Pirating an Industry: Ridesharing as a Subversion of Livery Regulation

By: Matthew Holm

            “A ride whenever you need one,” boasts the corporate tagline of San Francisco-based company Lyft.[1]  Founded in 2012, Lyft is a relatively recent addition to the growing “ridesharing” industry.[2]  Its competitors such as UberX, Sidecar, Summon, and Wingz have altered the urban transportation market by allowing smartphone users to summon a car, track the driver’s arrival, and pay for a ride, all at the touch of a virtual button.[3]  The concept is genius and has gained widespread popularity in major cities in the United States and around the globe since Uber’s launch in 2009.[4]

            But these fledgling ride-for-hire companies continue to straddle regulatory fences and have required both controversial legislation and a stream of litigation to define the restrictions and mandates that will apply to the drivers and vehicles they employ.  Uber has been under attack for its circumvention of ride-for-hire regulation since October of 2010 when the State of California Public Utilities Commission and the San Francisco Municipal Transportation Agency issued letters of notice to cease and desist operating without proper permits and licenses.[5]

            These companies are essentially a subset of the livery industry, and their emergence signals a shift in consumer demand.  Fairness would suggest that these new companies should play by the same rules that apply to all other ride-for-hire operations, but many state and municipal lawmakers have responded to a modern world of tech-worshiping constituents by legally acknowledging these companies as a new “category of for-hire transportation service” and regulating them separately.[6]

            So-called “ridesharing” companies have taken hold of the market by their groundbreaking use of smartphone GPS tracking and payment technology.  But technology does not differentiate the companies’ business from other operations in the livery industry.  In fact, taxi companies are beginning to incorporate the same technology to keep their services relevant and their businesses competitive.[7]  Curb, an app released earlier this year, allows smartphone users to request, track, and pay for rides with professional cab drivers from third party companies.[8]  So while Uber’s CEO Travis Kalanick will continue to assert that the rapidly growing company is simply a “technology platform,”[9] the distinction between his company’s services and those provided by traditional cab companies cannot exclusively lie in the use of smartphone technology.

            Is there really a legally significant distinction between the “ridesharing” companies and traditional taxi companies?  The service provided is facially indistinguishable; passengers summon a ride and are transported to their destination by a hired vehicle and driver for a fee.

            The distinction lies in the employment conditions of the companies’ drivers and the ownership of vehicles used.  Unlike taxi companies, Uber and Lyft carefully contract with but do not extend full employment to their drivers, who use their own privately owned vehicles.[10]  “It’s easy to become a driver,” promises Uber’s website, which outlines three necessary steps: “Get started, Get the App, Start Driving.”[11]

            The companies have artfully circumvented regulation as a traditional taxi company by calling themselves “ridesharing.”  That label is not well suited, however.  Under Illinois’s Ridesharing Arrangements Act, the term implies carpooling:

“(a) Ridesharing arrangement” means the transportation by motor vehicle of not more than 16 persons (including the driver):

(1) for purposes incidental to another purpose of the driver, for which no fee is charged or paid except to reimburse the driver or owner of the vehicle for his operating expenses on a nonprofit basis; or

 (2) when such persons are traveling between their homes and their places of employment, or places reasonably convenient thereto, for which

 (i)         no fee is charged or paid except to reimburse the driver or owner of the vehicle for his operating expenses on a nonprofit basis, or

(ii)       [a fee may be charged in excess of reimbursement in certain very limited circumstances compliant with other sections of the Illinois Vehicle Code.]”[12]

 

Even though Lyft markets themselves as “your friend with a car,”[13] the definition provided in the Illinois Compiled Statutes hardly applies to the commercial nature of the company’s business.  The “blurry” use of the term “ridesharing” has led to the coinage of another questionable label that is gaining widespread use: “Transportation Network Companies,” or TNCs.[14]  This new label is just the most recent attempt to artificially characterize the service as something other than a traditional taxi service.

            Despite the attempt to define their taxi business as a carpooling enterprise, the companies still face public safety concerns.  Legislation has been passed in many jurisdictions, including an ordinance in the City of Chicago.[15]  While these pieces of legislation validate the artificial ridesharing distinction, they also place important safety and licensing restrictions on drivers and vehicles in ridesharing operations.

