California’s Bamboozled State Government Dumps Rideshare Problems On Cities.

As Transportation Network Companies Uber and Lyft grew their fleets across the U.S., they mobilized huge lobbying efforts to get states and cities to create new, unrestrictive rules and regulations. The lobbyists argued that new technologies made current rules and regulations obsolete. Their efforts were quickly rewarded as nearly all the targeted states codified the TNC’s new business model with lax standards and little or no oversight. But soon, this new business formula presented cities with increases in accidents, assaults of passengers and drivers, and urban congestion. Affected cities now bore the cost of added traffic on streets, policing, criminal prosecution,  plus the costs of hospitals and medical services for injured drivers because they had no work related insurance. In California and elsewhere the state legislatures and regulators either ignored these negative results or provided little help. Large municipalities were left to fend for themselves and some cities have now taken matters into their own hands.

Uber & Lyft Score A Beachhead

In California, cities are given the responsibility of regulating taxicabs and States Public Utility Commission (CPUC) regulated buses, limousines rail, trolleys and other intercity services. Rideshare startups Uber and Lyft stormed onto the streets of San Francisco in 2010 offering taxi like service with “citizen chauffeurs” using their own unmarked personal cars. They quickly encountered a cease and desist order from the City’s Metropolitan Transportation Authority (MTA). They ignored it and began an unprecedented lobbying effort at the State Capital.  After a few months of lobbying, these bold startups got the results they wanted: The CPUC created a new category of transportation service called Transportation Network Companies (TNCs) giving the taxi-like startups no geographic boundaries. Moreover, the CPUC stipulated that the new category would be “self regulating”, it accepted the promises of the new services to act in a socially responsible manner. Regulations that had been crafted by California cities to set standards for local taxi service issues like safety, price, quality, taxes & fees were circumvented. Overnight, cities that limited the number of taxis for congestion and fair driver pay, lost control of their streets and also lost the revenue of taxi permits and fees to pay for the use of the streets and enforcement costs.

TNCs Crank Up The Persuasion Machine And Write Big Checks

Emboldened by their success, these services quickly expanded to other states, citing the new authority granted in California. The lobbying effort grew exponentially as the services expanded. Uber’s nationwide campaign took on the look of a presidential campaign effort, it even hired David Plouffe, Barack Obama’s former presidential campaign manager. Plouffe has served many politicians around the country and was a perfect fit for Uber’s efforts to promote permissive regulatory rules. In many areas, Uber’s efforts included radio and television ads, email campaigns to drivers and passengers, billboards, transit banners, even promotional pitches built into the ride-hailing app itself. When other state legislatures were stymied over how to handle the new services and delayed making decisions, Uber and Lyft shifted their efforts and focused on city councils of major metropolitan areas, persuading them to not to create new regulations. They told them to allow the services to operate for now but to wait for statewide rules for insurance, background checks for drivers and other areas of regulation.  When legislatures were unsure how to handle the new tech based services, the startup lobbyists wrote the proposed legislation themselves and then finagled state and local legislators to get it approved. In some states the lobbyists actually got the legislatures to write laws that nullified labor statutes and prior court rulings, ensuring  that TNC drivers would always be considered independent contracts regardless of the actual work circumstances.

By 2016, Uber and Lyft deployed 370 active lobbyists around the country—more than Amazon, Walmart, and Microsoft combined. Additionally, they spent millions on political donations to critical decision makers. The TNCs efforts were quickly rewarded, 41 states enacted laws to benefit the TNCs and undermine worker and consumer protections in the process. In Austin Texas, Uber took off the gloves and mounted both a recall effort against a city council member opposed to loosening regulations and also got a ballot measure to override the city’s requirement that TNC drivers be submitted to the same fingerprint based background checks as taxicab drivers. They spent over $11 million dollars in Austin but wound up losing on both measures. So they simply pulled out and worked on the Texas legislature and within a year got the lax statewide regulations they wanted and overrode Austin’s safety requirements.

In all the lobbied states the user agreement between Uber and both the drivers and the passengers specifically excluded Uber from all responsibility and liability for whatever happened while using the service. Heretofore, many taxi companies had gone out of business when met with crushing legal settlements after serious accidents. The states were persuaded to adopt the TNC’s weak insurance requirements that left drivers and pedestrians at risk. So the victims of accidents were left without adequate compensation, their only alternative was protracted litigation and arbitration. For the time being it seemed that the TNCs deep pockets that had been funded by venture capitalists were safe to be used for more lobbying and global expansion.

