clock menu more-arrow no yes mobile

Filed under:

Lyft and Juno drivers in NYC were supposed to get a raise. Both companies just blocked it.

The $5 hourly pay bump would allow drivers to earn the city’s minimum wage.

Johan Nijman, a for-hire driver in New York City.
Drew Angerer/Getty Images

Thousands of Lyft and Juno drivers in New York City may not get the raise they’ve been waiting for. At least, not right away.

The two ride-sharing companies have temporarily blocked a New York City law that would require them to pay drivers an average of $5 more per hour starting Friday, arguing that it unfairly benefits their biggest competitor: Uber.

In December, New York passed the nation’s first minimum pay rate for drivers who work for ride-hailing apps, ending a contentious two-year battle to make sure drivers can earn a decent living. The ride-hailing companies were supposed to start paying drivers around $17.22 per hour (after expenses) — about $5 more per hour than the current average of $11.90 per hour, according to the Independent Drivers Guild. The new pay rate is calculated per ride, but the guild expects it to give full-time drivers an extra $9,600 a year.

However, Lyft and Juno filed lawsuits Wednesday in state court — two days before the pay raise was supposed to go into effect — claiming that the pay formula is unfair, and will cost Uber less money because it has more users and can keep drivers busier. The minimum pay rate is calculated based on the length and distance of each ride. (Uber is not involved in the lawsuit.)

The way the law calculates a driver’s hourly pay, they claim, favors apps that have more users, namely Uber, and can therefore keep drivers busier. Instead of blocking the law entirely until the dispute is resolved, a judge said the companies could put the pay raises into an escrow account, according to The Verge. The money will sit in a bank account until the lawsuits are resolved. That means drivers won’t get the pay bump from Lyft and Juno as calculated by the city’s Taxi & Limousine Commission.

A spokesperson for Lyft said the company still plans to raise pay rates for drivers in New York, just not according to the city’s formula.

“This [temporary restraining order] victory acknowledges that Uber was handed a sweetheart deal by the [Taxi & Limousine Commission] that would irreparably harm Lyft. Drivers shouldn’t suffer while we work to right the TLC’s mistakes so we are immediately raising driver pay as we continue our fight in court,” the company spokesperson wrote in a statement to Vox.

Via, a smaller ride-sharing service, said the company will not join the lawsuit and plans to comply with the law, according to a company spokesperson. In a statement to Vox, she said Via believes the formula “is an important step in reducing congestion causing single-occupancy trips and we support the TLC in this goal.”

Uber and Juno did not respond to a request for comment.

The pay raise is part of New York City’s crackdown on Uber and other app-based ride-hailing services that have clogged the city with thousands of extra cars, while contributing to poverty-level wages for thousands of drivers.

Because Uber and Lyft drivers are considered independent contractors and not employees, they are not subject to the city’s minimum hourly wage, which will reach $15 per hour at the end of the month. The new rules ensure that drivers are earning at least the minimum wage, with a few dollars extra to cover payroll taxes and some paid time off.

The change also represents the most aggressive effort to regulate Uber since the Silicon Valley tech giant upended urban transportation in 2011. The battle in New York City is particularly crucial to Uber, as it represents the company’s largest market. In May, the city recorded 18 million app-based rides — more than six times as many during the same time period three years ago.

Uber and Lyft have pushed back against the pay increase, saying it would hurt competition and discourage drivers from taking riders out of Manhattan. But the law passed with overwhelming support of the city council and Mayor Bill de Blasio, who does not seem pleased with the last-minute lawsuit.

New York City plays a central role in Uber’s economic experiment

New York City has been trying for years to regulate Uber and other ride-hailing services.

In August, the City Council approved several bills to regulate for-hire vehicles, which included a cap on the number of drivers who can drive for Uber and Lyft, and allowed the city’s Taxi and Limousine Commission to set minimum pay rates.

The bills also required the app-based companies to report details about each trip, including the duration, cost, driver earnings, and the company’s commission.

New York City lawmakers had tried — and failed — to pass similar laws in 2015 that would have regulated the expansion of ride-hailing companies. At the time, Uber was only four years old, and the startup was engaged in a fierce global campaign to halt any local attempt to regulate its business, threatening to leave cities that did so. It spared no effort to quash Mayor Bill de Blasio’s proposals, too.

But since then, the ride-hailing industry has exploded, and the problems that have come with it are harder to ignore. New York City now plays a central role in the economic experiment of the gig economy. The number of people earning a living as Uber and Lyft drivers in the city is now six times larger than it was three years ago. As of July 2018, more than 78,000 cars were affiliated with the four main ride-hailing apps, a sharp increase from the 12,500 cars registered in January 2015.

To get a sense of how significant that change is, consider this data point from the New York Taxi and Limousine Commission, which regulates professional drivers in the city: If Uber recognized its drivers as employees, as opposed to independent contractors, it would be the largest private employer in the city.

In other words, Uber would be the largest private employer in the largest city of the world’s largest economy.

Many ride-sharing app drivers are making less than minimum wage

The explosion of ride-hailing apps has been great for the startups’ investors — but not so great for actual drivers.

In New York City, the unrestricted growth of these companies has put serious financial strain on the city’s taxi drivers, and has made it hard for drivers to compete and earn a decent living.

This dynamic was thrust into the spotlight recently with news that six professional drivers in the city died by suicide over a period of 12 months in 2017 and 2018, including three taxi drivers who were struggling to make ends meet.

The rise of Uber and other similar companies has also caused tensions to flare between the city’s taxi drivers and the newcomers behind the wheel. But both groups have come together to push city lawmakers to rein in the ride-hailing companies by limiting the number of drivers in the city and creating a minimum pay rate.

“City Council must send a clear message to these companies: if you want to operate in our city, you must pay workers fairly,” Ryan Price, the executive director of the Independent Drivers Guild, said in a statement last year.

The new laws strike at the core of Uber’s business model, which relies on an enormous pool of drivers to be available at any given time. That means competition for rides is high and drivers must work long hours.

The city created the minimum hourly pay rate after analyzing pay data and earnings for drivers who work for the four largest app-based firms: Uber, Lyft, Juno, and Via.

When economists at the New School and the University of California, Berkeley, published a report in July with some limited pay data, they discovered something alarming: that driving for ride-hailing apps in New York City is not really a part-time job for people who want to earn extra cash.

More than half of their drivers are ferrying around passengers on a full-time basis, and about half of all drivers are supporting families with children on that income. But their earnings are so low that 40 percent of drivers qualify for Medicaid, and about 18 percent qualify for food stamps.

The low pay problem is largely related to how drivers are classified. Because they are independent contractors and not employees, Uber and Lyft aren’t required to pay them the minimum wage.

In New York City, the minimum wage is now $15 an hour for large employers. But to make the equivalent of that amount, independent contractors in the city would need to earn about $17 an hour, taking into account payroll taxes and some paid time off.

The New School report showed that the median hourly wage for app-based drivers in New York is about $14 an hour. “The app companies could easily absorb an increase in driver pay with a minimal fare adjustment and little inconvenience to passengers,” they wrote.

The ride-sharing companies disagree, and the new lawsuits suggest Lyft and Juno are not done fighting it.

Sign up for the newsletter Today, Explained

Understand the world with a daily explainer plus the most compelling stories of the day.