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

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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.

What is also strange is that the new rules that Uber lobbies so fiercely for have little, if anything, to do with its technology.

For example, Uber doesn’t want its drivers to have to carry commercial auto insurance which is a requirement under almost all taxi licensing regimes. But there is no particular reason why drivers of an app based passenger service should have less comprehensive insurance than drivers for the traditional cab companies that are both app and telephone dispatch based.

Nor does Uber want its drivers to have to pay a fixed rate licensing fee. When in late February Calgary rejected Edmonton’s approach of a per trip licensing fee of $.06 per trip and instead instituted a flat $220 annual licensing fee, Uber called it a deal breaker and announced that it “will not relaunch its operations in Calgary at this time.”

Uber also objects to the background checks on its drivers being done by local police departments. But again, what is it about the technology embedded in an app-based ride service that requires less rigorous background check on its drivers?

Finally, there is the question of fares. Uber is adamant that the new set of rules it demands of licensing authorities allow for uncapped “surge pricing” – i.e. higher fares that kick in during high demand periods that can increase the price of a ride as much as ten-fold. But again, why does an app-based technology require a completely different fare structure than the flat-rate structure that has been the centre-piece of taxi licensing regimes for many decades?

The truth of the matter is that virtually none of the rule changes Uber wants flow from the app-based technology it claims defines its business model. And that’s because what really defines Uber’s business model is the use of part-time, on-demand drivers it labels “independent contractors” – a designation that allows it to avoid paying the benefits it would be obliged to pay its drivers if they were classified as “employees”.

When looked at from this perspective, the specifics of the new rules Uber is demanding from Canada’s taxi regulators make perfect sense.

After all, it would sink the UberX business model if its drivers had to pay the approximately $4,000-$10,000 annually that commercial insurance coverage of a cab (the OPCF 6A endorsement) can cost in Ontario. Nor does Uber want to pay a fixed, annual licensing fee for each driver – an Edmonton type $.06 per trip fee works much better. And of course, because Uber drivers are mostly part-time and working pretty much according to their own schedule, the only way Uber can be sure  to get enough drivers picking up fares in peak demand periods, is to charge a significant premium to passengers during that period – i.e. “surge pricing”.

So the truth of the matter is that Uber is pushing for a separate set of rules for itself to make their part-time, “independent contractor” business model work. Without a significantly cheaper cost structure than would be possible operating under the rules that its competitors play by, UberX would be….well, Uber Taxi.

Which brings us to the central policy question facing regulators: is it in the public interest to create a completely new set of licensing rules for a business model that overwhelmingly retains part-time drivers, pays them no benefits, refuses to accept a broader social mandate, and takes tech savvy, credit worthy passengers away from the established industry? Moreover, is it really in the public interest to allow Uber to undermine the existing taxi industry which has a far higher cost structure than the UberX business model primarily due to the much stronger public interest mandate woven into its regulatory framework? It’s easy to say that there is room for both business models in the market and it is likely that the two models can co-exist in the short-term. But the truth of the matter is that the illegal UberX service is already taking a good chunk of revenue from the legacy taxi industry. And it is not at all clear that, long-term, the legacy industry can survive if there is a $50 billion corporate behemoth like Uber competing for the “best” rides while at the same time playing by a set of rules that allow for a much lower cost structure and considerable freedom over fares.

Let’s be clear: creating a separate set of rules for UberX could eventually lead to the end of the existing taxi industry leaving hundreds of thousands of older, poorer and disabled Canadians – as well as those without a smart phone – without a viable means of transportation.

What should be done?

Before outlining some possible approaches to dealing with the Uber challenge, it is important to make clear that as with all businesses that deal with the public, there is clearly  room for improvement on the customer service front  in the taxi industry.  In fact, there is a strong case for a modernization of the industry including easing restrictions on traditional cabs thereby allowing then to offer lower fares. And there is no reason why Uber should not be a part of the industry modernization discussions as one taxi stakeholder amongst many others.

What should not be done, however, is  to abandon the single tier system of regulation and enforcement of ground transportation, which has protected passengers and drivers for many decades.

Unfortunately, many Canadian licensing jurisdictions are seriously considering precisely this. These jurisdictions are toying with an Uber inspired package of new rules organized around something often called a Transportation Network Company – essentially an Uber like entity connecting drivers with passengers through an app. If licensing governments go this route – as Edmonton, Calgary and Ottawa have done and Toronto and others are seriously considering – they will likely be setting up a lop-sided system which would saddle existing taxi drivers with onerous regulations and expenses while UberX is allowed to skim off the most lucrative business and operate under completely different rules. How long the traditional taxi fleet would last under this scenario is an open question.

