Elaine Ding

On September 19, 2013, the California Public Utilities Commission (CPUC) unanimously voted to pass proposed rules regulating app-based ride-sharing services like Lyft, SideCar, and UberX, making California the first state to regulate such services.[1]

Ride-sharing services differ from traditional taxi services in that users can request cars by using mobile apps and drivers are individuals who sell seats in their personal vehicles in exchange for “donations.”[2]  The concept of ride-sharing was developed to combat the inefficiencies of the U.S. transportation system, where it is estimated that 80% of car seats on the road are empty.[3]  Mobile apps like Lyft allow approved drivers to fill those empty seats.[4]  At the end of the trip, passengers rate the drivers and give a “donation” for the service, but because the donation is optional and Lyft services qualify as pre-arranged travel, drivers do not need a limo license.[5]

Taxi drivers complain that ride-sharing companies have an unfair advantage because they provide essentially the same service as taxis without having to comply with regulations like emission standards and fare limits.[6]  William Rouse, general manager of Los Angeles Yellow Cab, explained that while ride-sharing companies are allowed to discount their fares, “all of our local governments mandate that [taxis] charge a set fare. We are not allowed to discount.”[7]

Amidst regulatory and safety concerns surrounding ride-sharing, the CPUC issued cease-and-desist letters to the ride-sharing companies last August.[8]  A ruling has now been passed which classifies ride-sharing companies under a new category of services called “transportation network company” (TNC).[9]  The ruling finds that ride-sharing companies differ from taxis in that TNCs operate on a prearranged basis and because the codes do not define “prearranged,” the court is reluctant to impose a minimum time requirement as some other jurisdictions have done.[10]

In its ruling, the CPUC rejected the companies’ argument that they do not fall under the Commission’s jurisdiction and should not be regulated by the CPUC because they are merely an application on smartphones, and not part of the transportation industry in that the money exchanged between rider and driver is merely a “donation.”[11]  The CPUC ultimately held that TNCs do not qualify for California’s rideshare exemption because these companies operate primarily for profit, despite calling their payments “donations.”[12]  The TNCs are “engaged in the transportation of persons for compensation” and therefore subject to the jurisdiction of the CPUC.[13]

The CPUC established 28 rules and regulations for TNCs.  The rules include the requirements that TNCs must (1) obtain a license from the CPUC to operate in California (2) require each driver to undergo a criminal background check (3) establish a driver training program (4) implement a zero-tolerance policy on drugs and alcohol (5) hold a commercial liability insurance policy that is more stringent than the CPUC’s current requirement for limousines, requiring a minimum of $1 million per-incident coverage for incidents involving TNC vehicles and drivers in transit to or during a TNC trip, regardless of whether personal insurance allows for coverage; and (6) conduct a 19-point car inspection.[14]

Lyft and SideCar have stated that they already abide by most of these rules.[15]  In a blog post, SideCar enumerates the sentiment of TNCs on the passing of these rules stating, “We couldn’t be more pleased with this outcome and applaud the CPUC for moving in favor of transportation innovation and consumer choice.”[16]  While ride-share companies celebrated the ruling, taxi cab drivers are troubled by the decision.  Hansu Kim, owner of Desoto Cab Company in San Francisco, believes the decision is unfair because ride-share companies are essentially the same as taxis, but they do not have to deal with regulatory issues such as workers compensation and insurance.[17]  In a statement responding to the CPUC decision, the San Francisco Cab Drivers Association voiced concerns over the regulations being difficult to enforce and inadvertently harming drivers and passengers.[18]  “Without proper local regulatory oversight this can only lead to abuse by TNC drivers, companies and the opportunistic element leading to the decreased quality of passenger service for the disabled, elderly and disenfranchised who rely on taxis for transportation.”[19]  According to the San Francisco Business Times, California taxi interests are gathering funds to finance anticipated lawsuits against Lyft, SideCar, and UberX.[20]

With the rapidly spreading popularity of ride-sharing, other states find themselves similarly faced with the issue of regulating a previously non-existent form of transportation.  The CPUC’s ruling will likely become a model for other states as ride-sharing becomes a more common mode of transportation.  The ruling also provides legitimacy to the sharing economy, and it is probable that the positive ride-sharing regulations will aid other sharing companies in related fields such as Airbnb with home-sharing and RelayRides with car-sharing.  Other sharing companies may more easily gain approval from government officials and regulators to operate once ride-sharing regulations pave the way.[21]