            In Springfield, the last General Assembly gained heavy media attention for its passage of HB 4075, which would have amended the Illinois Vehicle Code and the Ridesharing Arrangements Act to enact regulations targeted at consumer protection and public safety.  The bill would have created a legal distinction between private ridesharing arrangements already allowable under the statute and a newly defined category of “commercial ridesharing arrangements.”  The bill would have regulated the commercial arrangements with vehicle marking and licensing requirements, vehicle safety inspections, restrictions on pickup and drop-off locations, and provisions ensuring accessibility for disabled persons.  The bill also contained provisions that would have saddled the dispatching companies with liability for incidents arising during ridesharing use of private vehicles, and would have allowed the drivers’ insurance companies to deny coverage during dispatches.  In many ways, the bill would have subjected ridesharing drivers to some of the same regulations and expectations the state already imposes upon professional taxi services.[16]

            When all of these provisions presumably would have been in the interest of the safety of the people of the state, and professional taxi companies are subject to even stricter state regulation, why did Democratic Governor Pat Quinn veto the bill when it was sent to his desk?[17]  In his veto statement, he claimed the action was motivated by thoughtful deference to the Illinois constitutional principle of home-rule and argued that local governments were better equipped to regulate the matter.[18]  More plausibly, the legal jargon was cover for a politician imminently seeking reelection who was fearful of the public’s reaction to hampering a company that has garnered overwhelming popularity.[19]  Still, even after Quinn’s failure to be reelected, the bill still might have enough supporters in the House and Senate to make a veto override possible.[20]

            Passing legislation on the subject has proved divisive and challenging, and litigation has bloomed all over the country.  While the primary complainants are members of the competing taxi industry who claim tortious interference with their business,[21] they are not the only ones who claim harm from ridesharing’s business model.  Uber’s own drivers have brought a class action in a case called Yucesoy v. Uber Technologies, currently pending in a Massachusetts Superior Court in Boston.[22]  The suit challenges Uber’s classification of its drivers’ as independent contractors to avoid providing them with employee benefits.[23]  The suit also claims that Uber’s tipping policy violates gratuity laws and is misleading to riders,[24] and that Uber “retains a portion of the gratuity for itself.”[25]  A similar class action was recently dismissed from a San Francisco federal court in a case called O’Connor v. Uber Technologies; the plaintiffs in that case challenged only Uber’s misleading representations to the public suggesting that price of rides include gratuity.[26]  In a complex decision, the Northern District of California dismissed for failure to show necessary elements of a contract law claim and failure to show fraudulent conduct under California’s Unfair Competition Law, among other things.[27]

            These companies have misled the public in a variety of ways to circumvent fair business practices.  They have succeeded in creating an arbitrary distinction between themselves and regular taxi companies that has exempted them from standard safety and licensing regulation.  This “new” industry of metropolitan transportation, while it incorporates technology in admirable ways, should not be immune to the same safety, licensing, insurance, and employment mandates that apply to other ride-for-hire companies.  As long as this loophole continues to exist, why would any new company in the livery business classify themselves as a taxi company when they can cut costs and corners by structuring themselves as a TNC?

 

[1] Lyft, https://www.lyft.com (last visited Nov. 17, 2014).

[2] Logan Green & John Zimmer, Defending Lyft, Lyft Blog (Nov. 12, 2012), http://blog.lyft.com/posts/2012/11/14/defending-lyft?rq=launch.

[3] Ehret v. Uber Technologies, Inc., No. C-14-0113 EMC, 2014 WL 4640170, at *1 (N.D. Cal. Sept. 17, 2014)

[4] Kate Owen, Uber Pro Tips, Uber Blog (Oct. 28, 2014), http://blog.uber.com/uberprotips.

[5] Ryan Graves, Uber’s Cease & Desist, Uber Blog (Oct. 25, 2010), https://blog.uber.com/2010/10/25/ubers-cease-desist/.

[6] Illinois Governor’s Statement on Vetoing 98-HB 4075 (Aug. 25, 2014), http://www.ilga.gov/legislation/fulltext.asp?DocName=09800HB4075gms&GA=98&SessionId=85&DocTypeId=HB&LegID=&DocNum=4075&GAID=12&Session=.

