The Transportation Network Company? New Regulatory Category for Uber in California

Uber doesn’t comfortably fit into existing regulations. As its global expansion opens new fronts in its battles with regulators and governments around the world, a full range of responses has been deployed to deal with its impact on local taxi industries. Cab drivers in Ontario have launched a $400 million class action lawsuit against the company, seeking damages for lost income. In France, police have arrested Uber’s executives after protests from drivers, and in England, angry Black Cab operators have been threatening to strike over the service’s encroachment.

At the center of the dispute is often the question of the company’s legal status, and how its services can best be classified for the purposes of regulation. While some jurisdictions have been insisting that the company is a standard taxi brokerage, and compelled it to seek licensing as such, Uber has been insisting on its fundamental character as a technology company, to which traditional regulations don’t apply. The dichotomy has been playing itself out from Toronto to New York to Paris, with seemingly no end in sight.

But in California, the first government agency to be confronted with this dilemma, the state Transportation Commission, has come to an innovative solution. In 2013 the commission passed new rules for services like Uber, Lyft and Sidecar that place them in an entirely new category of business; classing them as ‘Transportation Network Companies.’ Under the rules, the companies are required to obtain licences from the commission to operate as such, and are mandated to live up to certain standards.

The new category is distinct from the old Transportation Charter Party, under which taxi companies have traditionally operated. Transportation Network Companies aren’t required to hold as much insurance, and their drivers aren’t enrolled in the state’s automatic program for suspending licenses. They must, however, submit to more stringent inspections of their vehicles, stricter criminal background checks, and are forbidden to operate near airports, where licensed taxis and limousines will continue to provide exclusive service.

The new rules have emerged out of a lengthy, protracted process of confrontation and accommodation. Like other jurisdictions, California initially served these companies with cease-and-desist letters, but later achieved temporary agreements that allowed them to operate in the interim while comprehensive rules could be drawn up. In the aftermath, it seems an uneasy peace has been reached on Californian streets, with taxi companies satisfied that their businesses will be protected during this transition, and TNCs left free to operate competitively in the market.

As other jurisdictions navigate these complex legal, political and regulatory questions, they would do well to study the Californian example as a unique governance success story in an increasingly fragmented digital environment. Governments can act both constructively and wisely to adapt their laws to the 21st century in a way that safeguards the public good, if they are willing to act patiently and deliberately. Other governments should take note, and be prepared to constructively observe each other’s actions to find the best practices.

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*This research was supported by the Social Sciences and Humanities Research Council of Canada.