Uber-complex: regulating ride-hail services


26 July 2017

Shipping & Transport USA

Ride-hail services such as Uber and Lyft generally offer a cheaper and more convenient alternative to standard taxi services, but have disrupted the transport market and generated a myriad of complex issues in terms of regulation. Authorities must consider how best to regulate this growing sector to address the concerns of government, unions and taxi operators and avoid potential disputes.

Have ride-hail services such as Uber and Lyft gained a foothold in your jurisdiction?

Ride-hail services have quickly become a popular alternative to traditional taxi services in urban areas all over the United States. Uber launched in San Francisco in 2010 and has expanded rapidly to urban centres throughout the United States.(1) Lyft operates in hundreds of US cities.(2) The rapid growth of this new technology has left regulators and legislators struggling with how to balance the necessary regulation of ride-hailing services with promoting innovation and new technologies.

What are the main regulatory issues for transportation authorities concerning ride-hail services in your jurisdiction?

Regulatory authority over ride-hail services varies from state to state. In certain areas, ride-hail services are regulated at a local level, while in other areas the state has ultimate regulatory authority. The main issues for regulators relate to the impact of the new technology on the traditional for-hire taxi industry and the insurance, tort and employment law issues that have arisen. Regulatory agencies are struggling with how to deal with the new technology, and in the meantime, courts are determining these issues.

Do ride-hail services need to comply with employment, social security, and tax regulations in your jurisdiction?

The courts are currently wrestling with whether ride-share drivers should be classified as employees or independent contractors. The classification of drivers has implications for overtime pay, minimum wage, taxes and social security, among other things. Those defined as 'employees' are entitled to certain benefits, while those defined as 'independent contractors' are not.

The US District Court for the Northern District of California certified a class action for Uber drivers to assert that they are employees of Uber and entitled to certain protections under the California Labour Code, including the requirement that employers deliver to the employee the entire amount of any gratuity.(3) The court denied summary judgment for Uber on the issue of whether Uber drivers are independent contractors, finding that there were several indicators of an employment relationship. While Uber alleged that it was a technology company acting as an intermediary between potential riders and drivers, the court found that a jury should decide whether Uber had the right to control the manner and means by which the drivers complete the service. The court stated as follows:

"The application of the traditional test of employment—a test which evolved under an economic model very different from the new 'sharing economy'—to Uber's business model creates significant challenges. Arguably, many of the factors in that test appear outmoded in this context. Other factors, which might arguably be reflective of the current economic realities (such as the proportion of revenues generated and shared by the respective parties, their relative bargaining power, and the range of alternatives available to each), are not expressly encompassed by the [current] test. It may be that the legislature or appellate courts may eventually refine or revise that test in the context of the new economy. It is conceivable that the legislature would enact rules particular to the new so-called 'sharing economy.' Until then, this Court is tasked with applying the traditional multifactor test."(4)

Ride-share drivers have brought suits in other jurisdictions within the United States, alleging that they have been misclassified as independent contractors rather than employees and that they are entitled to employee benefits such as minimum wage, overtime pay and reimbursement for business expenditures.(5)

The employee/independent contractor distinction also has tax law implications. The test for whether a worker is an employee for tax law purposes can differ from the test in the labour and employment law context. However, if ride-sharing drivers are found to be employees for tax purposes, the employer would be required to collect taxes from the employees and to withhold taxes from the employees' wages.(6) It remains to be seen whether the solution to the legal uncertainties in the sharing economy will be legislative or judicial.(7)

What are the insurance implications for passengers using ride-hail services in your jurisdiction? Are passengers covered by the driver's personal insurance policy or the company's insurance policy?

Insurance coverage related to ride-hail services has been a hotly contested issue. Ride-hail drivers use their own cars to provide the service and are required to carry auto insurance. However, most auto insurance policies contain a 'livery exclusion', which excludes coverage when the driver is using the vehicle for commercial purposes.(8) It is difficult to determine the point at which a driver begins providing services for a ride-hail service, which can lead to gaps in coverage.

