Monthly Archives: March 2016

Uber in Canada: what governments must do to protect the public interest

16-03-29 Uber

.As governments across the country grapple with the implications of the so-called sharing economy, they need to remember that the interests of the Canadian public and the interests of corporate behemoths such as Uber, are not the same.

This is the fourth post in a four-part series of articles on Uber.

The argument in posts 1, 2, and 3 can be summarized as follows:  Uber’s flagship UberX service is unambiguously illegal in most cities in Canada because municipal and provincial taxi licensing law (British Columbia and Quebec license taxis at the provincial level) considers UberX a taxi service and Uber refuses to apply for a taxi licence for UberX under these laws. And it doesn’t apply for a taxi license for UberX because it does not want UberX to operate under the same rules as the rest of the taxi industry and incur the same licencing fee, insurance, and consumer safety costs that the rest of the industry pays.

Nor does it want its UberX service to charge the same regulated fares as its taxi competitors – it wants to be able to charge “surge pricing” which sometimes increases the fare for an Uber passenger as much as 10-fold over the regular fare.

In other words, while Uber is competing for the exact same passenger dollars as the rest of the taxi industry, Uber wants to play by its own rules when it comes to industry regulatory costs and fares.

Why? Simple – without its own set of rules that reduce its costs, the UberX service can’t afford to undercut the fares of existing taxi brokers – by far its most important competitive advantage. Put differently, Uber’s business strategy is simply a political strategy designed to pressure Canadian licensing authorities into creating a separate, cheaper set of taxi rules for UberX to operate under.

How does Uber justify having new licensing rules written just for itself – rules that significantly reduce its costs relative to the costs it would incur operating under the same rules that other taxi companies operate under? Why does Uber think it deserves special treatment?

In Uber’s public statements, it is its unique technology that sets it apart from other taxi services. Uber likes to advertise itself as a technology company that provides a “digital application service” to connect passengers to drivers. In other words, according to Uber its defining feature is that it provides a software platform that connects a customer with a service. And because it is essentially a technology company, unlike other cab companies, it needs its own rules.

The problem with this rationale is obvious – by now, many taxi companies employ Uber-like digital technology that puts drivers in touch with passengers (in addition to traditional phone dispatch). And it goes without saying that the established taxi industry doesn’t think a whole new set of rules are needed just so they can deploy their nifty new apps. Continue reading

Uber in Canada: Cutting corners on taxes and benefits

16-03-12 Uber photo

Uber pays no Corporate Income Tax in Canada and it avoids paying for all forms of employee benefits by declaring its drivers “independent contractors”. The truth is that Uber is not a benign intermediary between drivers and passengers but rather a $50 billion corporate behemoth designed by an army of lawyers to exploit regulatory grey areas for the expressed purpose of undercutting fares charged by its competitors.

This is the third installment of a four part series on Uber’s entry into Canada.

To summarize Parts 1 & 2: at the heart of Uber’s global business strategy is a political strategy. Because Uber has difficulty competing with established taxi companies under existing taxi industry rules, it needs to pressure Canadian licensing authorities into creating a separate set of taxi rules for it to operate under. Put bluntly: without its own set of rules that reduce its costs, Uber can’t afford to undercut the fares of existing taxi brokers – by far its most important competitive advantage.

There are four deal-breakers for Uber in any new set of licencing rules that it pries from governments through its ferocious lobbying: 1) the new rules must allow UberX to charge “surge pricing” with no maximum cap (think New Year’s Eve, an 8.9 times multiplier, and a $1,115 charge for a 60-minute ride in Montreal) while its competitors must continue to charge fixed-rate fares; 2) the new rules must exempt Uber from the commercial insurance coverage that is mandatory for licensed taxis so Uber drivers can carry a new, less comprehensive kind of “hybrid” insurance policy that is cheaper than commercial coverage; 3) Uber must be exempted from the existing licensing fees that govern both cab owners and drivers – and be given its own licensing fee regime with much lower fees; and 4) the background safety check rules for Uber drivers should not be so onerous as to scare off potential Uber drivers. For Uber this usually means that it objects to rules requiring that driver safety checks be done through local police departments.

Because getting new rules that lower its costs is so crucial to Uber’s business strategy, when Uber doesn’t get the above provisions in a new set of rules from taxi regulators, it will either leave the market (e.g. Calgary) or simply operate illegally outside the existing rules (e.g. Toronto and many other Canadian cities). For example, even though Calgary gave Uber much of what it wanted in a new set of rules passed by Calgary City Council in late February, Uber still pulled out of the Calgary market because the specifics of the new licensing fee and driver background check rules weren’t to its liking.

There are two other major areas where Uber plays by different rules that give it an advantage over its competitors: 1) its (apparently legal) international tax avoidance strategy; and 2) its (legally contested) claim that Uber drivers are independent contractors as opposed to employees. These issues, of course, are not regulated within municipal (or provincial) taxi licensing regimes but are nevertheless central to Uber’s Canadian (indeed global) growth strategy.

The rest of this post deals with Uber’s global tax avoidance and labour strategies.

Continue reading