[7] Tyler Falk, Could Cab Companies Beat Uber At Its Own Game?, SmartPlanet (Apr. 11, 2014, 2:01 PM), http://www.smartplanet.com/blog/bulletin/taxi-company-tries-to-copy-not-fight-uber-lyft/.

[8] About Curb, Curb, http://gocurb.com/about/ (last visited Nov. 17, 2014).

[9] Laurie Segall, Uber CEO: Our Growth Is Unprecedented, CNN Money (Jun. 12, 2014, 8:32 AM), http://money.cnn.com/2014/06/12/technology/innovation/uber-ceo-travis-kalanick/.

[10] Michael B. Farrell, New Lawsuit claims Uber exploits its drivers, The Boston Globe (Jun. 26, 2014), http://www.bostonglobe.com/business/2014/06/26/uber-hit-with-class-action-lawsuit/JFlTJLMuBoXuEmMU3elTAI/story.html.

[11] Sign Up to Drive With Uber, Uber, https://partners.uber.com/drive/?utm_source=uber.com&utm_campaign=top_banner (last visited Nov. 17, 2014).

[12] Ridesharing Arrangements Act, 625 Ill. Comp. Stat. 30/2 (2014).

[13] Lyft, https://www.lyft.com (last visited Nov. 17, 2014).

[14] Ben Gross, Ridesharing’s Blurry Definition, Chicago Dispatcher, http://chicagodispatcher.com/ridesharings-blurry-definition-p2448-1.htm (last visited Nov. 17, 2014).

[15] Hal Dardick & Jon Hilkevitch, Chicago rideshare regulations approved, Chicago Tribune (May 28, 2014, 1:30 PM), http://www.chicagotribune.com/news/local/politics/chi-chicago-rideshare-regulations-approved-20140528-story.html.

[16] 98th Ill. Gen. Assemb., HB 4075, http://www.ilga.gov/legislation/BillStatus.asp?DocNum=4075&GAID=12&DocTypeID=HB&SessionID=85&GA=98.

[17] Rich Miller, Quinn vetoes ridesharing bill, CapitolFax (Aug. 25, 2014), http.//capitolfax.com/2014/08/25/quinn-vetoes-ridesharing-bill/.

[18] Illinois Governor’s Statement on Vetoing 98-HB 4075 (Aug. 25, 2014), http://www.ilga.gov/legislation/fulltext.asp?DocName=09800HB4075gms&GA=98&SessionId=85&DocTypeId=HB&LegID=&DocNum=4075&GAID=12&Session=.

[19] Greg Hinz, What’s behind Quinn’s decision to side with Uber?, Crain’s Chicago Business (Aug. 25, 2014), http://www.chicagobusiness.com/article/20140825/BLOGS02/140829907/whats-behind-quinns-decision-to-side-with-uber.

[20] Dave McKinney & Fran Spielman, Quinn nixes Uber bill, says it would be a disservice to consumers, Chicago Sun Times (Aug. 25, 2014, 9:20 AM), http://politics.suntimes.com/article/springfield/quinn-nixes-uber-bill-says-it-would-be-disservice-consumers/mon-08252014-220pm.

[21] Thomas Wheatley, Atlanta Cabbies slap Uber with class-action lawsuit, Creative Loafing Atlanta (Sep. 10, 2014, 4:19 PM), http://clatl.com/freshloaf/archives/2014/09/10/atlanta-cabbies-slap-uber-with-class-action-lawsuit.

[22] 2014 WL 2892107 (Mass. Super.).

[23] Id.

[24] Id.

[25] Michael Farrell, New lawsuit claims Uber exploits its drivers, The Boston Globe (Jun. 26, 2014), http://www.bostonglobe.com/business/2014/06/26/uber-hit-with-class-action-lawsuit/JFlTJLMuBoXuEmMU3elTAI/story.html.

[26] O’Connor v. Uber Technologies, Inc., No. C-13-3826 EMC, 2014 WL 4382880 (N.D. Cal. 2014).

 

[27]Id.

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