π©ββοΈ Uber Brings Case Against NYC TLC, Questioning Inflation Metrics Used For Driver Pay Increase
Uber believes the NYC TLC used misleading inflation calculations to unlawfully push through an abnormal driver pay increase. Do they have a point or are they illegally delaying a driver pay raise?
β±οΈSummary
π Uber alleges the NYC Taxi & Limousine Commission (NYC TLC) used a volatile inflation index & manipulated other inflation data to pass higher than normal driver pay increases, set to go into effect next week.
π Uber wants to stop a December 19th TLC app-based driver minimum pay raise, and instead revert back to previously agreed to standards around inflation adjustments to driver minimum pay calculations.
π Uber says passenger fares would need to rise by up to 10% and/or its NYC business would lose over $200 million per year.
π NYC TLC believes its acting within its rights and is ready to defend against any and all allegations.
π Prominent driver advocacy groups, such as IDG and NYTWA, are angered by Uberβs actions
Uber has filed a legal petition in New York State Supreme Court against the New York City Taxi & Limousine (NYC TLC), over a driver minimum pay increase set to be implemented next week.
The 98 page legal action is filled with interesting details and minutiae. We encourage our readers to read the legal action in its entirety, but for those who canβt, the suit, essentially revolves around the following allegations.
The one-off use of a volatile inflation index & other distorted adjustments to inflation-related calculations, artificially inflated how much TLC driver minimum pay rates should be adjusted.
TLC is being uncooperative in helping Uber understand new inflation-adjustments made to the minimum driver pay calculation, rejecting alternatives & refusing to give sufficient time to appeal.
TLCβs abnormal minimum pay increases will cause irreversible damage to Uberβs ability to offer competitive prices to NYC passengers.
Uber estimates passenger fares would need to increase up to 10% AND/OR cause it lose more than $20 million per month (in NYC) if not offset by fare increases
Responding to Uberβs legal action, NYC Taxi & Limousine Commission Chair David Do stated:
βNew York City leads the nation in protecting drivers, and this important rule reflects that realityβ¦We are confident that we are well within our legal authority in implementing this important rule, and we are vigorously fighting this lawsuit.β - NYC TLC Chair & Commissioner David Do
Prominent TLC driver advocacy groups were also angered by Uberβs legal action:
How Does NYC TLC Adjust Driver Minimum Pay For Inflation (or Deflation)?
The chart above overviews how the TLC has (and plans to) βinflation adjustβ the TLC driver minimum pay standard or TLC wage standards Uber & Lyft have to abide by in NYC. Uber and Lyft are the only high volume for-hire services (HVFHS), or companies that facilitate more than 10,000 daily trips, in NYC. Other traditional black car and livery bases are NOT subject to the TLC driver minimum pay standard.
The NYC TLC driver minimum pay standard, passed in early 2019, initially adjusted wages for annual inflation by:
Using a CPI Index (CPI-W) tied to urban wages in the NYC metro area
Comparing trailing annual / 12 month time periods
For 2020/21, no adjustment was made as some deflation (π€ remember, oil prices went negative!) may have occurred and trip demand was severely impacted by the COVID pandemic, so it was essentially agreed that no inflation adjustment would be pushed through.
As you can tell by the charts below from Uberβs legal filing, the company is arguing the most recent inflation adjustment to the driver minimum pay standard:
Temporarily uses a different CPI Index (CPI-U) tied to transportation
βCherry pickedβ data and time periods meant to distort normalized inflation data. For example, using an April to September 2022 average
βIn September 2022, the Commission Proposed a Rule Using New Data and Calculations Designed to Maximize Per Mile and Per Minute Rates While Wildly Departing from the Prior Methodologyβ
βCPI-U Transportation is a particularly volatile index, driven in large part by wild fluctuations in retail gasoline prices.β
βThe December 2022 Rate Adjustment Is Based on an Arbitrarily Cherry Picked Set of Months Designed to Yield a Substantial Rate Increase.β
- excerpts from Uber legal petition against NYC Taxi & Limousine Commission (Dec 9 2022)
This is what Uberβs legal action is essentially about. They are not arguing that the TLC driver minimum pay standard shouldnβt increase due to inflation, they are arguing inflation is being overstated, which leads to an abnormal increase. For example, gas prices have come down significantly they argue, but that is not captured and subjects Uber to all-time high retail gas price inflation, which no longer exists.
Some Thoughts
We are not qualified to guess probabilities around Uberβs success in stopping the December 19th, NYC Uber & Lyft driver pay proposals OR if their allegations of the Taxi & Limousine Commission will be validated by the legal system. What we are fairly confident in saying to our readership is, it is highly confusing to follow how and why certain inflation metrics are used in calculating TLC driver minimum pay standards. The TLC needs to do a much better job at explaining this, as to an outside observer the most recent period selection of data does seem odd at best and purposeful at worst.
Furthermore, the annual inflation-adjustment to the TLC driver minimum pay calculation shouldnβt need a degree to analyze and needs to be made simpler. For example, an index that does not include the easily measurable cost of NYC TLC commercial insurance (a specific & core expense) for TLC drivers and fleets, seems like an obvious oversight. Why are we using general insurance inflation metrics? Core expenses specific to NYC TLC drivers should be used, not generalized regional inflation indexes. It doesnβt make sense π€·. Uber also does bring up a good point re. locking in artificially high commodity prices β½, as that is unfair to the Company because once you lock it in, it cannot be undone.
