Establishing a Minimum Pay Standard for For-Hire Drivers

New York, NY

Population: 5,000,000+ | Government type: City | Topic: Fair Standards for For-Hire Drivers

Photo: Mario Tama / Getty Images / CNET

The Program

The 2018 New York City Minimum Pay Standard Act, sponsored and led by Councilmember Brad Lander, was a direct response to the concerns about the realities of “gig economy” drivers in the city, primarily for Lyft and Uber. New York is home to approximately 80,000 drivers, many of whom have little control over their working conditions and were experiencing poverty as a result of earning subminimum wage in a particularly expensive urban area. As gig workers, drivers are responsible for their own insurance, gas, and vehicle maintenance. According to a Center on Wage and Employment Dynamics (CWED) report, 40 percent of drivers qualified for Medicaid, and 16 percent did not have health insurance. 

The impetus for the legislation came when NY Taxi Workers Alliance and the Independent Drivers Guild, two labor groups organizing for-hire drivers, raised the concerns of their members who were struggling to make ends meet. The Taxi Workers Alliance, founded in 1998, also announced that many taxi drivers were saddled with overwhelming personal debt from expensive taxi medallions that had lost most of their value when Uber flooded the market with for-hire vehicles (often with misleading claims about driver earnings and financing for vehicles). In 2015, the Mayor and City Council considered placing a cap on the number of for-hire vehicles operating in the city, but this effort failed in the wake of massive lobbying by Uber and Lyft. By 2018, the problem had grown and pressure was building for change.

The root of both problems—crushing debt facing many taxi drivers, and poverty facing for-hire drivers—was Uber’s manipulation of the “independent contractor” loophole, which allowed Uber to flood the market and begin to assemble a monopoly, all without having responsibility for paying its drivers a living wage, or even the minimum wage. The City Council was increasingly prepared to step in with regulation to protect both taxi workers and gig workers alike. 

There was no precedent for establishing a “minimum wage” for gig workers. For traditional W2 employees, federal and state minimum wage laws would apply. Many councilmembers believed (and continue to believe) that Uber and Lyft drivers are “misclassified” and should be considered employees. However, both the federal and New York State government have failed to take action to address the issue, leaving these drivers without protection. 

This inaction by the federal and state governments created room for the City Council to act. As a result of state preemption, New York City is not allowed to regulate wages. However, no state or federal law prevents local regulation of the pay of independent contractors—it just had never been done before.

The 2018 City Council legislation authorized the NYC Taxi and Limousine Commission to work with economists to develop and implement a “minimum pay standard.” The formula started with $15 per hour as the desired minimum take-home pay, then added in a small amount for paid time off and enough to compensate for the employee side of payroll taxes that gig-economy workers must pay themselves. The minimum pay standard came out to $17.22 per hour. The formula also includes the business expenses that drivers must pay themselves including gas, insurance, car lease or financing payment, which total about $10 per hour. Then, the driver pay calculation includes a “utilization rate” to account for the amount of time drivers spend on the app waiting for or looking for passengers, when they are not earning a fare. The Taxi and Limousine Commission then uses a “driver pay calculator” to convert this into per-minute and per-mile minimums that Uber, Lyft, and other for-hire vehicle companies are required to pay. 

The law went into effect in February 2019 and has been largely successful in increasing driver pay without inconveniencing riders, increasing wait times, or significantly impacting companies’ bottom lines. Driver pay increased approximately 9%, increasing average annual pay for drivers by nearly $5,000, for an aggregate pay increase of $340 million to drivers in 2019. 

The city council and Taxi and Limousine Commission (TLC) continue to monitor and improve the law, which requires regular and extensive data reporting requirements for the gig companies. (One advantage that New York City began with is an extensive taxi and for-hire vehicle regulatory structure.) The TLC has slightly adjusted the formula upward to account for cost-of-living increases and shifting utilization rates. The Council is considering legislation to require that paid sick time is accrued by the companies and made available to workers as paid days off, as it is for other workers. The Council is also considering establishing a minimum pay standard for other gig workers, such as food delivery workers (e.g. DoorDash, Instacart).

Collaborative Governance

Although New York City had tried to regulate ride-hailing companies in 2015, momentum was on the rise by 2018. There were many strong partners in this effort. Both NYTWA and IDG organized rallies (some on foot, some in their vehicles), offered painful and powerful personal testimony from drivers, and met with members of the city council and the TLC. There was some tension between these two labor organizations. NYTWA had been around much longer, originally organized taxi drivers, and believes that Uber and Lyft drivers are employees. IDG was established through a voluntary agreement with Uber to represent drivers as independent contractors. However, both organizations agreed that the minimum pay standard was necessary. Other labor unions, especially SEIU 32BJ, supported NYTWA in their organizing efforts.  As a result of this organizing, support grew in the city council. Finally, the Council Speaker offered strong public support for the effort.

The TLC Chair became a strong ally and identified economists who could analyze the problem, provide detailed research to back up the argument for the legislation, and develop the pay standard. The drivers organizations participated in this effort; the economists surveyed drivers about pay and expenses, and used this to fill in gaps in the data. 

In 2015, a massive lobbying campaign by Uber and Lyft had been sufficient to block action by the city council. In 2018, the ride-hail companies again pushed back against the proposed new rules and engaged in a public fear-mongering campaign. But this time, the combination of driver organizing, public support, and strong research carried the day. The law passed in the council with a strong majority in August 2018, and went into effect in February 2019. Lyft then sued the city, arguing that the legislation’s company-specific utilization rates favored Uber, but they ultimately lost the case when the deciding judge ruled the law was reasonable.

Emphasis on equity

Gig drivers are majority people of color and immigrants, and many are without a four-year college degree. Although some gig workers drive to supplement other income, many are full-time drivers. This reality runs contrary to corporate arguments that for-hire drivers are supplementing full-time jobs with part-time driving. Eighty percent of drivers needed to purchase their own vehicles to drive, often under poor financing terms. As a result, these drivers often need to keep long hours to try and make ends meet instead of choosing the hours they work. For example, 40 percent of drivers work more than 40 hours a week. The CWED report estimated that 85 percent of for-hire drivers would benefit from the approximate 14 percent increase to $17.22, and would earn an additional $6,345 per year.

Analysis

• Preemption: Many states do regulate minimum wage. This law got around the regulations by setting a minimum pay standard using utilization rates and amount of time drivers spend on call.

• Local government dynamics: The council’s support to regulate standards - both on behalf of taxi and for-hire drivers - increased significantly alongside the growing market share occupied by  for-hire companies 

• Policy impact: The legislation has had a positive impact on drivers, despite some challenges in obtaining data for enforcement purposes. It is a creative approach to regulating conditions and wages for gig-economy workers without establishing a minimum wage.

OTHER EXAMPLES

• In October 2020, the city of Seattle unanimously passed a similar law. It ensures that drivers get paid the minimum wage of $16.39 per hour and requires transportation network companies (TNCs) to pay $0.56 per minute when a customer is in the car, and an additional per mile rate. The law went into effect January 1, 2021 and the city projects that 84 percent of drivers will see an increase in wages of up to 30 percent.

• A new study found that Chicgao drivers earned less than minimum wage in 2018 and 2019. In January 2021, Chicago gig-workers started organizing to form a branch of the Independent Drivers Guild (IDG).

Last updated: January 26, 2021

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