What Could Possibly Go Wrong?

While TNCs created a tech enabled, more flexible transportation system, their “hands off” approach to driver supervision created a slew of new problems. Additionally, states created new rules for the rapidly growing system, but no government enforcement plans or budgets were enacted to ensure public safety and fairness to passengers and drivers. The TNC’s promised to take care of driver training, vehicle inspection, wheelchair access, and a host of other protections that had been previously mandated by municipal or state regulations. But in the end the TNCs wound up doing little of what they promised and most importantly did no enforcement at all. So no one was on the street monitoring the rides to make sure the vehicles being used were in fact the permitted and inspected vehicles or were even being driven by the contracted driver. Anyone that simply had the correct driver login info could step in and work the system. In San Francisco’s SFO airport police quickly found drivers picking up passengers in non-permitted vehicles, vehicles driven by unauthorized drivers, vehicles without insurance and even drivers without licenses. In many cities, fake TNC vehicles roamed the streets hustling passengers for cash in bar districts or special events. The fact that their personal car insurance being void for this sort of passenger work made that hustle put passengers, pedestrians and other drivers at great risk.

California’s Capitol Turns A Deaf Ear To Rising Problems

*What resulted from this lack of regulation and supervision was a sharp increase in  of accidents, passenger and driver assaults. As police reports about these troubles became public, newspapers and TV stations sounded the alarms. At the same time, in California the service became wildly successful with hundreds of thousands of users and thousands of drivers. Soon, the internet news site Buzzfeed published a leaked analysis of Uber customer emails that found thousands of the reports contained the words “rape”, “assaulted”, or “sexual assault”.  It would certainly seem fortunate that California’s Attorney General at the time was Kamala Harris, who had been twice elected as San Francisco’s own District Attorney and had a record as a crusader on a number of reforms and social issues. But her office remained strangely silent as accidents, rapes and assaults and other crimes appeared almost daily in the news and on the web. It seemed no one from the State’s Capitol in Sacramento wanted to interfere with a popular service or anger the states’ powerful and well funded tech lobby. In the UK, the regulator, Transport For London, did in fact respond to similar news reports and public complaints about sexual assaults and found Uber not taking any action on passenger or driver reports unless they were also reported to the police. So in 2017 TFL refused to renew Uber’s London operating permit. To this day, no one has done a similar investigation about assaults anywhere in the U.S.

*Additionally, TNC drivers in California and around the country found their pay far less than advertised so the drivers and their families bore the costs of work related injuries. At this point they formed groups and sued TNCs over their classification as independent contractors rather than employees with workplace protections and benefits. In California, by 2015 at least 4 drivers had applied to State agencies for employee based compensation and unemployment insurance. All those cases were won when each of the four labor tribunals independently found that the circumstances of their work actually qualified them to be properly classified as employees and awarded benefits. But the State Employment Development Department was also strangely silent and never took further action on behalf of the thousands of other drivers in the state who remained classified as independent contractors.

*At the same time TNCs also created special agreements with car dealerships to sell cars to aspiring drivers for use in rideshare work. Soon, the California Department of Motor Vehicles found that the sales specialists at the dealerships handling financing, insurance and registration who were knowingly financing these vehicles with cheaper personal loans from banks rather than the appropriate more expensive commercial loans. Worse, those same State authorized registration agents were registering the vehicles as personal vehicles rather than commercial vehicles, potentially hiding the riskier vehicle use from banks and insurance companies and also shorting the State the higher commercial license fees. The DMV quickly issued a warning letter to all the DMV licensed agents working at the dealers and warned them that such practices would cause them to lose their DMV authority and could also face criminal fraud charges. When that became public, the Governor of California, Jerry Brown actually stepped in and told the DMV to back off the issue and allow the deceptive practices to continue.

