Time for the Public to see Uber for What they Really Are.....and to go elsewhere

Uber’s global pattern of driver mistreatment, corporate bullying and legal transgressions should be tolerated no more.  For years, Uber managed to conceal its bad behavior with expensive P.R. campaigns and by claiming they are a technology company and not a transportation provider. Their games may have worked for a while, but their grand plan is quickly unraveling.

Uber is convenient and fast in New York City. The combination of cashless transactions and location technology make for a great service. But no amount of convenience can cover up the toxic culture that has taken hold at Uber. This hold true now not only in the treatment of its huge driver workforce, but at the company’s headquarters as well. Uber’s CEO has finally been forced to resign, but this is simply not enough.

We all know by now that Uber’s wrongdoing does not end at the door of its corporate headquarters. Just as evil is Uber’s model of “employment”. In my opinion, under New York law, Uber is an employer, but offers no employee benefits to its drivers and does not pay the taxing and regulatory costs associated with employing persons. In the vast majority of cases, Uber drivers are offered low pay, no sick pay, no vacations, no 401K. In return, they are promised “flexibility”, or the freedom to work whatever hours suit them. In practice, many Uber drivers are working long, long shifts for extremely poor pay in order to try to make ends meet. On the other hand, Uber continues to operate outside of the law with impunity.

Politicians are yet to condemn Uber. Perhaps their political contributions are just too large to refuse. I am at the point where I refuse to believe politicians will intervene and Uber is surely not going to change its business model on its own volition. But not using the app will surely send them a clear message. The consuming public needs to use its power as customers to force Uber to change their behavior. The workforce of drivers need to stand up to Uber and say “no more”, by disaffiliating with them and refusing to accept their dispatches.

 While Uber is convenient and fast in New York City due to their combination of cashless transactions and location technology, there are plenty of other car services in New York City that do the same exact thing. The only difference is that Uber operates outside of the law, while the car services that provide the same type of service in New York City have been in business for decades and know who to operate a transportation business. The consuming public and the drivers affiliated with Uber should use their collective power and go elsewhere. Uber is not going to change on its own, but you do have the power to “vote” by not using their service. Uber is no longer the sexy newcomer with a cool service. It is a lawless entity that uses drivers like slaves and laughs at the consuming public along the way. Why should anyone put up with this type of service. The time has come for the public to consider that Uber did force many of the incumbents in the industry in New York City to revolutionize and create their own technology to meet the demands of the public. It is now time to go back to these companies and use their service. You deserve better

The Gig Economy Is Here to Stay

Lets face it. The gig economy is here to stay. If it was not a good idea, then the entire market of new companies that have been created would not be flourishing…and they are not all flourishing because they are taking advantage of loopholes in the law. When something does not go the way they expect it, the layperson calls it a “loophole in the law”. When someone or some company escapes legal liability on a “technicality” the public calls it unfair. It is almost always an afterthought reaction when a group of persons file a class action lawsuit against a company alleging that the company misclassified them as independent contractors. Of course, they don’t seek “justice” by making the market reform to the existing laws and they don’t petition their elected leaders to change the law, but they seek the usual object of a lawsuit….MONEY (compensation for missed lunch breaks, minimum wage compensation, reimbursement for business expenses, and overtime, in addition to other penalties). While a lawsuit and the payment of money may have the unintended result of making a company reform its business practices, the current wave of class action lawsuits will not change an entire industry that has been created in the past 5-6 years.

Lawsuits against companies utilizing the “gig economy” are like a threatening cloud in a brewing storm. People who provide services surely deserve respect, fair treatment, and open communication, but that does not mean that all persons who provide services are employees, as opposed to independent contractors. Yes, there surely are many companies that misclassify their workers as independent contractors as opposed to employees in order to avoid the legal and financial liabilities associated with hiring an employee. But there are also many who follow the law and do utilize independent contractors, but still have to navigate the legal maze of bottom feeding lawyers that seek out these class action lawsuits, not to reform an industry or a market, but to get money.      

This rising legal retribution is a huge threat to the gig economy. Not being responsible for employees’ taxes and benefits allows companies to operate with 20% to 30% less in labor costs than the incumbent competition. If they lose this workforce structure either via class-action lawsuits or intervention by regulators, or through the collective action of disgruntled workers, and you will surely lose the gig economy.

