After taking a contemplative drive around Charlotte, Governor Pat McCrory signed legislation into law last week that establishes a uniform operating framework for “ridesharing” services in North Carolina. Ridesharing companies offer consumers an alternative to traditional taxicab services by connecting passengers to private individuals who provide them with paid rides. This peer-to-peer connection is accomplished using free, easy-to-use apps on smartphones, smartwatches, and other mobile devices.
Customers can track their reserved car’s location on a mobile device and fares are determined by way of a dynamic pricing model — that is, rides cost less when the demand isn’t as great.
Ridesharing has quickly proven to be immensely popular — not only giving people greater convenience and flexibility — but providing a way for enterprising folks to make extra money just by driving their own cars. According to Uber, the company creates 20,000 new jobs a month and full-time drivers in New York City can make more than $90,000 a year.
Senate Bill 541, which passed the General Assembly nearly unanimously, requires mandatory background checks for drivers and primary insurance coverage on every trip in the amount of $1.5 million. Although ridesharing companies like Uber, Lyft and Sidecar have long maintained these standards on their own, the legislation now codifies these best practices into law.
“This law will help ridesharing companies and the people who use them flourish while increasing safety,” commented Governor McCrory during the bill signing at the Charlotte Chamber of Commerce. “It encourages competition, innovation and opens the door to individual entrepreneurship — while helping North Carolinians connect with businesses, education, concerts, sporting events and each other.”
Arathi Mehrotra, Uber North Carolina’s General Manager, enthusiastically supported the legislation. “It is a great day for riders and drivers in North Carolina,” she said. “We thank Governor McCrory and all parties involved for officially welcoming choice, innovation and opportunity across the state.”
Uber celebrated news of the law on its website: “Uber is proud to operate in 15 markets across the state of North Carolina, bringing residents and visitors safe, affordable, and reliable rides. The Uber platform has created 8,000 job opportunities across the state and put over $20 million into the hands of North Carolina residents (over $1 million into the hands of partners that are service members, veterans, and military spouses.)”
The new law also requires ridesharing companies to maintain insurance coverage even when a driver has no passengers in the car but is logged in to the app and is “open for business.” This is similar to existing regulations on traditional taxis when they are waiting to be hailed or dispatched. Ridesharing companies would also be required to obtain operating permits.
Ridesharing is part of a popular international movement called “the sharing economy” that includes such initiatives as peer-to-peer short-term rentals, meal-sharing, book-sharing, household errand sharing, loan clubs, and many more.
“The additional income created by renting out a room on Airbnb or driving for Uber is new value; it is created by the owner and did not exist before,” says Payton Alexander, writing for the Franklin Center for Government and Public Integrity. “It is not a fixed wage, with fixed benefits, but is instead much more like profit from a business.”
The ridesharing process in simple, convenient and responsive. Uber, for example, notifies the nearest available driver, who accepts or declines your request. The app uses GPS maps showing driver and passengers, and an estimate of how far away each is. You will see a photo of your driver and can watch them approach on your GPS map. You get in the car and take the ride. The fare is processed through your phone and credit card — no cash is exchanged and there is no tipping. And the passenger can immediately rate their experience online.1
Fast Company, a magazine that tracks business and technology trends, reports that “in five years, Uber, which dispatches low-cost taxis and limousines operated by independent drivers, is likely the fastest-growing startup in history. It has more than 1 million active drivers — meaning they did at least one trip in the past week — operating in 330 cities (as of mid-August) and a valuation of $51 billion, which is roughly equivalent to the market capitalization of General Motors. It is a global phenomenon that is redesigning urbanites’ relationship with the world around them, transforming their smartphones into control pads for their harried lives. Uber — the first company since Google with a service so popular that its name is in regular use as both a noun and a verb—has spawned an entire category of business known as the one-tap economy: Millions of people now routinely open an app to enlist a distributed workforce to deliver groceries, hot meals, and their clean laundry on demand.”
“Before, your car or your house would cost you money every second of the day, regardless of whether you were using them,” continued Mr. Alexander. “Now, you can earn a profit off of them even when you aren’t using them. Some car owners are now able to add as much as $10,000 of additional income every year simply by driving for Uber for an hour or two after work every day. For many, this additional income is what makes it possible to own a car or an extra room in the first place.”
