A New Road: For-Profit Ridesharing and its Impact on Local Governments

ARTICLE | Mar 10, 2016

Disrupting a long-stagnant industry, the for-profit ridesharing transportation model has taken North America by storm. As these for-profit ridesharing companies increase their share of the transportation market, the pressure has mounted on local governments to develop responsive policies and regulations to ensure safety and equity for this emerging business model. The industry’s leaders, Uber and Lyft, have already cornered the ridesharing market and are competing against traditional taxi-services in some of the largest urbanized areas in North America. While the proliferation of the sharing economy can be seen as a benefit for some consumers and shareholders, the legal gray area in which ridesharing companies exist represents a new hurdle for local governments.

Dallas, Seattle, Chicago, Houston, Kansas City have acted quickly to pass ordinances to regulate ridesharing businesses within their community. According to an article in Wall Street Journal, the ordinances often classify companies such as Uber and Lyft as transportation network carriers (TNC) and, even though the specific language varies between communities, predominantly focus on regulations regarding insurance, license requirements, background checks and registration fees. Though regulation beyond what was previously mentioned is minimal, some local governments are taking further steps.  In December 2015, the City of Seattle became the first (and currently only) city nationwide to allow drivers for app-based dispatch companies and drivers for-hire the ability to unionize and collectively bargain. This legislation has been met with both question and praise from different factions across the country. The App-Based Drivers Association (ABDA) has called the legislation a victory for the workers of these companies within the city of Seattle, while skeptics believe that the ability to legalize unionization for ‘independent contractors’ is on shaky legal ground that will eventually be overturned. They also believe that it could actually backfire and harm the employees more than help them. Regardless, the unionization of the ridesharing industry in a major city has made it very clear that for-profit ridesharing has and will continue to have significant policy impact on local governments.

Despite the popularity of ridesharing services, some taxi operators are not happy with their arrival and across the country. Lobbyists for taxi operators and hired drivers have petitioned local governments to either take action to limit the operation of for-profit ridesharing or expand the number of taxi licenses allowed within a city. The City of Seattle had this legal battle emerge in July 2014 when pressure from both for-profit ridesharing companies and taxi companies led the city council to adopt measures that accommodate both services. In the ordinance that passed, the city issued 200 additional taxi licenses, required ride-sharing services to provide a minimum $300,000 coverage for their vehicles, which is the same level as taxi drivers and hired drivers.  The caps were also removed on the ridesharing drivers that prevented them from not being able to pick up customers from certain places. In short, Seattle made a compromise between the different industries to allow each side to stay competitive.

Some communities have not been as receptive to the for-profit ridesharing services as others. In May 2015, the State of Kansas passed legislation that made it almost impossible for Uber to operate within Kansas forcing the company to pull its service from the State all together. In the bill passed by the state legislature (originally vetoed by the Governor but then overruled by both the House and Senate),drivers of the for-profit ridesharing service would be forced to adhere to criminal background checks, carry one million dollars of additional liability insurance, and pay a registration fee. Similar legislation passed in other places, including the cities of Boise, ID Anchorage, AK and San Antonio, TX, has forced Uber out of business in those areas.

Clearly, for-profit ridesharing companies have seen a mixed bag of legislative success and receptiveness to their presence. . Both Chicago and Washington D.C. have passed ordinances in their cities that have been very friendly to the ridesharing companies and have been embraced by members of their city councils. Although the details of these ordinances are similar to other city ordinances, which include safety inspections, background checks, insurance requirements and fee registration, the major ridesharing companies have approved of the ordinances because they allow them to be competitive in large cities, where most of their business comes from.

Regardless of how some municipalities have reacted to the emergence of the for-profit ridesharing model, the fact that also many communities have established rules and regulations regarding them indicates the attention local governments are paying attention to them. For-profit ridesharing companies like Uber and Lyft are part of the app-based service industry that, along with other new technologies such as drones, will have to be monitored and regulated by local governments to ensure citizens that these disruptive technologies are properly governed. Continued challenges in the future of this ridesharing model will include whether or not communities will allow the drivers to collectively bargain. Currently, only Seattle has voted to allow the drivers to the option to unionize. However, there are communities in both California and Washington D.C where it has been considered, although it has not been brought to a vote in these areas yet.

Another challenge that local governments may soon face is the battle between other hired driving companies and taxi operators. In Seattle, Chicago and Washington D.C., battles have played out in public between these entities over whether or not cities show preferential treatment of one industry over another. Some communities, such as Seattle, have been able to overcome this challenge by catering to all parties involved. These challenges may become more difficult for local governments to overcome in the future as for-profit ridesharing becomes more established.

Local governments have many challenges with up and coming, disruptive technologies. And with this ridesharing model growing the challenge of governing it will remain. With all of the different industries with a stake in the game, local governments will need to be proactive in their policy choices or could find themselves behind the 8 ball on a number of important issues as they appear.

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