Lyft Launches a Legal Battle Over Driver Pay in NYC

Updated: 2019-02-01

On Friday at midnight, New York City was primed to roll out the most progressive gig-worker protections in the U.S., establishing a $17.22 minimum wage for all drivers of its ride-hailing apps. But before the law could take effect, two ride-hailing companies—Lyft and a smaller NYC-based competitor, Juno—filed a last-minute temporary restraining order to block the rule, arguing that it unfairly advantages the largest player in the city’s ride-hailing market, Uber.

In a ruling Friday morning, a New York Supreme Court judge issued an order allowing Juno and Lyft to withhold the additional funds drivers would have been paid, instead putting them into an escrow account starting on February 8.* Depending on the outcome of a hearing on March 18, the funds will either be redistributed to drivers as back pay, or returned to the companies.

Uber—often positioned as Lyft’s more antagonistic foil—was also offered the same deal, but the company said it declined to take it. Instead, it will pay its drivers the new, higher wage. “[W]e notified the Taxi & Limousine Commission and the Court that we do not intend to hold back any portion of drivers’ earnings,” said Uber spokesman Harry Hartfield in a statement. Via, another ride-hailing platform that operates in the city and charges less in commission than the other apps, will implement the minimum wage, too.

And on Friday, Lyft told CityLab it would be paying its drivers the per-hour minimum wage, but will be calculating it on a weekly basis, instead of following the TLC’s formula. They’ll put the difference in pay, whatever it amounts to, into the account. Both Juno and Lyft are scheduled to appear at a hearing on Friday at 3pm.

Now, with some peoples’ raises tied up in court, New York City’s ride-hail drivers are caught in a proxy war over these gig companies’ hold on the city’s riders.

“Obviously I’m really disappointed that Lyft and Juno are suing to preserve the right to pay their drivers poverty wages; that’s appalling,” said city councilmember Brad Lander, who worked with the Taxi & Limousine Commission (TLC) and New York City’s Independent Drivers’ Guild to draft the legislation. For the approximately 80,000 app-based drivers who work in the city, the current average post-expense hourly pay rate is $11.90 per hour. With the $17.22 floor (after expenses), drivers will meet NYC’s $15 minimum wage, and make about $10,000 more a year.

“The companies have saved hundreds of millions of dollars per year by paying drivers less than minimum wage,” said Moira Muntz, a spokesperson for the Drivers’ Guild. “It’s the bottom line that’s motivating them: They’re siding with investors over drivers.”

But both Juno and Lyft say they’re not opposed to the minimum wage law itself—instead, they’re fighting the TLC’s method of determining how drivers are paid. Instead of calculating wages by the hour or by the week, the $17.22 will be divvied up based on a “utilization rate.” That rate is calculated by dividing the amount of time drivers spend on trips by the total time drivers are spending on the app in their cars—in essence, capturing all the time drivers spend on call. At first, that utilization rate will be set to the “industry standard”—effectively, Uber’s rate of about 58 percent. After a year-long trial period, it will be set according to each company’s specific metrics.

In Juno’s filing, the company argued the rule would unfairly impede competition: Though Juno is smaller than Uber, its lower utilization rates will eventually mean it’s forced to pay its drivers more. Lyft added that the TLC’s rule “threatens to harm drivers and riders alike by reducing driver earnings, raising rider prices, and undermining competition.”

Lander calls Lyft and Junos’ argument over utilization rates “goofy,” but it’s more complicated than that. Part of the problem for the competing companies is that many drivers work for multiple companies and have more than one app turned on simultaneously, as they wait for the ping that tells them a passenger is waiting. ”Whatever ping they get, that’s the ride they give; doesn’t matter to them which company is pinging them,” said a Lyft spokesperson. Because Uber is bigger, drivers are most likely to be called to drive for them first. But all the dead time on the app counts against smaller companies like Lyft and Juno, even if drivers aren’t picking up rides. “Uber and Lyft have long been trying to figure out how to keep drivers on their app for longer,” said Alex Rosenblat, a technology ethnographer and author of the new book Uberland.

