The Fare Share legislation: a close read

Last week the Mayor’s Office officially transmitted to the City Council its “Fare Share” legislation, imposing a tax on Uber and Lyft rides and enforcing a minimum wage for drivers. A close read of the bills reveals some interesting details and nuances.

The legislation package includes five bills:

  1. imposing the tax;
  2. the minimum compensation for drivers;
  3.  an update to the old per-ride fee, in order to align it with the new tax and actual regulatory costs;
  4. protections for drivers from unwarranted deactivation.
  5. a resolution laying out the spending plan for the tax revenues collected.

Let’s take them one at a time.

The tax. This bill pretty much does what the Mayor said it would do, with two interesting notes. First, it exempts any trips that begin in Seattle and end out-of-state. Given how far Seattle is from state lines, this is not a big deal, but it’s a recognition that regulating interstate commerce is the sole domain of the federal government, as per the U.S. Constitution. Second, it contains the following statement:

It is not the intention of this Chapter 5.39 that the tax imposed be construed as a tax upon the purchasers or customer, but that tax shall be levied upon, and collectible from, the person engaging in the business activities herein designated and that such tax shall constitute a part of the operating overhead or cost of doing business such persons.

In short, it’s saying, “We want Uber and Lyft to pay the tax, and not pass it on to drivers and/or riders.” It’s a lovely sentiment, that it completely disconnected for reality — especially for two companies that are deep in the red.

The minimum wage. The bill begins by setting the context for setting a minimum wage. It quotes an April 2019 SEC filing by Uber as saying, “we aim to reduce Driver incentives to improve our financial performance.” Yes, it really says that, and no, it isn’t taken out of context; in fact, it goes on to say that doing so is likely to increase driver dissatisfaction.

On the flip side, the ordinance also admits that there is a lack of localized research on TNC driver pay, working conditions, reasonable expenses, and work hours. That is largely due to intransigence on the part of Uber and Lyft, who continue to refuse to make data available to Seattle and other jurisdictions.

The ordinance also makes several reference to concerns about safety, for both drivers and passengers. This is because the city’s authority to regulate Uber and Lyft — and taxis — is granted in state law within the context of ensuring the safety of those services.

The ordinance calls for the creation of a task force to study and recommend a “minimum compensation standard” for drivers that is comprised of at least the equivalent of the hourly minimum wage in the city’s existing minimum wage standard schedule, plus “reasonable expenses.” But the scope of “reasonable expenses”  turns out to be surprising. It’s split into two types: “mileage expenses” and “non-mileage expenses.”  Mileage expenses are what we would expect: gasoline, car maintenance and repairs, license and registration fees,  etc.  But “non-mileage expenses” is a broad, eyebrow-raising list:

  • the amount of employer-side payroll taxes that TNC drivers must pay;
  • business license fees that TNC drivers must pay;
  • compensation for meal periods and rest breaks;
  • compensation for paid sick and safe time;
  • cost of workers’ compensation insurance;
  • cost of paid family medical leave insurance;
  • cost of medical, dental and vision insurance.

So “non-mileage expenses” means “compensation, benefits, and the expenses associated with being an independent contractor.” The list makes it very clear what the city’s intent is here: it wants Uber and Lyft to treat their drivers as employees. The Office of Labor Standards will need to evaluate all of these items and decide which of these items are actually included in “reasonable expenses” and how much Uber and Lyft should be paying their employees for them, but that’s going to be very tricky. How does the agency set rules for meal periods and rest breaks when drivers set their own hours? Will drivers have to work a minimum number of hours each month to qualify for the non-mileage expenses — and what happens if they miss the minimum for one month?  OLS will have until March 31, 2020 to make a determination.

The update to the old tax. The old tax, intended to cover regulatory costs, is adjusted down from 10 cents per mile to 8 cents per mile. The ordinance already has language allowing the city to make adjustments to the tax so that it covers costs based on the actual number of trips made per quarter.

The deactivation protections. This ordinance prohibits Uber and Lyft from subjecting a driver to “unwarranted deactivation.” However, it doesn’t define what that its; in fact, it explicitly delegates the definition to rulemaking by the Director of the Office of Labor Standards, though it does state that the companies can immediately deactivate a driver “if such action is required to comply with any local, state or federal laws or regulations or where a TNC drivers has engaged in egregious misconduct.”

The companies must provide a written notice to a deactivated driver explaining why they were deactivated, and for all cases of deactivation other than the immediate ones listed above, the TNC must provide 14 days’ advance notice to the driver of their pending deactivation.

Drivers have up to 60 days to challenge deactivation, either through a private arbitration process as defined in the contract between the driver and TNC, or if both sides agree through a new arbitration process defined by the city wherein the challenge would be heard by a panel containing an equal number of representatives of the driver and the TNC, plus one neutral arbitrator. If the driver is represented by the newly-created Driver Resolution Center (DRC), then the cost of arbitration would be equally split between the TNC and the DRC. If the driver is not represented by the DRC, then the TNC is required to pick up all of the costs.

A TNC found in violation of unwarranted deactivation will be liable for all unpaid compensation for the period of deactivation, “and other equitable relief.” OLS will be responsible for deciding how to calculate “unpaid compensation,” which will be tricky for drivers who set their own hours. TNCs in violation will also be liable for damages up to twice the unpaid compensation. Drivers also have a private right of action to file a civil suit to recover unpaid compensation, plus damages and legal fees.

The spending plan resolution. The resolution sets aside money for administration and enforcement of the tax ($2 million the first year, $1.5 million the following years), and operation of the Driver Resolution Center ($3.5 million per year). It also calls out in fairly specific details the spending on affordable housing. On the other hand, it is vague on the transportation spending, and doesn’t even call out the intended use of TNC tax dollars to fully fund the Center City Connector Streetcar as promised in the Mayor’s announcement.

Obviously the City Council will want to rewrite several provisions of the bill, and perhaps as part of its budget process redirect funds to other purposes. We’ll see what happens in the coming weeks, though we’ll get an early sign next week when the Council members reveal their “issue statements” on the Mayor’s budget.