For the most part, Canada’s taxi industry has followed the rules and regulations put in place by licensing governments over the years. And these rules and regulations have a significant public interest component. Canada’s taxicabs are equipped with roof lights, door numbers, government-sanctioned meters and in-car security cameras. Drivers are trained, pay significant licensing fees, carry commercial insurance, and have a police background check.

Allowing UberX cars with no roof lights, meters or in-car cameras to operate outside of the system of regulated fares would be a very serious mistake.

Moreover, UberX has no accessible vehicles, and cannot be contacted by citizens who do not own smart phones or do not have credit cards (or some other form of electronic credit).

By all means, governments need to take a close look at what is working and not working in existing taxi regulatory regimes and see fi there are ways to improve customer service and lower fares. And if there are reasonable  changes to be made, then governments have an obligation to the public to make those changes.

But creating a two-tier system that favours the part-time, Uber model at the expense of full-time taxi drivers is not the answer. Rather, a fair, modern, one-tier licensing regime with a strong public interest mandate, should be the goal of all taxi licensing jurisdictions. There should not be one set of rules for Uber and another set of rules for the established taxi industry. There should be one set of rules for all for-hire cars pure and simple.

Uber drivers: employees, independent contractors or something else?

While most of the issues related to Uber are dealt with within the context of municipal and provincial licensing regimes, the question of whether Uber’s drivers should be considered “independent contractors” or “employees” is primarily a provincial labour issue. Again, independent contractors do not have to be paid employee benefits nor do they have the right to unionize.

It is important to note that Uber has a quite a lot at stake in maintaining its drivers current independent contractor status – perhaps $4.1 billion globally according to an analysis done by the U. S. business magazine Fortune. In the Canadian context, of course, the number is much smaller but were Uber drivers considered “employees” under provincial labour statutes, they would be entitled to Employment Insurance, CPP, minimum wage, supplementary health benefits, overtime, the right to unionize, etc. This is not insignificant.

As discussed in more detail in Part 3 of this series, Uber makes significant claims to support its argument that its drivers should be considered independent contractors. Drivers own their cars, are responsible for their own working hours, and are free to provide work for other contractors, such as taxi or limousine services. The criteria change somewhat if you’re looking at the Canada Revenue Agency or provincial labour law, such as Ontario’s, but generally these are all essential features of an independent contractor relationship.

But this is a limited perspective and both American and Canadian common law cite other important factors that must be taken into consideration when making the employee/independent contractor determination. For example, it is sometimes argued (and was argued in a California Labour Commission ruling) that the primary legal distinction between an “independent contractor” and “employee” is one of control, whether control is only the result of a job or the means and methods: when you work, how you work, where you work. The truth of the matter is that Uber sets rates for its drivers, strictly monitors their performance, and gives detailed requirements such as what kind of car they drive, what route they must take, and how clean their car should be. This is arguably a form of control on how a job is done, not only if a job is done. Additionally, Uber has the right to discharge any driver if they are not sufficiently available to take Uber passengers. Perhaps most importantly, Uber determines how the passengers must pay the driver (through its app) and the credit worthiness of the passenger (must have a credit card).

So the current situation is one of legal ambiguity – there are solid arguments on either side of the independent contractor vs. employee issue and it will be interesting to see how legal challenges such as the California class action suit slated to begin June 20th will turn out.

Of course, another way to deal with legal ambiguity is to clarify the relevant statutes through legislative change. While there are tax and other non-labour statutes that have their own tests for determining whether a worker is an employee or independent contractor, provincial labour statutes are really what is at issue here.

While there are a number of approaches that might be taken, clarifying and expanding upon the notion of a “dependent contractor” is certainly an approach that should be seriously considered.

A “dependent contractor” is a legal concept that falls in between an “employee” and an “independent contractor”.  The notion of a “dependent contractor” has been around for decades – it has long existed in labour relations statutes, which define “employees” as including “dependent contractors”.  That widens the scope of people who can join unions, since only “employees” (including dependent contractors) can join a union.

According to a 2011 Alberta court ruling, the primary distinction between an “independent contractor” and a “dependent contractor” is: 1) the extent to which a worker relies on one company for her livelihood; 2) the degree of exclusiveness in the working relationship; and 3) the duration of the working relationship.

In other words, the more dependent the worker is on a company for income and the longer the duration of the working relationship, the more likely the worker is to be deemed a dependent contractor as opposed to an independent contractor.

