by Patrick G. Mckenzie, Morris, Manning & Martin, LLP

California Prohibits Ride-Sharing with Uber, Lyft, and Sidecar

The California Public Utilities Commission (the “Commission”) recently warned car services Uber, Lyft, and Sidecar that the companies’ new ride-sharing programs violate California law.

The increasingly popular app-based car services utilize GPS tracking in cell phones to match passengers with nearby drivers, who transport the riders in their own personal vehicles. Recent pilot programs from each company, “UberPool,” “Lyft Line,” and Sidecar’s “Shared Rides,” each attempt to pair passengers with others requesting rides at the same time and for similar routes. When a successful match is found, the passengers split the fare.

On September 8, 2014, the Director of the Commission’s Safety and Enforcement Division wrote letters to the car services,[1] advising them that their ride-sharing programs violate California Public Utilities Code Section 5401. That specific code section prohibits “charter-party carriers” from charging consumers on an “individual-fare basis.” The Public Utilities Code defines “charter-party carriers” as “any person engaged in the transportation of persons by motor vehicle for compensation . . . when a rented motor vehicle is being operating by a hired driver.”[2] Instead of charging a fare based on the number of people in the car, the rates must be calculated according to the mileage traveled or the length of time the trip takes, or a combination of the two.

The application of Section 5401 to Uber, Lyft, and Sidecar is one of many recent examples of the law impacting the technology sector. Up until recently, these car service companies have skirted around the regulations typically associated with common carriers, such as insurance and licensing.

Continued attempts at regulation may negatively affect the growth of these services, but currently lawmakers seem to be outpaced by technology innovators. Entrepreneurs should expect further regulation of this budding industry as their business models continue to evolve and legislators struggle to keep up.

Patrick G. McKenzie is an associate at Morris, Manning & Martin, LLP. ______________________________________________________

[1]  http://www.cpuc.ca.gov/NR/rdonlyres/B74B0289-1632-4057-BA7B-DEFCFB75B07E/0/Uber_KalanickLetter09082014.pdf

http://www.cpuc.ca.gov/NR/rdonlyres/86D7D32B-F877-4DAD-ABE3-98B6C6A5620E/0/Lyft_ZimmerLetter09082014.pdf

http://www.cpuc.ca.gov/NR/rdonlyres/D47CAA14-108D-4571-A02B-62E36C750BA4/0/SidecarKhannaLetter09082014.pdf

[2]               Cal. Pub. Util. Code § 5360.