The Hidden Cost of Ridesharing

September 30, 2014

Uber, Lyft, Sidecar and other ridesharing apps have changed the landscape of the for-hire vehicle service. The success of the ridesharing companies has had a serious impact on profit and operation of taxi and limo companies in competing markets. For example, taxis at Raleigh-Durham International Airport estimate the cost to travel to Raleigh is $30.80 for the approximately 14-mile trip. Meanwhile, Uber would cost about $19.35; Lyft would charge about $17.53. Customers also claim that ridesharing is quicker to respond and overall faster than traditional taxi or limo service. However, there are hidden costs associated with ridesharing.
In recent weeks, more than 100 citations have been issued to Uber and Lyft drivers at RDU citing the ridesharing services use private vehicles and personnel that are not in compliance with the airport’s permit regulations, which include proof of $1.5 million in liability insurance and background checks and physicals for drivers.
All sides of the ridesharing legality issue raise valid arguments. The taxi companies claim that Uber and Lyft have an unfair advantage by forgoing expenses for commercial licenses, inspections, and other requirements. The ridesharing companies claim that the regulations help the taxis monopolize and inhibit free market and competition. Meanwhile, states and municipalities seek to protect the safety and wellbeing of the public by setting uniform standards.

Drivers for Uber, Lyft, and other ridesharing companies are not employees, but rather are independent contractors.

In many cases, rideshare drivers only have to meet an age requirement, have a regular drivers license, some auto insurance, and have a fully functioning car. Whereas taxi drivers are commonly required to have a commercial drivers license and undergo regular car inspections. One of the biggest issues, however, is the requirement for adequate liability insurance – or lack thereof.
While Uber and Lyft claim they offer $1 million liability insurance plans for drivers, 14 states have issued warnings that rideshare companies may not cover passengers in an accident. It depends on who’s liable. In a traditional employee-employer relationship, vicarious liability would control. However, as independent contractors, the rideshare drivers are solely liable for property damage and bodily injury caused while transporting passengers or searching for passengers and general auto insurance does not cover driving for-hire. The rideshare companies claim they merely control the app connecting passengers and drivers, and are not liable for the negligence of the driver.
Furthermore, the background checks are not always thoroughly conducted at ridesharing companies. An Uber driver in San Francisco was recently charged with punching a passenger. Apparently, the driver had passed the company’s background check even though previously convicted of both violent crimes and drug offenses.
As noted, the pricing for Uber or Lyft is considerably less than a traditional taxi at RDU. Pricing regulations are a major factor in the transportation war. Taxi drivers are held to stricter pricing models while Uber and Lyft can change prices according to demand for drivers, giving rise to another claim of unfair competition.
In response, taxi companies are not sitting idly on the sidelines, but have filed several lawsuits. This month in New Mexico, Yellow Checker Cabs filed suit against Lyft and Uber claiming the companies do not have proper insurance and are putting both their own drivers and residents at risk. The suit appears to have prompted changes in New Mexico’s law. The Public Regulation Commission, which regulates taxi and limo services, is reported to be considering modifying the state Motor Carrier Act to include the ridesharing services.
An alternate attack on ridesharing was taken in Texas this summer. Three disabled people filed a federal complaint against Uber and Lyft because the companies’ vehicles are not wheelchair-friendly. Under the Americans with Disabilities Act, private taxi services cannot discriminate against the disabled. Uber and Lyft allow their drivers, who are independent contractors, to deny service to the disabled.
Due to the popularity and success of the companies like Uber, some regulators are trying to find the middle of the road solution for ridesharing and taxi companies in the face of ongoing litigation. In Washington, the Spokane City Council is proactively addressing ridesharing and is expected to permit Uber and Lyft to operate in the city by codifying the procedures the companies already follow. If a driver is in violation, he could be subject to penalties from the city. Uber and Lyft also would agree to pay the city $0.10 per ride as administrative and regulatory costs. While the change legalizes Uber and Lyft, it is not necessarily bad news for taxi companies. Rideshare contractors would be prohibited from accepting street-hails and soliciting customers outside of their apps. Also, some regulations for taxi companies would be eliminated, such as allowing taxis to use any certified mechanic, instead of one of three specific mechanics. However, regulations banning the use of tobacco products inside cabs, the use foul language, or wearing of open-toed shoes would remain.
In Nashville, the taxi companies are fighting back on the streets rather than court. Taxi USA, parent company of three taxi fleets, has developed its own mobile app to summon and track taxis. This approach has tremendous promise to modernize the taxi industry by recognizing the need to innovate and keep pace with evolving consumer demand. However, modernizing is not enough. Changes in regulation are needed to ensure the public is protected while allowing fair competition in the market, ultimately eliminating the hidden costs.