According to Juno’s filing, the TLC tried to address this in a December revision to the rule by splitting the idle time evenly between each company. “Far from fixing the Rule’s flaws,” Juno wrote, “this new methodology exacerbates them by disproportionately harming companies like Juno”—a fairly new competitor in the market that relies on drivers already hooked on Uber and Lyft, but that doesn’t saddle drivers with ride quotas. “Juno’s utilization rate will decrease simply for offering drivers new trips which may not be accepted.”

The Independent Drivers’ Guild and Lander emphasized that they do not want to create a monopoly, nor are they naive to the risks. But the city does have an interest in getting all ride-hailing companies to fill their cars as much of the time as possible. (A congestion pricing bill passed in New York City this week, and which the Independent Drivers’ Guild is fighting, had a similar aim.) And the city also wants to curb the rise of ride-hailing apps, which—along with 30,000 liveries and black cars—have taken away business from the 13,500 yellow cabs roaming the streets. If smaller companies’ utilization rates are low, Lander argues, why don’t they just work harder to make them higher?

In earlier lobbying against the bill, both Uber and Lyft also warned that a minimum wage would hurt riders in underserved areas. Usually, apps use incentives or bonuses for driving in bad weather, or late at night, or to distant or less-populated spots—but those bonuses don’t count toward the $17.22 apps would now be mandated to pay.

“It pitted labor interests against race and poverty interests,” said Rosenblat. “They want the reputational benefits of providing [service] to underserved neighborhoods, but they wanted to offload the costs of that to their employees.”

To give drivers a real push, the companies argue, they’d have to pay bonuses in additional to the minimum wage. “If Lyft tries to suggest that not having the flexibility to pay less than minimum wage will impact their ability to serve outer boroughs, first of all, they should never pay less than minimum wage!” said a spokesperson for the Independent Drivers’ Guild. “And if they want to do incentives, they should pay more than minimum wage.”

Lyft also proposed paying drivers the minimum wage on a per-week basis, instead of per-ride, as the TLC has mandated, so they can still price rides according to things like demand.

The underlying problem, of course, is cost. It’s the typical anti-minimum wage-speak: If you make us pay our employees more, we’ll have to charge more, Lyft says. Then fewer people will use our service, and eventually, drivers lose.

If competition is their fear, though, the Independent Drivers’ Guild says that, with this lawsuit, Lyft and Juno are shooting themselves in the foot. “By withholding the raise they are creating the very predicament for themselves NOW that they claimed to fear would occur a year from now,” the Drivers’ Guild said in a statement. “They are creating a competitive advantage for Uber. And they are doing it to themselves.”

“This is a raise we’ve been expecting for a very long time,” Aziz Bah, who drives for Uber, Lyft, and Juno, told the Daily News. “Why do big companies with a lot of money decide to withhold our money? That’s totally unfair.”

New York City became the first in the country to pass a driver minimum wage in December, a win that marked a significant shift in the way gig companies react to local regulation. When Austin, Texas, tried to pass a municipal ordinance mandating fingerprint-based background checks for Uber and Lyft drivers in 2017, the companies decided they’d rather deactivate the app within city limits than comply. “Uber and Lyft do run background checks, but the fingerprint-based background check could take up to four months,” said Rosenblat. In a business with such high churn rates—after 6 months, about 68 percents of drivers leave the Uber platform, according to the company’s own accounting—that rule would pose a significant burden, she said. Eventually, Uber and Lyft returned to Austin, but only after Texas governor Greg Abbott signed legislation reversing the rule.

That’s why these negotiations will have broader implications for the movement to protect and empower gig workers, says Rosenblat. “Drivers experience so few wins that are directly and visibly connected to political will,” she wrote in an email. In recent years, drivers (mostly in California) have received payouts from class-action litigation settlements; or from Federal Trade Commission suits. But “[t]hese remedies don’t build political momentum for a disaggregated workforce,” she said.

The TLC and driver advocates, however, have been clear representatives for a cause: a living wage. “If drivers get it, they can build trust in the political process and labor representation.”

*UPDATE: The Taxi & Limousine Commission and Lyft’s lawyers disagree as to whether the judge’s Friday morning order is a temporary restraining order. The article has been updated to reflect the terms of the order that both entities agreed to.