By Steven J. Shanker, Esq.
In mid-November, the NYC Taxi & Limousine Commission (TLC) approved an increase in minimum pay for taxi drivers and other For-Hire Vehicle (FHV) drivers who are affiliated with High Volume services such as Uber and Lyft. The commission is hoping that increasing pay rates will attract more taxis and drivers to city roads to handle increasing passenger demand.
We all know that yellow taxis are a heavily regulated commodity. They always have, and they always will be. The rate of pay for taxi drivers is based on a TLC-approved metered rate. No matter which taxi a driver operates, the metered rate is the basis for their pay.
Black car and livery services, on the other hand, were not traditionally regulated in the comprehensive manner they are today. In fact, it was not until the number of drivers swelled from the influx of those who saw Uber and Lyft as the next best thing since sliced bread that the TLC got into the business of regulating how much FHV drivers are paid.
The fact remains that gas prices have increased, and so has the cost of living. So, shouldn’t this mean that Uber and Lyft should pay drivers more money? I suppose the answer depends upon who you ask. My concern is that one day the TLC will decide to regulate how much drivers who are affiliated with all other black car and livery services are paid. Let’s hope that does not happen.
Uber urged the TLC to vote against the proposed fare increase, saying it was “economically unjustifiable,” complaining that the TLC is “locking in” this summer’s high gas prices in perpetuity, only allowing expenses to go up moving forward.
I understand Uber’s policy argument… so now, let’s move into the legal realm. On December 19, 2022, Uber filed a lawsuit against the TLC in the New York County Supreme Court. Their petition seeks a declaration from the Court that the TLC’s new rule is invalid. The basis for the lawsuit is, in essence, a claim that the TLC’s new pay rule is arbitrary and capricious.
So, what does that mean in the legal world? Well, it can mean a number of things. If one believes they have been wronged by the decision of a governmental agency, they can file an Article 78 lawsuit and ask the Court to review the administrative action or decision. In an Article 78 proceeding, one may claim the administrative action or decision was against the law because the action or decision was made without a sound reason. The law calls such decisions and actions “arbitrary and capricious.” An arbitrary and capricious decision or action is “one taken without sound basis in reason and without regard to the facts.” The arbitrary and capricious standard has been used many times to challenge decisions made by the TLC.
Since it is a matter of public record, I have reviewed Uber’s lawsuit and its supporting documentation, which was filed under New York County Index #160451/2022. From a factual perspective, Uber claims they either have to charge riders the same cost and eat the increased cost they would be paying drivers or they will have to increase the cost of trips, which could drive down consumer demand and will lower the number of jobs available to FHV drivers.
From a legal standpoint, Uber claims the TLC’s rule relative to per mile, and per minute rate adjustment effective December 2022 represents a stark departure from its prior practices, and the rate adjustments are based on cherry-picked data and a volatile pricing index. Uber claims the TLC arbitrarily refused to engage with or consider multiple preferable alternatives that would have solved the problems associated with the Commission’s per-mile price index and data selection. In a nutshell, Uber claims the method used by the TLC in the past was fine, but now they have changed course without reason. Uber also claims the basis for the TLC’s new methodology is without a sound basis as it used faulty and unreliable economic principles to achieve a predetermined result. Uber does have a point here.
A central principle of administrative law is that when an agency decides to depart from accepted practices and official policies, the agency must, at a minimum, acknowledge the change and offer a reasoned explanation for it. This requirement serves an important purpose: it ensures that a reviewing court can determine whether the agency changed its prior interpretation of the law for valid reasons. It is also well settled that a city agency has a duty to consider reasonable alternatives to a chosen policy and to give a reasoned explanation for rejecting such alternatives.
On the other hand, keep in mind that, generally, courts believe that administrative officials are in the best position to make decisions regarding their field of expertise. Thus, it is very difficult to prove that an agency or official acted arbitrarily or capriciously in making a decision left up to their judgment. The court will not substitute its own judgment for that of the official unless one can show that the decision was so unreasonable as to require that it be overturned. In a nutshell, the Court gives great deference to the determinations of city agencies.
I understand the TLC wants to stand behind FHV drivers affiliated with Uber and Lyft because, as independent contractors, they work without traditional employment protections. While this may be true, the reality is that the TLC has a history of overregulating the industry and has made more than its fair share of bad policy decisions that have had long-lasting adverse effects.
For the moment, Uber received a temporary reprieve. On December 13, 2022, New York County Supreme Court Justice Arthur Engoron entered a Temporary Restraining Order enjoining the TLC from implementing the new pay rule, pending a hearing set to be held on January 31, 2023. Thus, for the moment, Uber and Lyft does not have to comply with the new pay rule that would have gone into effect as of December 19, 2022.
On December 15, taxi management company Queens Medallion Leasing filed a petition to intervene in the lawsuit. This essentially allows their position to be heard, even though they are not a direct party to the lawsuit. They filed it because they have an interest in its outcome. It also helps the court see the case from another interested party’s perspective.
Queens Medallion Leasing claims that a rate increase for taxis – and not for Uber and Lyft – will give Uber and Lyft an unfair competitive advantage.
All taxi owners and operators face significant survival challenges. We all know this to be true. If the taxis have to charge more (pending the outcome of this case), but Uber does not, then the competitive balance will be tipped even further in favor of Uber. In essence, the intervenor opposes Uber’s petition to nullify the TLC’s rule as applied to Uber or, at the very least, claims that both Uber and taxis be subject to the rate increase pending the outcome of the case.
We will likely have to wait until January 31, 2023 for answers. At that time, Justice Engoron will decide whether to grant Uber a preliminary injunction, preventing the TLC from implementing the new pay rule pending the outcome of the case. If the preliminary injunction is granted, Uber will not have to comply with the new pay rule until the Court makes a final decision on the merits of Uber’s lawsuit. If the Court does not grant the preliminary injunction, the lawsuit will move forward, but Uber will have to comply with the new pay rule pending the outcome of the lawsuit.
One thing is for sure for the moment: Uber will use all its financial resources and its army of lawyers to obtain that preliminary injunction. This will enable Uber to continue to operate without making changes and will surely give them an unfair competitive edge, which they have sought and many times exploited at every turn since they entered the NYC FHV marketplace.