Not everyone is in favor of the sharing economy and the disruption it’s bringing to the status quo, including some crusty old union bosses and big-labor politicos. Writing in the Los Angeles Times this past weekend, AFL-CIO honcho Rusty Hicks compared the sharing economy to sharecropping. A certain technology-challenged presidential candidate, who hasn’t driven a car since 1996, called the sharing economy “polarizing” and accused these innovative businesses of “displacing or downgrading blue-collar jobs” during a campaign speech in July.
Transportation Network Companies such as Uber, Lyft and Sidecar have been giving cities headaches from the beginning. Fundamental questions had to be addressed: should they be regulated or even allowed? Cities all over North Carolina grappled with these and many other questions.
This new law expands on legislation passed during the last session, in August 2013 (House Bill 74), that preemptively prohibited hundreds of cities from establishing their own version of regulations for ridesharing services while the General Assembly crafted legislation addressing the issue for the state.
Cities in North Carolina are given the authority to regulate taxicab services operating within their jurisdiction. However, House Bill 74 specifically prohibits cities from regulating these types of digital dispatch services. Cities are prohibited from adopting ordinances that:
- Require a license if the digital dispatching service does not own or operate the vehicles for hire in the city;
- Set a minimum rate or minimum increment of time used to calculate a rate for the services;
- Require an operator to use a particular formula or method to calculate rates charged;
- Set a minimum waiting period between requesting the services and provision of those services, when they are digitally dispatched;
- Require a final destination to be set at the time of requesting the services; or
- Require or prohibit taxi franchises or taxi operators from contracting with a person in the business of digital dispatching services for prearranged transportation services for hire.
The City of Charlotte had been deliberating local regulation for some time — even after the prohibitions of HB74 were passed in August 2014. In the showdown between the state legislature and the City of Charlotte, these provisions in HB74 have the effect of preempting local regulation while state regulation of the industry was being considered.
Charlotte’s city attorney ruled in June that city council members have the authority to oversee all passenger vehicles for hire, whether they are traditional or digital dispatch. City officials say they believe they can regulate digital dispatch because the drivers are independent contractors. At a Community Safety Committee meeting, city staff gave council members some recommendations for oversight — including “regulating vehicles and drivers of digital dispatch companies, and setting a maximum fare for time or distance to be charged.”2
But then in September, Charlotte City Council gave up the idea of local regulation. Committee chairwoman Claire Fallon stated at the time that this was because the state legislature is planning to take up the issue in January.3
The General Assembly’s Revenue Laws Study Committee was directed (in 2014’s House Bill 272) to study “the registration requirements, fees, and penalties applicable to for‑hire passenger vehicles, including for‑hire passenger vehicles directed by digital dispatching services.”
Under specific review was the nature of the sharing economy and how it differs from the conventional types of services. The presenters included experts from legislative staff and from both conventional and non-conventional services. That set the stage for a discussion of taxation opportunities, establishing a regulatory framework, pricing oversight and new insurance challenges.
Representatives from both Lyft and Uber spoke at the meeting and said that drivers who partner with them submit to a background check process and are required to have adequate insurance.
April Mims, public policy manager with Lyft, assured committee members that her company is already performing the kinds of safeguards that regulators want to see put in place. “There’s a thorough process that we go through to screen all of our drivers,” she said. “Drivers undergo a thorough background check and wouldn’t be allowed to have a violent offense or sex offense. They wouldn’t be allowed to have had a DWI or drug-related offense in the past seven years, or a moving violation in the last three years.”
“We want to make sure that every single person on the road is safe and trusted,” said Rachel Holt, regional general manager for Uber on the East Coast. “This includes extremely stringent background checks.” She said Uber’s background checks pick up on things that typical background checks used by the taxi and limo industry don’t. “All cars have to meet their annual state safety inspection,” she said.4
Until passage of the new law, digital dispatch services were only regulated by the market forces of competition, profit and loss, supply and demand, contract law and so-called “reputation capital,” etc. The lack of government intervention in TNC’s presents a competitive disadvantage for conventional taxicab providers who have a higher cost of doing business due to stricter regulatory controls. Conventional taxicab operators face the spectre of peaceable, voluntary trade in a free market undercutting their businesses and they are pressuring cities to subject TNC’s to an equal share of the regulatory burdens and costs taxicab operators suffer; or perhaps even prohibit them from operating at all.