The lawmakers may need to alter the very definition of “employee” in order to meet the demands of the in a tech-enabled, service-driven economy in the 21st century American Gig economy. Many companies do not own cars, hotels, or even their workers’ cleaning supplies. What they own is a marketplace with two sides. On one side are people who need a job done–a ride to the airport, a clean house, a lunchtime delivery. On the other are people who are willing to do that job. In the middle is a broker. This is the one that puts the two parties together and takes a “piece of the action”. Little or no direction and control over the means by which a person provides their service is the legal equivalent of an independent contractor. If you don’t like being an independent contractor, then go out and get a job as an employee, which involves more supervision, more direction and less autonomy. There is nothing wrong with that, but just don’t complain later on that you were cheated after you speak to a scum sucking ambulance chaser.

Some say a new deal has to be worked out and one that squares the legal rules governing work with new products and new services. Some believe the gig economy created a marketplace where people who provide services do not fit neatly into the traditional definition of employee or independent contractor. Right now, one who provides services is not sure what benefits to expect from a quasi-employer. For those who want to know, all you have to do is ask. If you don’t like the answer, then don’t accept the job or don’t provide the service. I believe one can be both independent and tethered to an app-based company. The social contract between gig economy workers and employers may be outdated, but it is far from broken. Who will fix it, and how, will determine the fate of many thousands of workers and billions of dollars.

Thanks to these new on-demand startups, though, whether you’re a stay-at-home mom with a few odd hours to spare or a recently unemployed fast-food worker who needs to make ends meet while looking for a job, you can work whenever you want, doing whatever you want. Many like the flexibility and feel like it gives them a better work and life balance. In the gig economy, you’re better than an employee; you’re a little business. We now live in a world where people can be entrepreneurs or micro-entrepreneurs, Just like the government didn’t begin to regulate the Internet before it became a behemoth, regulating this new economy before it’s fully created could halt innovation. Perhaps I just don’t have much faith in regulators whose job is not to ensure a properly working system, but to regulate for the sake of regulation by implementing more and more rules of operation to the point of choking a business to death. Just like the New York City Taxi and Limousine Commission did to the for-hire vehicle industry in New York City.

I believe the gig economy has been improperly interpreted as a loophole for avoiding labor laws. There is little economic security or predictability in being an independent contractor, but then again, there is the promise of starting off with your own small entity and creating something new and ever bigger and better than before. If you want security and predictability, then go get a job teaching 4th grade in an elementary school. If you want to take a risk and be your own boss and possibly fulfill your dreams, then start your own business and make it rain…and don’t come complaining later when your own ideas and inventions don’t work out because it is not the fault anyone other than you and your own choices. Some don’t like the gig economy because there is no power among workers to get a fair share of the profits. For those who believe this, take a step back and realize that you don’t get the profits of a private company by being an employee or a person that provides services.  Many people try and fail to make money with gig economy jobs, and then complain that their legal rights were violated. Why did they not think of this when they signed on to be an independent contractor in the first place

It’s safe to say that there are advantages to being an employee (security, safety laws, minimum wage, benefits) and that there are also advantages to being an independent contractor (freedom, independence, opportunity for more profit). Similarly, there are advantages to hiring employees (quality control, dependable workers) and hiring contract workers (cheaper, don’t need to guarantee work). Where platforms and new markets get into legally dubious territory is when they try to claim the advantages of both systems at the same time. But just remember that simply because you utilize the platform of another company does not mean that you don’t have control over the work you did. If the company that provided the platform or means to access the marketplace, then you would not have the option to be an independent contractor.

The laws that determine independent contractor and employee status vary from state to state and from situation to situation, but many of them focus on the question of how much control workers have over their work. If their employer is mainly focused on the outcome of that work, there’s a very good chance they’re fairly being classified as an independent contractor. When their employer begins to control not only what work they do, but how they do it, that classification gets murky. Giving persons suggestions for how to do their work should not made the company more vulnerable to a lawsuit. Similarly, though traditional taxi drivers are often independent workers rather than employees, a platform like Uber takes a certain amount of control when it fires them for low ratings or changes their fare prices. Some don’t like the idea of going into work one day and your “boss” telling you that you’re going to have to do the exact same job you did last week but make less money”. But ”firing” someone for low ratings does not necessarily make them an employee, it may just means that the company no longer desires to utilize their services.

Right now, our legal system only has two buckets for workers who aren’t volunteers or interns. You are an employee. Or you are an independent contractor. The risk of being sued has led many in the gig economy to place workers into the employee bucket. This also drives costs to the consumer up because the cost structure for these companies increases by about 30% by paying for taxes and benefits that they may not have to, but they just want to be cautious. Other companies in the gig economy place workers into the independent contractor bucket, which entails the risk of worker misclassification claims for disgruntled persons who formerly provided services and/or tax hungry governmental entities that have every intention of finding an employer-employee relationship so they can increase revenue for the city, state and/or federal government. The legal risk, the risk of being asked to pay back-taxes by the IRS or Department of Labor is a battle that everyone knows is coming and each entity that utilizes independent contractors should make budgetary preparations, emotional preparations and legal preparations to fight and defend.

