Wednesday, January 23, 2019

BY MATT DAUS

in-depth with daus The latest tangle in an ongoing stream of controversy faced by the various on-demand services is their business practices involving fares, taxes, and fees.

Recently, for example, Lyft was exposed for charging a fare that may not be compliant with various tax laws. For every for-hire trip currently conducted, Lyft’s app applies a formula that is supposed to first calculate the fare, and then deduct the percentage of the fare that Lyft retains for itself. Taxes, such as sales tax, are to be assessed on top of the fare, with the cost being paid by the customer. The amounts of these deducted taxes and charges can vary depending on a number of factors, including relevant statutes, where the trip originates, and whether or not the trip carries across jurisdictional lines.

Ensuring that the fares are properly charged and taxes accurately collected falls squarely within allegedly improper TNC practices that have recently come to light. Lyft was accused by the Independent Drivers Guild of incorrectly charging taxes on interstate trips, and then keeping the money. Every time a for-hire vehicle trip is conducted within the state of New York, a sales tax of 8.875 percent is charged on the fare, and a 2.5 percent surcharge is assessed for the New York Black Car Fund to provide workers’ compensation coverage for drivers.

However, that tax is not supposed to be applied to interstate for-hire trips. The Guild alleges that since Lyft entered the New York market almost two and a half years ago, it has continued to add on these in-state charges on interstate trips and branded them as “surcharges.” Lyft has denied any wrongdoing, stating that they have complied with their driver agreement since entering the market. While this may or may not be true, due to the fact that the surcharges mirror the percentages listed above, it creates the appearance that Lyft may be levying unnecessary fees and surcharges disguised as mandatory taxes, and keeping the money as profit.


... it creates the appearance that Lyft may be charging unnecessary fees and surcharges disguised as mandatory taxes, and keeping the money as profit.

Lyft is not the only company facing allegations of this kind. Uber is also facing multiple accusations of misconduct regarding fare charges. In May 2017, a class action complaint was filed on behalf of all N.Y. UberX riders against the company and its embattled former CEO Travis Kalanick, contending that the company was charging the rider more through the up-front pricing model than what the actual fare would be for the same trip booked through Uber’s standard model. Not long after, further allegations arose that Uber had been overcharging its drivers due to an “accounting error.” Uber has since stated that it recently discovered the error wherein the company was charging its per-ride commission on an amount that included sales tax, rather than properly calculating its commission after the tax had been deducted. Making matters worse for the beleaguered TNC, it has since come to light that Uber possibly knew about the over-charging glitch as far back as 2015, and did nothing to correct the issue. Uber has since stated that they intend to pay the amounts back to the drivers, estimating that figure to be approximately $900 per driver; however, several drivers have indicated that they are owed significantly more than that amount. This most recent suit comes not long after Uber agreed to pay $20 million to affected drivers to resolve Federal Trade Commission charges that Uber exaggerated earning potential and vehicle financing options for drivers.

This is not the first time TNCs have faced civil litigation from their drivers over business practices. Uber is currently facing a class action lawsuit filed by drivers from Massachusetts and California alleging that the company misclassified its drivers as independent contractors rather than employees, denying them benefits traditionally afforded to employees such as overtime, as well as exerting control over whether or not drivers can accept tips or not. In that action, the U.S. District Court ­denied a $100 million settlement on the grounds that the proposed amount was not only unfair, but it undervalued potential claims under California law. Lyft recently settled a suit regarding similar employee classification issues with its drivers in California for $27M. Both TNCs are facing litigation with their drivers in Austin over yet another business practice issue. The drivers are seeking 60 days’ back pay and benefits following both TNCs’ abrupt termination of service in Austin, after the city required fingerprinting as part of its standard background checks.


This is not the first time TNCs have faced civil litigation from their drivers over their business practices.

Civil judgments are not the only financial hurdle TNCs could be facing. As stated earlier, both the New York State General Business Law contains provisions to protect the public from deceptive or unfair trade practices. The General Business Law holds that when the Attorney General believes “from evidence satisfactory to him” that a company or individual has engaged or is about to engage in deceptive acts or practices in the conduct of its business, then he can bring an action against that company to recover restitution for damaged parties. In addition to civil damages, any company found to have engaged in any of these deceptive practices shall be liable for a civil penalty of up to $5,000 for each violation. This means that in the event Uber and Lyft were found to have intentionally overcharged or improperly charged its drivers, the TNCs could potentially face a civil fine of $5,000 for every driver they overcharged. In addition to regulations at the state level, the NYC Taxi & Limousine Commission (TLC) enforces regulations prohibiting acts of misrepresentation as well as willful acts of omission and commission that are against the public interest, on the part of licensees—which includes Uber and Lyft, both of which possess base licenses in New York City. Violations of these regulations can result in fines, suspension, and even revocation of base licenses. The TLC previously held public hearings and passed rule changes in regard to TNCs’ business practices. Following a petition from the Guild, the TLC is moving towards requiring TNCs to include a tipping option in their apps (although Uber released an optional tip function on its app this summer).

It is evident that the business practices of Uber and Lyft have left both TNCs embroiled in litigation with their drivers. Combine these actions with suits against the TNCs from passengers regarding issues like accessibility and safety, both companies could be looking at costly civil awards or settlements. Add in the possible civil penalties listed above and these companies could be facing a crippling financial blow as a result of (at best) negligent and (at worst) intentionally deceptive business practices. In addition to the threat of civil lawsuits and government investigations, regulatory licensing agencies might want to take a close look at whether they have violated various rules and whether they remain fit to hold base licenses as a result. [CD0917]


Matt Daus is a partner with the law firm Windels Marx, president of IATR, and a leading authority on ridesharing apps. He can be reached at mdaus@windelsmarx.com.