The issue was brought into focus when in 2013 an Uber driver hit a family while they were crossing a street in San Francisco. One child was killed and her mother and brother were injured. Uber alleged that the driver was not providing services at the time because, although the driver had the Uber app on, he was waiting for a fare and was not carrying a passenger or on his way to pick up a passenger. Uber's commercial auto policy did not provide coverage for this period.(9)

For insurance coverage purposes, three periods have been defined for ride-hail services:

  • Period one begins when the driver logs into the ride-hail service app and is waiting for a fare.
  • Period two is when a ride has been accepted, but the passenger is not yet in the vehicle.
  • Period three is when the passenger has been picked up and is in the vehicle.

Uber and Lyft provide commercial auto liability and uninsured/underinsured motorist coverage up to $1 million per occurrence, and contingent comprehensive and collision coverage for Periods 2 and 3.(10) They provide only contingent liability coverage, which applies only if the driver's personal auto insurance does not provide coverage, at lower limits for Period one.(11) The National Association of Insurance Commissioners has adopted a white paper to address the issue of coverage gaps in the ride-sharing industry.(12)

What measures can transport authorities take to protect the public, unions, and taxi operators, while encouraging greater choice and innovation on the market?

The consumer protection issue has focused on fingerprinting and background check requirements. On one side, it is argued that ride-share service drivers should be held to the same standards as traditional taxi drivers. Background checks and fingerprinting is often required. On the other side, it is argued that such requirements do not apply to ride-share services and imposing such regulations will stifle innovation and consumer choice. There have been a number of reported incidents involving sexual assaults committed by ride-share drivers, leading to a push for more regulation.(13)

Because traditional taxi services are often regulated at a local level, there has been a struggle with how to regulate large ride-share services that operate across the country. One example of the measures that authorities have taken to address the public protection concern is to classify ride-sharing services differently than traditional taxi services. In Austin, Texas, voters defeated a measure that would have exempted ride-hail service drivers from the fingerprint and background check requirements with which traditional taxi drivers were required to comply. Lyft and Uber then pulled out of Austin. The battle ended recently when the state legislature passed a measure "overriding Austin's regulations with a more lenient state-wide framework governing ride-hailing companies".(14) The law establishes that the regulation of the ride-share companies is controlled by the state of Texas, not cities.(15) Thus, the state classified the ride-share companies as separate from traditional local taxi services and imposed state-wide requirements. This benefits both sides of the argument by freeing the ride-share companies from complying with varied local regulations, while still imposing state-wide consumer protection requirements.

Another regulatory problem arises when considering the impact of ride-hail services on local taxi industries. The taxi industry has seen a decline in revenue with the rise of ride-share services.(16) In addition, owners of taxi licences complain that the value of the taxi licences has dropped significantly.(17) There is no consensus on the appropriate method of addressing the impact on traditional taxi services. For example, some propose the regional regulation of ride-share companies,(18) imposing the same more lenient regulations on both traditional taxi services and ride-share services,(19) and relief for traditional taxi services during this transitional period.(20)

For further information please contact please contact Ashley Bane at Fowler Rodriguez by telephone (+1 504 523 2600) or email (abane@frfirm.com). The Fowler Rodriguez website can be accessed at www.frfirm.com.


(1) Uber, 5 Billion Trips, https://newsroom.uber.com/5billion/ (June 29 2017).

(2) Fortune.com, "Lyft Just Made Its Biggest One-Day Expansion Into U.S. Cities", http://fortune.com/2017/02/23/lyft-54-cities/ (February 23 2017).

(3) O'Connor v Uber Techs., 2015 US Dist LEXIS 116482, at *134-135 (ND Cal Sept 1 2015); O'Connor v Uber Techs, 82 F Supp 3d 1133, 1135 (ND Cal 2015).

(4) O'Connor, 82 F Supp 3d at 1153.

