The Uncertain Road Ahead for Transportation Network Companies

By: Tevin Bowens

When it comes to the gig economy—specifically transportation network companies (TNCs) such as Uber and Lyft—uncertainty in legislation is one of their toughest problems to overcome. Today, forty-nine states in the U.S. have some form of state-wide legislation regarding TNCs.[1] There are a handful of states that focused only on creating insurance requirements. The biggest group of states sought to clarify the laws in their state in an attempt to help TNCs by allowing them to effectively plan for the future. However, two states—California and New York—are taking the “quality over quantity” approach thinking such an approach will benefit all parties involved, but in reality their approach does more harm than good.

The California Approach: The ABC Test

The California Supreme Court issued the new ABC test[2] in an attempt to make it easier for employers to label their workers properly as employees or independent contractors.[3] This ruling comes in response to countless wrongful employment classification suits against TNCs in the state. The rationale being that if more people are properly classified as employees it will allow for more benefits such as minimum wage and overtime that ultimately improve living conditions for drivers in the state.

The unfortunate truth is that the law makes the future an uncertain one for TNCs by making it hard to accurately pinpoint who should be labelled as a cheaper work-for-hire independent contractor or a benefits-entitled employee. The ABC test opens TNCs up to lawsuits that will oftentimes end with expensive settlements.[4] Some TNCs, such as Uber, respond by offering the lowest possible wages,[5] give less incentives,[6] and raise customer prices without paying the drivers any of it.[7]

The New York Approach: Driver Cap & Minimum Wage Floor

Earlier this year New York’s city council passed a number of “for-hire vehicle” legislation.[8] However, the two that have the most impact on TNCs are Int. No. 890-B[9] and Int. No. 144-B.[10] Together these two laws are meant to increase the minimum fare per ride, minimum wage, and an unprecedented cap to the amount of TNC drivers to be authorized each year. These laws come in response to public outcry regarding poor driver treatment and the congestion of New York’s streets by drivers of TNCs. New York hopes that with higher pay and less traffic everyone will be happy.

Similar to California’s approach, New York creates an uncertain future. The only difference from California is that the uncertainty, in New York, will be felt primarily by the drivers and customers of TNCs. The discussion for increase in pay is no different than the previous one for California’s approach. What is new is New York’s novel attempt at limiting the amount of TNC drivers on the roads. The simple truth is that there was traffic before Uber and Lyft and there will be traffic afterwards as well.[11] Uber has already made the warning that less drivers will only lead to longer waits and higher prices, which will not pass onto their drivers.[12]

California or New York Approach: Who Wins?

Short answer is that nobody actually wins, but larger TNCs such as Lyft and Uber will walk away the least harmed. Both approaches have the legislatures attempting to make the hard decisions for the TNCs. In California, lawmakers are trying to force benefits on drivers for TNCs. In New York, lawmakers will tell TNCs how much to pay their drivers and how many drivers they can hire. Both sides created these laws adding a level of uncertainty to TNCs, the drivers, and even the customers, but ultimately, they fail to realize the ineffectiveness of this approach.

TNCs will always have the final say when it comes to legislation such as New York and California’s. TNCs can penny pinch at the driver and customer’s expense or they can make the decision to leave the jurisdiction altogether. Either way, it’s the drivers and customers who are taking the biggest blow.

[1]Rachel Monahan, Bill to Legalize Uber Across Oregon Dies in Legislative Committee, Willamette Week, (April 17, 2017), https://www.wweek.com/news/state/2017/04/17/bill-to-legalize-uber-across-oregon-dies-in-legislative-committee/.

[2]The three factors that make up the ABC test are as follows: A) that the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of such work and in fact; (B) that the worker performs work that is outside the usual course of the hiring entity’s business; and (C) that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity.

[3]Dynamex Operations W. v. Superior Court, 4 Cal. 5th 903.

[4]Heather Somerville, Judge approves $27 million driver settlement in Lyft lawsuit, Reuters, (March 16, 2017), https://www.reuters.com/article/us-lyft-drivers-idUSKBN16N30D.

[5] Rani Mola, Uber drivers and other gig economy workers are earning half what they did five years ago, Recode (September 24, 2018), https://www.recode.net/2018/9/24/17884608/uber-driver-gig-economy-money-pay-lyft-postmates.

[6]Christian Perea, Everyone Is Upset About New Surge and Prime Time. Should They Be?, The Rideshare Guy (June 6, 2018), https://therideshareguy.com/everyone-is-upset-about-new-surge-and-prime-time-should-they-be/.

[7]JC, Uber Raising Prices – But Drivers Won’t Benefit, Ridester (November 10, 2018), https://www.ridester.com/uber-raising-prices/.

[8]Mayor de Blasio Signs For-Hire Vehicles Legislation, New York City Gov, (August 14, 2018), https://www1.nyc.gov/office-of-the-mayor/news/409-18/mayor-de-blasio-signs-for-hire-vehicles-legislation.

[9]The New York City Council, INT 0890-2018 Introduction, https://legistar.council.nyc.gov/LegislationDetail.aspx?ID=3487613&GUID=E47BF280-2CAC-45AE-800F-ED5BE846EFF4.

[10]The New York City Council, INT 0144-2018 Introduction, https://legistar.council.nyc.gov/LegislationDetail.aspx?ID=3331789&GUID=6647E630-2992-461F-B3E3-F5103DED0653.

[11]Allssa Walker, NYC’s Uber cap won’t solve the city’s traffic problem, Curbed New York, (August 9, 2018), https://ny.curbed.com/2018/8/9/17671300/nyc-uber-lyft-regulation-traffic-congestion-pricing.

[12]Emma G. Fitzimmons, Uber Hit With Cap as New York City Takes Lead in Crackdown, The New York Times, (August 8, 2018), https://www.nytimes.com/2018/08/08/nyregion/uber-vote-city-council-cap.html.