Regulators know how to regulate traditional businesses. But they haven’t been sure how to handle “sharing economy” businesses like Airbnb, RelayRides, and Lyft, which involve tech-assisted peer-to-peer sharing of lodging, cars, and car rides, respectively. It’s often been difficult for participants to simply confirm whether or not these “sharing” arrangements are legal. But now we have a little clarity—at least in terms of the sharing of car rides, at least in California.
To varying extents, sharing economy businesses have been operating in a murky world in which almost no one gets in trouble for occasionally renting out their car to strangers, or perhaps renting out their whole apartment or an extra room for a few weeks of the year. And yet periodically, participants have gotten busted, and sharing companies have been ordered to shut down. Over the summer, a New York City judge fined an Airbnb host $2,400, and San Francisco International Arport authorities reported that they’d been arresting and fining rideshare drivers picking up passengers via Lyft and Sidecar. Various cities have also issued cease-and-desist letters to ridesharing companies over the last year.
The players involved have been left wondering: Are these operations legal or not? Is there a possibility of getting in trouble or not?
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On Thursday, a unanimous decision from California’s Public Utilities Commission offered some clarity, at least in the case of ridesharing in California. In a press release, the CPUC stated that it had created a new category of business, the Transportation Network Company (or TNC), to be applied to operations that “provide prearranged transportation services for compensation using an online-enabled application (app) or platform to connect passengers with drivers using their personal vehicles.”
The creation of such a category amounts to an endorsement of this business model’s legality. It also allows the CPUC to regulate TNCs like Lyft, Sidecar, and UberX. And regulate they will. “To ensure that public safety is not compromised,” the commission established 28 rules that rideshare companies must abide by, including obtaining a license to operate in the state, holding commercial insurance policies with liability coverage of at least $1 million per incident, conducting background checks on drivers and 19-point inspections on cars, and enforcing zero-tolerance policies on drug and alcohol use by drivers.
While some of the regulations are stricter than some sharers might like, for the most part, established rideshare companies already follow the same or similar guidelines. A year ago, for example, Sidecar and Lyft announced that drivers and passengers using their services would have insurance coverage for up to $1 million.
And the CPUC’s decision was met with near universal enthusiasm in the sharing economy community. “Today we have a new transportation category — the first in 16 years! — and a new set of rules that will allow rideshare to flourish in California,” Sidecar CEO Sunil Paul wrote in a blog post. “This new roadmap will pave the way for transportation innovation nationwide.”
John Zimmer, co-founder and president of Lyft, told TechCrunch that the decision in California demonstrates there’s “a way to do this that doesn’t compromise on safety, innovation, or choice for consumers.”
(MORE: The Other Complication for Airbnb and the Sharing Economy: Taxes)
The hope among ridesharing companies is that California, with its large, trendsetting, tech-forward community, shows the way for other states to follow. “A lot of what we do is a model for other states,” UCLA transportation researcher Juan Matute said to the Los Angeles Times. “We have the resources to engage in a comprehensive rule-making process that’s very public. This will definitely help other states that are looking to do something similar.”
Unsurprisingly, taxi drivers and cab and limousine companies, which have previously held rallies in protest of laws endorsing ridesharing, bashed the CPUC’s decision. Instead of the new classification TNC for ridesharing operations, the San Francisco Cab Drivers Association has suggested ITNC (Illegal Transportation Network Companies). In a statement, the association called the decision “disturbing,” and that because rule enforcement will be difficult if not impossible, the spread of ridesharing will hurt drivers and passengers alike. “Without proper local regulatory oversight this can only lead to abuse by TNC drivers, companies and the opportunistic element leading to the decreased quality of passenger service for the disabled, elderly and disenfranchised who rely on taxis for transportation,” the statement reads.