Cities Step Up To The Plate And A Tug Of War Begins

As assaults and rapes increased around the country,it became apparent to many that the use of  terms like “industry-leading”, “best available”, “gold standard” and “safest ride on the road” safety claims were not accurate. Most transportation officials and law enforcement bodies required a fingerprint based checking system and Uber specifically refused to use those. Uber’s system simply required applicants to fill out a form online and submit document images over the internet. By 2015, a number of reports surfaced of drivers being approved after sending false information including using another person’s documents or photoshopping their own. These loopholes clearly misled consumers throughout the country and hundreds of thousands of Californians. Even though these media reports came from responsible journalistic sources at the time, no governmental body took action. More absurdly, Uber charged a “safe ride” fee every time a passenger took a ride. Initially, it was $1.00 and then raised to $2.50 per ride. By 2014, Uber was collecting millions of dollars per year but the flimsy background check that uber used cost them less than $30 per driver.

Coincidentally , the San Francisco district attorney George Gascon found that Uber had been allowing cars into SFO without any permit arrangement with the airport, contrary to the provisions of it’s CPUC permit. He also found out that they were charging passengers the same $4.00 fee that limousines were charged for dropping off or picking up at SFO. The problem was that without an agreement, SFO was not charging Uber anything and  Uber was just pocketing the false fee. Again, no action from the CPUC or any State office. Even though these issues affected passengers throughout California, Gascon got fed up and sued Uber and Lyft for ripping off San Franciscans with the bogus fees and false advertising. Regarding Uber, he told reporters “The company uses ‘industry-leading’ background checks that are made ‘completely worthless’ by the failure to fingerprint its drivers”. Quickly the District Attorney for Los Angeles joined the suit and together they got a $28 million settlement and got agreements that relabeled the “safety fee” as a booking fee and changed the way the companies advertised their safety claims.

101 Driver Fees

Within a year of settling its suits against Uber and Lyft, the City Of San Francisco was back in court with SF City Attorney Dennis Herrera suing Uber over its refusal to provide the identities of the drivers using the streets of SF as the independent business entities that Uber claimed they were. The city had demanded that these drivers register their “business” with the City and pay an annual fee like any other entity doing business in San Francisco. With over 45,000 part time and full time drivers working in San Francisco and each obligated to pay the $91 annual registration fee, the city could earn around $4 million a year, to offset the growing expenses created by these new services.  Months later, with SF’s suit tied up in the courts, the State Legislature submitted proposed special exemptions for TNC drivers allowing them to avoid registering the “businesses”  in cities that they don’t live in. The governor quickly signed it, but within a couple of months Herrera sued to have the measure invalidated.  One factor to recognize is that there are 101 cities in the San Francisco Bay Area that are logically served by the region’s TNCs mobile workforce, though much of the TNC work is performed in San Francisco and south to Silicon Valley. Since about 2/3 of the TNC drivers operating in San Francisco do not live in the City, the sympathetic SF Board Of Supervisors put a temporary halt to the licensing requirement. Once again California’s State Capitol shortchanged the cities.

Congestion Takes Over 

Later in 2017 Dennis Herrera was back in action, sending a subpoena to both Uber and Lyft to submit the trip details of their services. While some areas of San Francisco were jammed to over-capacity with TNC vehicles, other areas like poorer neighborhoods and outlying districts seemed underserved. Uber and Lyft had been providing just that sort of information to the NY City and elsewhere to aid in those city’s urban planning efforts, but refused to do so in San Francisco. So then SF’s Municipal Transportation Agency requested the CPUC to share the detailed info that the TNCs were required to provide under their permit requirements, but the CPUC refused, saying that they were authorized to withhold official information if disclosure was against the public interest. So much for the future of “smart cities” in California!

TNCs Pay The CPUC For No Enforcement

In California transportation services paid a fee of .33% of gross revenue to the CPUC for enforcement and administration costs. Beginning in 2014 the explosion of TNCs greatly expanded the revenue the Commission took in. An newspaper story asserted that the CPUC receipts had grown to over $20 million annually from TNC activity. Months earlier, a State investigation had issued a damning report criticizing the CPUC for being understaffed and underfunded and doing a poor job in regulation and enforcement for many of the industries and services it was responsible to oversee. Certainly those funds should have been  welcomed and perhaps put to good uses. Frustrated with the total absence of TNC “self regulation” or any visible government enforcement, San Francisco asked the CPUC what it was doing with the millions it was collecting from the rideshare companies. The CPUC responded by saying that such information was “confidential”. Quite a surprising response by a supposedly transparent governmental agency. This was at a time when the CPUC was budgeting millions in attorney fees to defend their own board members in Federal and State corruption investigations. When San Francisco went public with the “confidential” response from the CPUC, the CPUC  quickly cut the fee rate to the TNCs to less than 10% of what they had been, but did nothing about enforcement or investigations. Well that solved the PR problem.

