It's Not Just Uber: Why the Taxi Industry Needs an Overhaul

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The email came from John Doe. He called himself “just another Uber driver,” and wanted to remain anonymous for fear of being blacklisted by the company for airing his complaints in public. Troubled by recent announcements by Uber regarding its revamped and expanded car leasing program, he reached out to me to air his grievances and to express concern for his future. He wrote, “Uber has repeatedly argued that they are an app-based technology platform, connecting rides and drivers. However, financing, owning, and managing a fleet of cars makes them identical to a taxi cab company.”

Supporters of Uber laud its convenience for customers who are justifiably tired of unreliable and shoddy taxi services. Critics of Uber point to its pants-on-fire lie that it is merely a software company and not a car service as well as its misclassification of drivers as contractors. Both sides are wrong and both are right, which shows there is more consensus than most observers realize for a comprehensive overhaul of the entire taxi industry in a way that serves riders and drivers.

The fact is that while Uber has faced criticism for pushing out traditional taxi companies with its reliance on contracted labor, the lines between these two worlds are surprisingly blurry. Here’s a little known fact: traditional taxi companies have long been able to classify their drivers as independent contractors because of exemptions from federal labor protections. Uber drivers may have no right to a minimum wage or overtime pay, but neither do cab drivers. Instead of looking at these abuses as manifestations of the “sharing” economy, we should be looking at the state of workers’ rights in the taxi industry as a whole.

In his email, Mr. Doe said he was worried that Uber might move to require its drivers to lease their cars from the company. Once it had done that, Doe wondered whether the company then would move to force its drivers to stop driving for other companies, something that would definitely undercut the job’s flexibility, not to mention the argument that drivers are merely contractors, not employees. And if a driver was terminated, would the company repossess the car?

Although its lease program is not yet mandatory, Uber has long connected drivers with car dealerships and lenders, in many cases pushing drivers with poor credit toward subprime loans. One of those lenders, Santander Consumer USA, was subpoenaed last year as part of a Justice Department investigation into subprime lending and in February it paid $9.35 million in a settlement over illegally repossessing thousands of cars. Although Uber ended its relationship with Santander this past summer, it quickly launched a new program that matches those who can’t get credit to lenders through a subsidiary, Xchange Leasing.

The terms of these loans are typical of subprime borrowing. According to one driver, under Uber’s original leasing program, his loans totaled more than $1,000 per month with an interest rate of 22.75 percent. His driving became just a means to pay back the loan; saving money was out of the question (Uber deducts car payments directly from drivers’ paychecks). Purportedly, Uber has made some improvements in the leasing program and is working harder than ever to push drivers to take the loans, emailing them that it is “easy to qualify, even with poor credit or no credit history at all.” And even better for the drivers who opt in, “payments are automatically deducted from your weekly earnings, so you don’t have to worry about paying a separate bill.” Reminiscent of the company store …

You might wonder why Uber would make its case that it is simply an app-based service, not an employer and not a cab company, even less convincing by expanding this leasing service. Certainly, the company wants a nice fleet—one of its marketing advantages over the moribund taxi industry—but Uber also wants to add capacity to its workforce to continue to grow. The fact is, until we have driver-less cars, Uber, Lyft, Sidecar, and other competitors still need to recruit humans to operate their vehicles. One of the reasons Uber is so intent on expanding its workforce is the enormous profits it has reaped from its model of calling drivers contractors and avoiding much regulation—according to media reports, the company’s value could be as high as $40 billion.

Not everyone agrees that the company has appropriately classified its workforce. Uber and Lyft are facing lawsuits that challenge their designation of drivers as contractors, and their practice of offloading the costs of gas, insurance and vehicle upkeep, and of providing no benefits. My email pal, Mr. Doe, believes Uber has stepped over the line, writing, “by setting driver wages, exercising the right to terminate drivers and using drivers for its core business, Uber has crossed the boundary as an employer. They have artfully shifted payment risk to drivers while withholding the most basic labor protections, including minimum wage, overtime pay, medical insurance and unemployment benefits.” Estimates put these costs as high as $208.7 million a year in California alone.

But practices like these aren’t as unique to Uber as many people think. Like Uber employees, cab drivers have few workplace protections and are often expected to shoulder large financial burdens. Taxi drivers, just like Uber drivers, are independent contractors and are similarly denied minimum wage, overtime pay, protection from discrimination, are not covered by health and safety laws, can’t bargain collectively and don’t get workers compensation or unemployment insurance. We talk a lot these days about the “gig” or so-called “sharing” economy and its impact on workers but why aren’t we talking about the taxi industry and its workforce?

John Doe’s situation is really quite similar to Sentayehu’s. The Ethiopian immigrant came to the U.S. as a refugee. After getting a business degree from Cal State Los Angeles, he leased a cab and eventually bought his own. Nonetheless, he had to pay the cab company thousands of dollars a year for the privilege of driving and made only $8 per hour, tips included. The long hours—often more than 80 per week—gave him back and leg problems with no health insurance to deal with them. Shortly after speaking up about the abusive conditions before the L.A. City Taxi Commission, he was fired.

Typically, cab drivers purchase a taxi medallion or work directly for a taxi company. In New York, a medallion can go for over $400,000 and most drivers lease a permit to drive (which can cost up to $60,000 over the life of a car), lease a car, or both from the medallion owners. The model in Los Angeles is similar, with drivers, who cover all costs of doing business such as gas and vehicle maintenance, having to purchase “shares” in cooperatives for tens of thousands of dollars if they are owner-operators. Just like Uber drivers, cabbies must obey rules governing fares, dress codes, and other matters, in this case imposed by the city commission. “All the risk is ours,” says New York cab driver Jamil Hussain. “If gas prices rise, we earn less. If it’s a slow day, we earn less. But the company gets its money no matter what!”

What is different for taxi companies is not the exploitative working relationships or the predatory leasing models, but the fact that there is a price of entry for companies through the medallion structure and a set of regulations that each company must follow. Some argue, like former New York taxi driver Graham Hodges and author of Taxi! A Cultural History of the New York City Cabdriver, that the taxi industry is a kind of utility, similar to public transportation, water and electricity and needs to be dependable, meaning there needs to be regulation to ensure safe cars, honest drivers, and a fair payment scheme. What consumers need, according to Hodges, is avoiding “hyper competition, [and] we don’t want reckless driving, we don’t want drivers about whom we don’t know very much.”

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