they work for Uber as part of the company's business.
"This is a ground-breaking decision. It will impact not just on the thousands of Uber drivers working in this country, but on all workers in the so-called gig economy whose employers wrongly classify them as self-employed and deny them the rights to which they are entitled."
Alex Bearman, Partner at Russell-Cooke solicitors, said Uber could look to meet any additional costs by increasing the percentage of each fare that it kept as commission.
"Given what's at stake, it seems likely that this decision will be appealed and we may not see a final determination for some time to come," he said.