Many cities across the country have established regulations for Transportation Network Companies, such as San Francisco and Los Angeles; while others, like New York City, Portland, Boise and Philadelphia, have banned the companies altogether. Earlier this year, Seattle approved regulations placing a cap of 150 vehicles per company and instituting a $50,000 permit application fee. Uber is fighting the Seattle regulations.5
Georgia is floating legislation, written by the taxicab industry, that would completely throttle ride-sharing. What the bill would do is treat ridesharing services like taxis or limousine services, requiring them to obtain “either a certificate of public necessity and convenience or medallion authorizing the provision of taxicab services in such local government if the certificate of public necessity and convenience or medallion is required.”
A fan of ride-sharing, Representative Buzz Brockway of Georgia has urged his colleagues to level the playing field through deregulation. “I maintain policies like the medallion system in Atlanta and other places harm low and moderate income people by preventing them from entering a business that could lift them out of poverty and raise their standard of living,” Brockway wrote in September. “Toss out the medallion system and let taxi drivers, Uber drivers, Lyft drivers and whatever other rideshare companies’ drivers who want to, compete for business.”
As of January 2015, Uber has been ordered to stop operations in South Carolina until its drivers are licensed under state taxi laws.6
Ride-sharing services are facing tough road in places outside the United States as well. Uber faces legal battles in Germany amid complaints about unfair competition and lack of customer safety. The city of Oslo reported the company to the police for lacking operating permits. Toronto has asked a court to shut down Uber. One day after Vietnam authorities declared that Uber has no legitimacy to operate as a cab provider there, their Transport Minister instructed his agency to consider adding regulation to manage Uber’s operations.7
Crafting North Carolina’s Law
During a Revenue Laws Committee meeting in November 2014 that was studying the ridesharing phenomenon, industry experts gave several informative presentations on the subject of The Sharing Economy and Closing Transportation Network Company Insurance Gaps (click on the links to view the presentations). Company representatives also made presentations to the committee on behalf of Uber, Lyft and Taxi Taxi explaining their business models, their self-regulating standards and practices, and their value in the global marketplace.
Cathryn Parsons, a driver for Lyft who spoke at the meeting, said, “If you over-legislate this, if you make it difficult for me to do this kind of thing, if you make it expensive, I just won’t do it.”
One committee member questioned the need to apply the same heavy regulatory load on the new economy to “level the playing field.” “We’re hearing a lot about a level playing field and there are a couple of ways you can do that, said former Representative (now Senator) Andy Wells. “You can bring in dirt to raise the low spot or you can cut down the high spot. If the tax and regulatory environment is not level, wouldn’t it be possible to cut the high tax and regulatory parts to level the field or do some combination of cutting tax and regulation and maybe adding some. But isn’t this about more than just adding to the load?”
Busybody lawmakers often act on the pretext of concern for fairness and public safety, but, more likely, they are simply beholden to the outmoded taxicab industry looking to regulate ridesharing services to shield their antiquated model from competitive forces.8
Blacksmiths, in a former time, took a similar approach as people traded in their horses for cars. That market disruption was quickly putting blacksmiths, farriers, and horse stables out of business, so they attempted to enlist the heavy hand of government to create restrictive regulations on the growing popularity of the automobile.
But as our friend John Hood writes in The Freeman magazine, “Markets are resilient. Try as they might, government and the special interests they protect (in this case, the cab companies) can’t completely suppress the forces of competition. By limiting one particular choice, they only direct enterprising people toward others. The result is either a black market, in which completely illegal transactions occur, or what might be called a “gray” market, in which firms substitute legal options for banned ones—either with the tacit acceptance of authorities or without their knowledge — thus defeating the intent of regulation.”
- David R. Payne P.A., “Is Uber Cab Legal in North Carolina?“
- WCNC, “Charlotte City Council committee to consider digital dispatch regulations again”
- WFAE, “Charlotte City Council Decides Not To Regulate Ride-Share Drivers”
- Carolina Journal, “Locals Ask NCGA To Regulate Sharing Economy”
- San Francisco Examiner, “SF exploring ways to regulate ride services like Uber, Lyft”
- Greenville Online, “Uber service ordered to stop in SC”
- Bloomberg, “Vietnam Considers Legalizing Uber After Declaring Illegal”