The pressure in the marketplace right now is to push workers into one bucket or another (employees or independent contractors). This creates an inherent fear of the governmental fines if you are wrong and the fear of the cost of defending a class-action lawsuit where a group of former disgruntled persons allege that a company misclassified its workers. But on the other hand, classifying a person as an employee will raise the cost to consumers in many situations when the worker is not an employee and thus, the increased cost to the consumer for no good reason.

But some wonder if there is some room for compromise in this system. The question is whether there is some sort of a new middle ground that works for everybody. Forcing all companies to use these old constructs (employees or independent contractors) may not quite be the right thing for the worker and for the growth of the economy. After all, the answer to decreasing employment is not to get more people deemed as misclassified.

One answer, of course, is that the gig economy should be destroyed if it can’t follow existing labor laws. These legal protections have been put in place for the protection of workers and have evolved over a century and surely were not accidental. Others call for change where parts of the sharing economy could self-regulate, with oversight from the government. Others have supported creating a third category of worker that falls between an independent contractor and employee, which would allow companies to give their independent workers some benefits without fear of being sued for treating them as employees.

Lawsuits are a big, visible threat to the gig economy, but even if none are successful, there’s another, slower-burning problem that will corrode the gig economy if left unresolved. It’s a problem that gets worse every time a worker completes hundreds of jobs via a platform with nearly unanimous perfect reviews of his work, is let go and then the person becomes disgruntled and there is nothing that the company could ever do to win him back as a dedicated service provider.

In my humble opinion, the most important thing a corporation can do is to have an experienced lawyer perform a full exam of your corporation to see if it is properly classifying its workers/service providers. Do not wait until you are sued or the government performs an audit. By that time, it is too late to do anything other than damage control. The most important thing a person can do before they take a job, is to determine whether they will be classified as an employee or an independent contractor. Go into the job with your eyes wide open, knowing what your benefits and rights are based upon who you are being classified. Speak up and ask questions and make a fully informed decision before taking the job. Don’t cry the blues later on because you were fired and failed to do your homework before taking the job. Finally, the most important thing is what the government can and should do. This means to stop the audits and put aside the money grab for the moment. Take the time to involve leaders and stakeholders in each major industry that straddles the line between hiring employees and utilizing independent contractors. Figure out a way to make the line clearer for businesses and help them understand their potential legal liabilities all while another last option is pursued. That option is to bring the same leaders and stakeholders in each major industry together with the government regulators to figure out a way to find a middle ground that works for everybody. Utilizing old constructs of what it means to be an employee or an independent contractor will not work when analyzing the new gig economy. We have to come up with new constructs and figure out a way for the companies of the nation to know its legal rights and responsibilities all while giving the independent contractor some benefits that they ordinarily would not be entitled to under the current system.

There is middle ground and finding that middle ground will be a better solution for the worker, the business and the economy in general. To do otherwise is to be trapped by dogma, which is living life with the results of other people’s thinking. 

TNC’s ARE DRIVING THE TAXIS INTO EXTINCTION

Transportation Network Companies (TNC) are companies that use online-enabled platforms to connect passengers with drivers. While connecting passengers with drivers is nothing new in the for-hire vehicle (“FHV”) industry, the use of high tech software to do so is a more recent phenomenon. The TNCs initially sparked controversy with the FHV industry because TNCs came into the marketplace, especially in New York City (“NYC”), and operated illegally for such a long period of time. During this period of time, when the TNCs operated without license and without being subject to regulation, gave them an unfair advantage. Regulations, especially in NYC, are costly and very burdensome. Some regulations are good because they protect the public, but others are nothing more than bureaucratic red tape that is created and used to justify the existence of certain people who are employed by the governmental regulatory agency. In NYC, the Taxi and Limousine commission (“TLC”) has become an albatross crating regulation upon regulation, much without any need or justification. These regulations place the traditional FHV’s (car services, luxury limousines, clack cars, etc.) in a world in where they are not permitted to operate outside of. When Uber first hit the scent in NYC, they claimed to be a technology company and not a transportation company. Time has proven that Uber and other TNC’s are surely transportation entities, albeit very sophisticated ones. But the TLC regulators in NYC bought into the Uber Kool aid and let them operate for so long and without any restrictions to the point that once they came under the regulatory umbrella of the TLC, they already created a massive network of users that is virtually impossible to duplicate. Putting aside, for the moment, that the TNCs have billions of dollars to literally buy drivers, subsidize rides for passengers and pay of politicians (oh…sorry…I mean donate to their political reelection campaigns). The lack of regulation of the TNCs and the unconscionable delay of the TLC in regulating the TNC’s created an unfair competitive advantage that, at this point in time, has caused the demise of the taxi industry in NYC. The taxi industry deserves some fault in their demise because they refused to innovate by embracing new technology and/or because they refused to see that technology would one day be used to provide a similar but better service that would eventually lead them down the path of the dinosaur (i.e. extinction). I focus this piece on the effects of the TNCs upon the taxi industry and not the rest of the FHV industry in NYC. I do this because while the TLC does regulate all FHV’s, the NYC government has a massive financial interest in the taxis and since the advent of the automobile, the taxi medallion was sold to investors with the virtual guarantee that money would be made. Today, the City of New York and its elected leaders have turned their backs on the taxi owners and the banks and credit unions that lent money to the medallion buyers. They are all failing and the City of New York takes the hands-off approach, not because they want the free market the rein and work out the kinks, but because the elected leaders have a financial interest in seeing the TNCs prevail. Remember, TNCs bring in a massive amount of money via sales tax. While TNC’s provide transportation in areas of New York state where less than desirable and plentiful transportation was previously available, the focus of this piece is on the NYC market because taxi medallions in NYC are like no other taxi in the world.

