New York City's transportation regulators have been hit with a pair of lawsuits arguing that its new minimum pay standard for rideshare drivers is both irrational and anti-competitive.
On Wednesday, rideshare companies Lyft and Juno filed separate complaints against the Taxi and Limousine Commission (TLC), which is responsible for regulating for-hire car services in the city. In December, the commission adopted a first-of-its-kind regulation that attempts to secure an after-expenses $17.22 minimum hourly pay rate for drivers.
The new rule requires rideshare companies to pay their drivers using a complicated per-trip formula that takes into account both the time and distance of the trip, as well as a company's utilization rate (the percentage of time a company's drivers have passengers in the backseat).
Neither lawsuit challenges the city's August 2018 statute that allows the TLC to impose minimum pay standards. Juno and Lyft both say they support both a minimum pay law for drivers in principle but are opposed to the commission's pay formula.
The TLC's pay rule "threatens to drive smaller ride-hail companies out of the industry, stifling competition and ultimately hurting drivers in the absence of competition," Juno's lawsuit says.
"We agree with the goal of increasing driver earnings and improving economic opportunity for all New Yorkers. We simply don't want to have the TLC mistakenly hand Uber an unfair advantage over smaller players and actually hurt driver earnings," says Lyft's chief policy officer, Anthony Foxx, in a statement.
The companies argue that the pay formula is anti-competitive and favors Uber (which provides some 67 percent of all rideshare trips in the city in 2017). This argument mostly rests on how the commission employs that utilization rate. Without getting too far into the weeds, the pay formula ensures that the higher the utilization rate, the less companies have to pay their drivers for each trip. For the first year, this pay formula will use an industry-wide utilization rate, but after that rideshare services will pay drivers based on their company-specific rates.
Uber has a higher utilization rate than its less popular competitors, so after that first year it will be able to pay drivers less money per trip. Juno's lawsuit estimates that it would have to pay its drivers $.54 per minute, compared to $.49 per minute for Uber. That obviously gives Uber an advantage by setting its labor costs lower than its competitors'.
Paying drivers more per-trip than the competition, the companies argue, means their fares will also have to be higher than the competition's. That in turn will scare away riders, reducing their utilization rate even further. An even lower utilization rate means even higher driver pay, necessitating more fare increases and starting the cycle all over again.
There's also a fear that the TLC's formula will increase traffic congestion by encouraging companies to perform more trips in Manhattan, where demand is high and drivers can pick up passengers at a higher frequency. Doing that will boost a company's utilization rate, lowering its labor costs. Companies that perform more trips in the outer boroughs—where congestion is lower and passengers more spread out—will spend more time without a customer in the backseat, lowering their utilization rate. That essentially penalizes companies for serving the outer boroughs, where public transit is less accessible and where ridesharing has proven to be a huge boon to mobility.
Juno's lawsuit argues that because this pay formula is so disconnected form its purpose of boosting driver pay and lowering congestion, it is "arbitrary and capricious" and should be thrown out. Lyft's lawsuit echoes those points, while also taking issue with the concept of calculating driver pay on a per-trip as opposed to a weekly basis. This, the company argues, violates the city law allowing the commission to set pay standards in the first place.
It will be a while before until any decision is handed down. The two companies' request for a temporary restraining order was granted today, blocking the scheduled new pay rules from going into effect.*
*This post has been updated to note that a temporary restraining order on the TLC's pay rules was granted this morning.