What’s Driving the Ridesharing Debate?

BY NICOLE HALMOUKOS — Uber Technologies, Inc., one of the most popular and expansive of a number of “e-hailing” apps to arrive in the personal transportation space, allows users to summon a ride using their smartphone. A glance at the young company’s financial growth is impressive: it has raised over $1.5 billion in venture capital, reached a valuation of $17 billion, and operates in more than 200 cities in 46 countries. It is estimated to bring in gross revenues nearing $1 billion per month, reportedly up to twelve times those of competitor Lyft, and growing exponentially more quickly. However, Uber has recently faced growing opposition from traditional taxi companies and local governments, both of which want Uber to be subject to the same regulations as traditional cabs. In addition, insurance companies want drivers to carry policies with greater liability limits.

The issue centers on the distinction between mobile apps and transportation services. Regulators, executives of traditional taxi-cab organizations, and officials argue that Uber, by its nature, is a transportation company that transports people and collects fees. Uber contends that it is a technology company, merely connecting contracted drivers with individuals seeking rides. It emphasizes that before they can procure a ride, users must first accept the Terms and Conditions, which state unequivocally that Uber does not provide transportation services but instead connects users with third-party providers. The company refers to its drivers as independent contractors.

The dispute is unique and particularly challenging in a legal sense in that it is one with a “wide variety of responses,” according to Professor Arun Sundararajan of NYU’S Stern School of Business. She explains, “the industries . . . that are being disrupted by this new wave of platforms have local, city, and state regulations.” Taxis have historically been among the most local and regulated of public services. Consider, for example, that Boston’s cabs are overseen by the city’s Hackney Carriage Unit, which dates back to 1854.

Judge Scott Freeman, in a suit brought against Uber Technologies, Inc., by the state of Nevada, disagreed with Uber’s position that it is exclusively a technology company. After the Washoe County District Court Judge issued a preliminary injunction to halt statewide operations, Nevada became the first state in the nation to temporarily suspend Uber. Over the Thanksgiving holiday, the company was forced to suspend its operations in Nevada indefinitely. On its website, a blog post identified “some confusion about ridesharing and how uberX is helping provide a completely new model to meet Nevadans’ transportation needs.” The statement continues, “Uber is in this for the long-term . . . .”

Uber, Inc., has been named in similar suits in a number of cities and states, including Seattle, Massachusetts, and Connecticut. It has responded with similar conviction that those jurisdictions’ relative regulations did not apply. The issue is certainly a developing one, and the courts’ decisions as to which genre to place Uber in will potentially come with expensive implications for the startup.

Where courts decide that Uber is a transportation service after all, the company will have to make modifications to comply with both the Americans with Disabilities Act and airport regulations—which involve expensive modifications to vehicles and hefty fees. In the meantime, Houston, San Francisco, and Chicago airports have gone so far as to threaten to ban all ridesharing traffic, and San Francisco International Airport officials have even placed some drivers under citizens’ arrests for trespass.

If indeed Uber is a transportation service, its taxi drivers will need to increase the limits of liability insurance policies. Today, both Uber’s and Lyft’s websites state that their drivers carry $1 million liability plans, but there is ambiguity with regard to coverage. Without a definitive ruling on the type of business being transacted, recovery depends largely on who is liable: Uber, Inc., or its independently-contracted driver.

All of this is not to say that Uber has been entirely unresponsive to the pressure mounting against it. After a tragic accident in San Francisco on New Year’s Eve, as a result of which the company faced an onslaught of public relations backlash, the company initially denied liability for incidents occurring when neither a passenger was in a driver’s car nor the driver was en route to a confirmed request for a ride. In a blog post on its website, the company revised that policy: the new program covers accidents “during trips,” up to $100,000 for bodily injury and $25,000 for property damage.

Undoubtedly, Uber and its drivers’ eyes are on the courts in a number of locales as they await the outcome of pending litigation. The conclusion of this issue will surely have to be a carefully reasoned response to the tense juxtaposition of traditional regulation, modern technology, and public demands.

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