(5) See, eg, Singh v Uber Techs Inc, 2017 US Dist LEXIS 12033 (D NJ Jan 30 2017) (granting Uber's motion to compel arbitration); Mumin v Uber Techs, Inc, 2017 US Dist LEXIS 34008 (EDNY March 7 2017).

(6) Shu-Yi Oei & Diane M Ring, "Can Sharing Be Taxed?", 93 Wash U L Rev 989, 1021-22 (2016).

(7) For a discussion regarding the classification of workers in the sharing economy, see Robert L Redfearn III, Note, "Cyberlaw and Venture Law: Sharing Economy Misclassification: Employees and Independent Contractors in Transportation Network Companies", 31 Berkeley Tech LJ 1023 (2016).

(8) National Association of Insurance Commissioners, "Transportation Network Company Insurance Principles for Legislators and Regulators", at p 3 (March 31 2015), available at http://www.naic.org/documents/committees_c_sharing_econ_wg_exposure_adopted_tnc_white_paper_150331.pdf.

(9) The Verge, "When an Uber Driver Kills Someone, Who Is Responsible?" (Jan 28 2014), https://www.theverge.com/2014/1/28/5350660/lawsuit-uber-accident-death-girl-liability-insurance; the New York Times, "Uber and a Child's Death" (Jan 27 2014), https://bits.blogs.nytimes.com/2014/01/27/uber-and-a-childs-death/.

(10) Uber, Insurance, https://www.uber.com/drive/insurance/; Lyft, Insurance Policy, https://help.lyft.com/hc/en-us/articles/213584308-Insurance-Policy.

(11) Id.

(12) National Association of Insurance Commissioners, "Transportation Network Company Insurance Principles for Legislators and Regulators" at p 3 (March 31 2015), available at http://www.naic.org/documents/committees_c_sharing_econ_wg_exposure_adopted_tnc_white_paper_150331.pdf. See also National Association of Insurance Commissioners, "Commercial Ride-Sharing" (April 5 2017), http://www.naic.org/cipr_topics/topic_commercial_ride_sharing.htm.

(13) See, eg, Richard Winton, "Uber Driver Accused of Kidnapping, Sexually Assaulting Intoxicated Female Passenger", the LA Times (June 26 2017), http://www.latimes.com/local/lanow/la-me-ln-sex-crime-uber-20170626-story.html.

(14) AW, "An Inglorious Return to Austin for Uber and Lyft", the Economist (May 26 2017), https://www.economist.com/blogs/gulliver/2017/05/not-missed.

(15) Andrew Liptak, "Lyft and Uber Will Return to Austin on Monday", the Verge (May 27 2017), https://www.theverge.com/2017/5/27/15705060/lyft-uber-returning-austin-texas-fingerprinting-requirements.

(16) See, eg, Laura J Nelson, "Uber and Lyft Have Devastated L.A.'s Taxi Industry, City Records Show" the LA Times (April 14 2016), http://www.latimes.com/local/lanow/la-me-ln-uber-lyft-taxis-la-20160413-story.html; Patrick Gavin, "Regional Regulation of Transportation Network Companies", 11 Harv L & Pol'y Rev 337, 339 (2017).

(17) Katrina M Wyman, "Taxi Regulation in the Age of Uber", 20 NYU J Legis & Pub Pol'y 1 (2017); David K Suska, "Regulatory Takings and Ridesharing: "Just Compensation" for Taxi Medallion Owners?", 19 NYU J Legis & Pub Pol'y 183 (2016).

(18) Patrick Gavin, "Regional Regulation of Transportation Network Companies", 11 Harv L & Pol'y Rev 337 (2017).

(19) Katrina M Wyman, "Taxi Regulation in the Age of Uber", 20 NYU J Legis & Pub Pol'y 1 (2017).

(20) David K Suska, "Regulatory Takings and Ridesharing: "Just Compensation" for Taxi Medallion Owners?", 19 NYU J Legis & Pub Pol'y 183 (2016).

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