Uber, the fast-growing app-based car service, is becoming increasingly popular across the country and the world. Because of its critical mass, Uber is now a legitimate competitor to traditional taxi operators – competing on both price and service. But like a teenager, Uber is realizing that growing up fast can be a bit complicated. Going forward, Uber must balance expanding its business, while facing increased regulation from various levels of government trying to stifle Uber’s disruptive service.
Uber currently operates in 277 cities around the world. To some, its expansion has been considered “principled confrontation” – entering new markets without any regard for traditional transportation or chauffer regulations, as if to say “we dare you to stop us.” ((Douglas MacMillan and Lisa Fleisher, How Sharp-Elbowed Uber Is Trying to Make Nice, Wall Street Journal, Jan. 29, 2015, 10:33 PM, http://www.wsj.com/articles/hard-driving-uber-gives-compromise-a-try-1422588782.)) Uber maintains that they should not be subject to traditional taxi regulations, which require extensive background checks and strict registration, because their business is so different. Unlike taxis, Uber doesn’t own cars or employ drivers. ((MacMillan and Fleisher, supra.)) Rather, Uber classifies itself as a transportation network company, or TCN, which connects users to drivers looking to make cash on their own time, through its web-based app. ((Douglas MacMillan, Uber Laws: A Primer on Ridesharing Regulations, Wall Street Journal Digits, Jan. 29, 2015, 10:37 PM, http://blogs.wsj.com/digits/2015/01/29/uber-laws-a-primer-on-ridesharing-regulations/?mod=WSJBlog&utm_source=twitterfeed&utm_medium=twitter.)) By distinguishing itself from taxis, in an ideal world, Uber would be free to operate its business without intrusive regulation.
Lawmakers, however, have been putting strong pressure on Uber. There are not many car service laws in the United States. Before 2014, there were zero, but recently, seventeen have been passed. ((MacMillan and Fleisher, supra.)) These laws are an obvious response to Uber and its other main competitor, Lyft.
Uber’s response has been unpredictable. In some instances, it has been amenable – working with local law officials to follow the rules, even if that means eating into profit. ((MacMillan and Fleisher, supra.)) Anticipating a recent snowstorm in New York City, Uber worked with New York Attorney General Eric Schneiderman to cap its surge-pricing model, which raises prices when rides are in especially high demand, to 2.8x the regular average fare. ((MacMillan and Fleisher, supra.)) This policy has also been adopted for other emergency situations. In addition, Uber is working with New York City to provide ride data to the city, much like taxi cabs are required to report. ((MacMillan and Fleisher, supra.))
Uber has perhaps been even more flexible internationally. In India, Uber’s second largest market after the U.S., Uber applied to become a taxi company, to placate regulators. ((Macmillan and Fleisher, supra.)) In Germany, Uber cut fares by 75% to comply with local law. ((Macmillan and Fleisher, supra.))
Yet, at the same time, Uber has dug in its heels against local regulators. In Ann Arbor, Michigan, Uber ignored cease and desist orders to comply with the Michigan Limousine Transportation Act. ((Jeremy Allen, Uber, Lyft ignore Ann Arbor’s cease and desist demand, MLive, July 7, 2014, 5:35 AM, http://www.mlive.com/business/ann-arbor/index.ssf/2014/07/uber_lyft_ignore_ann_arbors_ce.html.)) This strategy was ultimately successful as no fines were levied and Uber continues to operate there successfully. ((Allen, supra.)) Likewise in Portland, Oregon, Uber plowed ahead with its expansion without reaching a pledged agreement with the city, and is now facing a lawsuit in Oregon state court. ((MacMillan and Fleisher, supra.)) Uber is also interested in changing existing law. In San Antonio, TX they threatened to pull the entire operation if the local laws, including a ten fingerprint background check and third party vehicle inspection weren’t relaxed. ((Josh Baugh, Uber to San Antonio: Change regulation or we’ll hit the road, mySA, Feb. 4, 2015, (http://www.mysanantonio.com/news/local/article/Uber-to-San-Antonio-Change-new-regulations-or-6062771.php; Josh Baugh and John MacCormack, City Council approves new ride-share regulations for Lyft, Uber, mySA, Dec. 11, 2014, http://www.mysanantonio.com/news/local/article/Supporters-detractors-pack-City-Hall-to-weigh-in-5950675.php.)) Uber sees these regulations as unnecessarily constricting on its business. Taxi drivers and regulators on the other hand, want to promote safety and limit Uber’s disruption to the taxi services.
Uber currently requires its drivers to clear criminal background checks, have valid Social Security Numbers, and have their driving records scrutinized. ((Erika D. Smith, Don’t overload Uber, Lyft with new regulations, IndyStar, Feb. 7, 2015, http://www.indystar.com/story/opinion/columnists/erika-smith/2015/02/07/smith-overload-uber-lyft-new-regulations/22994495/.)) Regulators want to push this farther to include driver training, vehicle inspections, and expanded liability insurance, which Uber already provides up to $1 million. ((Smith, supra.))
Another significant issue that Uber faces is in employee classification. There are currently two class action cases against Uber in California District Court. ((RJ Lehmann and Eli Lehrer, The ‘Sharing Economy’ Is Under Threat, The Weekly Standard, Feb. 9. 2015, http://www.weeklystandard.com/blogs/sharing-economy-under-threat_845254.html.)) If Uber’s drivers are considered employees, then Uber may have to pay for workman’s compensation, gas, maintenance, unemployment insurance, health care and retirement. ((Lehmann and Lehrer, supra.)) Uber maintains that its drivers are independent contractors – who set their own hours and use their own cars. ((Lehmann and Lehrer, supra.)) The determinative factor for a choice between employee or independent contractor is control. While Uber’s drivers seem to have a good amount of control, Uber also does background checks, which may suggest that the drivers being employees. ((Lehmann and Lehrer, supra.)) Uber would be exposed to harsh fines and penalties if their drivers are classified as employees if they don’t comply with California’s strict Labor Code. ((Lehmann and Lehrer, supra.))
Uber’s strategy, while not perfectly consistent, is quite sound. In large cities with established taxi operations, Uber may need to cooperate and make a few concessions along the way to gain regulatory legitimacy, while staking out its place in the market. In smaller cities, Uber is smart to forge ahead. It can partner with cities in drafting favorable regulations for itself, knowing it holds at least some power, as citizens benefit immensely from this innovative car service.