California Goes after Shared Ride Companies
Jeremy Telman and I both recently blogged on the intense criticism of and focus on “shared economy” companies such as Uber, Lyft and airbnb.
In what seemed an inevitable turn of events, the Los Angeles and San Francisco district attorneys filed a consumer protection lawsuit on 12/9/2010 against Uber for making false and misleading statements about Uber’s background checks of its drivers. George Gascon, the district attorney for San Francisco, calls these checks “completely worthless” because Uber does not fingerprint its drivers. Uber successfully fought state legislation that would have subjected the company’s drivers to the same rules as those required of taxi drivers. Allegedly, Uber has also defrauded its customers for charging its passengers an “airport fee toll” even though no tolls were paid for rides to and from SFO, and charging a “$1 safe ride fee” for Uber’s background check process. California laws up to $2,500 per violation. There are “tens of thousands” of alleged violations by Uber. However, even that will likely put only a small dent in Uber’s economy as it is now valued at $40 billion (yes, with a “b”).
Lyft has settled in relation to similar charges and has agreed to submit information to the state to verify the accuracy of its fares (although not its background checks). It has also agreed to stop picking up passengers at airports until it has obtained necessary permits. Prosecutors are continuing talks with Sidecar.
Time will tell what prosecutors around the nation decide to do against these and similar start-ups such as airbnb and vrbo.com, which are also said to bend or outright ignore existing rules.
The Los Angeles Times comments that the so-called “sharing economy” companies face growing pains that “start-ups in the past didn’t – dealing with municipalities around the world, each with their own local, regional and countrywide laws.” It is hard to feel too sorry for the start-ups on this account. First, all companies obviously have to observe the law, whether a start-up or not. Today’s regulations may or may not be more complex than what start-ups have had to deal with before. However, these companies should not be unfamiliar with complex modern-day challenges as that is precisely what they benefit from themselves, albeit in a more technological way. Finally, there is something these companies can do about the legal complexity they face: hire savvy attorneys! There are enough of them out there who can help out. But perhaps these companies don’t care to “share” their profits all that much? One has to wonder. Sometimes, it seems that technological innovation and building up companies as fast as possible takes priority over observing the law.