A Shoe Drops…. Maybe The Gig is Up?

By 2017 numerous research and academic papers were able to document the pain large metropolitan areas were experiencing with the explosion of TNC use. They showed that 60% of rides were filched from transit, walking, biking or not traveling at all.  So many cities saw a drop in transit use coinciding with increased TNC volume. They also showed that cars roamed empty looking for rides an additional 60% of the time a passenger was actually in the car. Over 17 cities and states imposed taxes and fees on the services to help cope with the city expenses and to support transit networks. A report from the San Francisco’s MTA showed the city had 1800 licensed taxis but were swamped with an average of 5,700 TNC vehicles operating daily in the City’s 4.7 square miles. In that average day these cars did a staggering 170,000 rides, traveled 570,000 miles and represented over 20% of all the intercity trips performed. A small bit of good news, SF’s use of TNC vehicles was very concentrated in the financial district and were more efficiently used than anywhere else in the country. But San Francisco had gone from the 6th most congested city in the US to 2nd place. The San Francisco MTA’s pleas to the CPUC to throttle the services back or help with local administration went nowhere, and the City’s legal actions were thwarted by appeals and endless negotiations. Just when all seemed lost, a shoe dropped right in San Francisco. The California Supreme Court, located near SF’s own City Hall issued a unanimous labor ruling in a case involving drivers for a delivery service operating in California. It simplified the California standards for determining employee vs independent contractor classification in a way that made gig economy drivers most certainly employees. This change would result in huge increases in costs for gig economy companies and potentially wipe out any hope of future profitability for the likes of Uber and Lyft.

The next shoe dropped a month later with San Francisco’s City Attorney Dennis Herrera once again swinging into action. San Francisco leads the country with the highest minimum wage at $15.00/hr and SF has a built in health plan for all employees working in the city that the employer must pay at around $2.50 per hour. The City’s own hospital San Francisco General is the unfortunate recipient of TNC drivers injured with no work insurance coverage. If TNC drivers would now certainly be classified as employees, Herrera wanted to make sure they were being paid minimum wage, workers compensation, health plan fees, sick days and more. So he served Uber and Lyft with subpoenas to produce documentation on how they classify their drivers, details about sick leave and health plans, and all the hours worked within San Francisco going back to 2014. His office press release contained the following quote:

“San Francisco’s laws help ensure that employers provide a fair day’s wage for a fair day’s work,” Herrera said. “Our laws also guarantee employees basic humane benefits like sick leave, health care, and paid parental leave. We are not going to turn a blind eye if companies in San Francisco deny workers their pay and benefits. We are not going to tolerate any company shirking its responsibility to pay for benefits and shifting that burden onto taxpayers when drivers without health insurance turn to the emergency room. If your company is valued at $62 billion, you can afford to give your workers health care.”

Within 2 months of the Supreme Court decision the tech industry mobilized their forces in a concerted effort in Sacramento, begging the legislature to somehow blunt the ruling for their gig economy partners and also asking their friend Governor Brown to issue some sort of executive order to nullify the court’s ruling.

SF and Herrera were not acting alone, within weeks of his actions, NY City put a cap on the number of new TNC licenses to be issued and set a minimum wage for drivers. Seattle had already created an ordinance allowing TNC drivers to unionize. 7 cities and 11 states have imposed fees or taxes to deal with the costs of the “rideshare revolution”. And within a few weeks after Herrera’s subpoena, the SF Board Of Supervisors came to an agreement with Uber and Lyft to impose a City tax on TNC Rides to help with transit costs.

Many labor and transportation experts doubt that Uber and Lyft can survive with drivers being classified as employees. We will have to wait to see if the “Gig Is Really Upin San Francisco and California or if the State Legislature comes to their rescue again. But City attorneys in San Francisco and Los Angeles are continuing to lead the charge for safety, fairness and transparency.

 

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