Were new legislation to be developed to clarify the notion of a “dependent contractor”, the three elements of the test detailed in the Alberta ruling would likely need be to be fleshed out – perhaps with thresholds defining at what precise point the “extent” or “degree” of reliance on one company (in the three different areas) tips it in favour of dependent contractor status.

Expanding and clarifying the notion of a “dependent contractor” in provincial labour statutes is just one of a number of approaches that could be used to ensure that the growth of companies such as Uber do not result in poorly paid, part-time jobs with no benefits replacing better paid, full-time jobs. Of course, as we have seen with Uber’s tendency to pull out of jurisdictions where it doesn’t get its way with taxi bylaw revisions (e.g. Calgary), such provincial employment law changes may be seen by Uber as being so incompatible with its UberX business model that it simply withdraws its UberX service from provinces that enact such changes. But such an outcome says more about Uber’s hardball  political tactics than about the essential fairness of such legislative changes.

Either way, there needs to be a vigorous debate about the appropriate employment law response to the labour market challenges flowing from the entry of Uber and similar companies into Canada. There may (or may not) be economic benefits associated with the growth of the so-called “sharing economy”, but replacing good jobs with bad jobs surely isn’t one of them.

Conclusion

Uber’s entry into Canada has raised a whole raft of public policy issues that need to be addressed as the so-called sharing economy gains momentum. For the past two years, taxi licensing jurisdictions across the country have been reviewing their taxi regulatory regimes and while it is good that fundamental questions are being asked about the purpose and effectiveness of these regimes in the context of a changing economy, what is worrisome is that Uber’s self-interested perspective on the issues seems to be winning the day.

While a more recent development, provincial governments are also beginning to look at the tax and labour law implications of the sharing economy. For example, in October 2015, the Province of Ontario established the Sharing Economy Advisory Committee with representation from key ministries to oversee Ontario’s approach to the Sharing Economy. Moreover, the Ontario government has also asked its Changing Workplaces review to look at possible labour law changes arising from the business models being promoted by Uber and similar companies. But even these initiatives seem to have the promotion of the “sharing economy” as their objective as opposed to taking a hard-nosed, objective look at the broader implications of a business model that promotes part-time jobs at the expense of full-time jobs.

But whether it is taxi licensing bylaws, labour legislation, or tax laws, our elected and non-elected public officials must keep one thing in mind. The interests of the Canadian public are not the same as the interests of a $50 billion corporate behemoth such as Uber. Uber has gotten where it is because of its fierce lobbying, its willingness to enter markets illegally to gain a foothold,  and its subsequent ability to change (or in cities such as Toronto, simply ignore) rules that while not perfect, do have a strong public interest mandate. This kind of corporate bullying should not be rewarded.

It is absolutely true that ground transportation, labour and tax laws all have to be re-examined in the context of the growth of the so-called sharing economy. But the end result of this process should be the strengthening of the public interest not the enabling of a $50 billion company at the expense of the public interest.

Unfortunately, when it comes to Uber and the sharing economy, strengthening the public interest does not appear to be as important to Canadian governments as hanging out the Uber welcome sign.

And that is unfortunate, indeed.

 

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4 Comments on "Uber in Canada: what governments must do to protect the public interest"

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sal
Guest

You have done your homework so well that every city and municipality should read this valuable article before even thinking about two tier system. Older people ,grocery shoppers, handicapped and kids being dropped at school will all suffer if taxis fade out. How would some foreign company be allowed to reap the benefit from each city and district without becoming part of the legal system. Excellent article. cheers

sal
Guest

I found out that insurance is dropped to two mill,Some taxi company in B C is carrying 10 mill liability how would you justify in case of major injuries.May be city of toronto dont care about citizens.

Real people
Guest

Who determines “public interest”? Shouldn’t it be the “public” itself? Uber is not only legal in Toronto but has also updated the insurance coverage as well as negotiated with the City,to allow Toronto to be a partner in every ride.If surge pricing is a concern shouldn’t the rider refrain from calling Uber and request a regular cab instead?THEY ALWAYS WILL HAVE A CHOICE.Every industry is always looking for ways to reduce costs and taxes, you can ask those Canadians listed on the Panama papers…

Rob
Guest

You confuse ‘public interest’ with the ‘free market’. Any consumer can go to any butcher and buy a cut of meat. The cost and quality of that meat is up to the consumer to decide. Ergo, the market place. Public interest demands that the butcher adhere to a set of standards to ensure that the tools he use are clean and that the carcass he butchers will not make the public sick.
You understand?

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