Lyft Attempts to Appeal NYC’s Minimum Wage Decisions

The battle between ride share services and New York City continues to rage on.

After successfully disrupting the taxi industry in NYC, ride share services have been the target of increasing regulations, intended to bring them more in line with the company’s unique transportation services industry. In recent months, Lyft has attempted to appeal NYC’s new decisions regarding minimum wage for drivers — but it has been unsuccessful.

As of December 2018, minimum wage in NYC increased. For small businesses, the minimum wage is now $13.50 an hour. For larger businesses, it’s $15 an hour. But in many states, minimum wage hasn’t been applied to ride share services because drivers are considered to be contract workers rather than employees. Only employees can demand a minimum wage: contract workers instead “bid” their time on a per project basis.

This has been hotly contested in some areas. Many claim that ride share drivers are more akin to employees than they are to contractors because they work so closely with the company, and because they have limited control over their own pricing and operations.

Consequently, NYC went one step farther and specifically mandated a minimum wage of at least $17 for drivers. This is a significant action, as it specifically targeted ride share companies while avoiding the issues of independent contracting and minimum wage.

Ride share services were able to successfully disrupt the taxi industry by significantly undercutting them on prices. But the goal was never to make money with the business model that presently exists. Paying out drivers is expensive. Instead, the future of ride share has always been envisioned to be one of autonomous vehicles, and the technology isn’t quite there yet.

In many markets, Uber and Lyft’s ultimate goals were to introduce people to the service and increase prices once consumers had become accustomed to the service. At the same time, Uber and Lyft both started with higher levels of profit for their drivers, and slowly reduced that profit potential once they had additional drivers.

In New York City, in particular, Uber and Lyft were able to significantly undercut expensive taxi services, as taxi services had to maintain expensive medallions. There are a limited number of these medallions available. This led to a disruption more significant than the disruption taking place over the rest of the nation, and NYC has been consistently working to counteract it.

NYC’s minimum wage law calculates driver wages based on their active time. Lyft’s contention is that it has disparate consequences for smaller ride share companies. Uber is able to create more active time for its drivers because it has a larger market share. Lyft’s drivers spend more time waiting and less time actively making money, because the company is still small.

With ride share companies already losing money, having to pay additional expenses is enough to squeeze many smaller services out of the market — at least, that’s what Lyft has argued. Since Uber’s market share is so much larger (and its company valuation is so much greater), it’s more likely to be able to weather these additional expenses and outlast the competition.

Whatever its arguments were, Lyft lost its lawsuit when it was brought up to the New York Supreme Court. It’s understandable why: the city has been working to curtail ride share services for years now. It’s possible that New York may become a battleground between Uber or Lyft, and it’s also possible that ride share services may move out of the region entirely. There have already been freezes on the acquiring of new drivers in the area.

NYC’s market is very different from other markets due to the influence of the Taxi Commission. It’s doubtful that such an extreme wage increase could be seen in other areas. But it’s also interesting to contemplate how NYC will eventually deal with the disruption associated with driverless ride share: something that is undoubtedly going to be coming within the next few years.

For ride share drivers, it’s a double-edged sword: while it may appear to increase the wages for ride share, it could just push ride share companies out of certain markets entirely. For ride share investors, everyone continues to wait to see how automated technology will unfold.

Regards,

Ethan Warrick
Editor
Wealth Authority

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