Our criticism for Uber is the optics of suing over a driver pay increase are horrible and the company needs to clearly, in simple English, explain why they are taking such action. Uber needs to understand if they do not explain their actions, especially in regards to blocking a pay increase, NYC TLC drivers will naturally react negatively π . What else were they expecting?
Our criticism for the NYC TLC is they need to start simplifying, through infographics or other media, how inflation adjustments to the driver minimum pay formula works. To say fares will increase by X.X% per minute and per mile based on regional CPI indexes is not easy for many drivers to convert into what that means for their earnings. In addition, the TLC and driver advocacy groups must also understand, as weβve noted before, that increasing driver pay too aggressively can collapse trip demand.
Often the battle between Uber/Lyft, the TLC and drivers doesnβt incorporate how consumers may react to policies that increase how much they have to pay for trips. If you raise fares so high that everyone is priced out of a NYC for-hire trip, the minimum pay standard isnβt going to matter. Uber does make a valid point here. That being said, Uber could also increase driver pay by decreasing the commission it takes, so itβs also framing the issue without truly presenting all solutions.
βA rate increase of this magnitude may very likely result in higher rider faresβ¦Those higher fares, in turn, will depress the number of rides requested through the Uber platform. Fewer requested rides translates into fewer opportunities for Drivers to earn fees. The Challenged Rule could very well have the effect of harming Driver earnings, undermining the purpose of these regulations.β
- excerpt from Uber legal petition against NYC Taxi & Limousine Commission (Dec 9 2022)
Uber is represented by law firm Paul, Weiss, Rifkind, Wharton & Garrison (a/k/a Paul, Weiss). It is unclear if the NYC Taxi & Limousine Commission has retained external legal advisers.
What a hoot! Uber is now the child who killed his parents and is now crying heβs an orphan. Where do we begin. Letβs start with inflation. Whoever hasnβt seen or noticed an increase in prices of everything is either very wealthy or clueless. Yes, the TLC may be vague on what index it chose to base its fare increase but no one can deny prices havenβt increased. So, if Uber wants to split hairs over this data source or that data source the fact remains that NO index from the Department of Labor even comes close to the actual inflation that is occurring. Those governmental statistics are designed to benefit the government and they have been underestimating actual inflation for decades now. The Department of Labor has played and played with those statistics for so long that todayβs CPI is not your parentsβ CPI nor your grandparents. We, including those wealthy folks at Uber, can all agree prices have risen and risen fast. Drivers deserve an increase and, quite frankly, the increase weβre supposedly getting will not be enough in short time. If Uber and the TLC want to split hairs over which numbers are right, then theyβll both be wrong. The inflation is HIGHER than the data theyβre arguing over. The scalp where those splitting hairs come from is swelling by the day.
Uber has a lot of nerve to call an entity uncooperative. I will not go into Uberβs magnificent history around the world of plopping themselves into markets without barely a discussion with government officials or regulators. They would invade markets more fiercely than a January 6 coup and make government regulators bend to their will. Look, no one is crazy about the TLC but in this case they are trying to do right by drivers. Donβt ever expect Uber to do that.
I drove this past Saturday night and, excluding tolls, these were my percentages of what I kept of the upfront fare for five trips while driving mostly in a red surge zone: 58%, 48%, 57%, 43%, and 48%. I used to get 80%. Others used to get 75%. Meaning, Uber used to make a decent living on 20-25%. Uber can decide not raise passenger fare prices and they will be fine. Their profit margins may squeeze a bit but theyβre not going out of business. They can also pass on the increase to their customers. Thatβs their choice and these are the decisions ALL BUSINESSES are now faced in this tough inflationary environment. This is a three legged stool: Uber, customer, and driver. Who should absorb this inflation? Well, thatβs a philosophical question but as a driver I believe itβs wholly unfair that not only are my costs going up but Uber is giving me painfully much less per fare than what I used to make. Needless to say, Uber can cry me a river. Theyβve been ripping off drivers for years now.
How Uber decides to absorb these increases is their business. I am 100% confident this will do little damage to their NYC business. Sure, passengers may at first balk at increases if Uber decides to pass them on but this is not the first time this has happened and the increases are modest. By my calculations the increases are 10-11%. Drivers have also compromised on the increases as well. It was proposed drivers get a 34% increase in distance and we settled for 24% instead. Had the 34% gone into effect drivers would have seen average increases per ride of 15-19%, which is realistically where inflation actually is. So, it can be argued drivers left money on the table and this increase will not suffice soon if inflation continues at this pace.
We are all working together to try to get over this inflation hump. Uber needs to do their part as well. Attempting a legal action that is surely going nowhere and just before the holidays is extremely Grinch-like and will only further sour that already threadbare relationship Uber has with their driver βpartnersβ in NYC, their flagship market no less. This is not good for Uberβs brand and I plead with them to withdraw this petition.
Happy Holidays.
βA rate increase of this magnitude may very likely result in higher rider faresβ¦Those higher fares, in turn, will depress the number of rides requested through the Uber platform. Fewer requested rides translates into fewer opportunities for Drivers to earn fees. The Challenged Rule could very well have the effect of harming Driver earnings, undermining the purpose of these regulations.β
- excerpt from Uber legal petition against NYC Taxi & Limousine Commission (Dec 9 2022)
This is coming from the same company that used to slash rates across NYC and said you could make more money that way. Then they did upfront pricing and kept more of the increases in fares they passed on to their passengers. Uber knows exactly where the numbers are to shoo away price conscious passengers. They could care less how much drivers make. Their reputation is renowned for this around the world. Uber loves a driver that doesnβt understand basic business principles nor math.