No one can deny at this point in time that TNCs generally have shorter wait times, cheaper prices, and increased convenience, aspects that appeal to consumer preferences. But keep in mind that the cheaper prices are mainly due to subsidies from each TNC that artificially lowers the cost of the trip. Once the taxis and other FHV’s are driven out of the market, what do you think the TNC’s will do with their prices. If you think they will keep prices the same, you are sorely mistaken. Also, increased convenience is due to the fact that TNCs can afford to pay driver subsidies. These subsidies put more money directly in the pockets of the FHV drivers. Once the taxis and other FHV’s are driven out of the market, what do you think the TNC’s will do with their driver subsidies. If you think they will keep paying subsidies to drivers after the marketplace for competition has significantly decreased, you are sorely mistaken. Once the driver subsidies are gone, the drivers may seek alternate jobs b3cause as it is now, some drivers are actually making a bit more than minimum wage. The benefits of driving for a TNC are illusory……..but the public simply ca not yet see the forest from the trees. TNCs have billions of dollars to burn and will keep burning them until the competition is driven from the marketplace. When competition is significantly lessened or extinct, then a monopoly is created. Remember, the U.S. Supreme Court broke up Standard Oil over 100 years ago because monopolies are a bad thing.

Since the emergence of the TNCs, the taxi industry fought to increase TNC regulation, but has done little to create innovative technology and had done nothing to modify its service to appeal more to consumers. Why stand in the street like an idiot and wait to hail a cab when you can use your smartphone, which you were already probably using, to virtually hail a cab, but instead of hailing a yellow cab, the public is virtually hailing an Uber.

In NYC, the night takes on a different meaning. Dinner turns into drinks, drinks turn into the club, and the club turns into wherever the night ends. Instead of spending an arm and a leg on metered city parking or waiting to hail an overpriced taxi, partygoers now catch a ride with Uber and/or Lyft. The TNCs appeal not only to partygoers, but also a wide range of other groups including families, businessmen, and travelers. An innovative blend of technology, transportation, and low-cost convenience, Transportation Network Companies (TNC) appeal to the interests of all people with a smartphone, which is virtually everyone. TNCs utilize three major technologies: GPS navigation, smartphones, and social networks, each serving a distinct purpose. GPS navigation systems provide ride efficiency in both distance and time, smartphones allow for convenience and accessibility, and social networks build trust and accountability for both the drivers and the riders. These companies operate similar to a taxi service, however they differentiate in that TNCs use online-enabled platforms to connect riders to. Providing a service called “ridehailing”, the user-friendly apps operate with only one click, locating not only the location of the potential rider, but also the density of drivers nearby and the wait time for the closest driver. They also provide driver information and a method of contact in order to arrange the one-time ride. The payment system is simple—price is calculated with respect to speed and distance, and customers are billed directly, with receipts sent via email. Convenient and fast, these apps remove stress from both the driver and the rider, providing a very strong incentives for riders to switch from taxis to TNCs.

However, accompanying all their success, TNCs confront controversy and outrage from the taxi industry. Even though TNCs promote their service as a way to fill up empty seats in passenger cars, they function similarly to a taxi service, and as such, they are a massive threat to traditional taxicab drivers competing for the same consumer base. The biggest complaint the taxi industry has is that TNCs operate without proper regulations, avoiding the licensing costs, driver insurance, standard employee training, and routine background checks that taxi drivers are subjected to. Taxi drivers argue that since TNCs and taxis serve an almost identical purpose, they should have the same restrictions and costs. This argument surely makes a great deal of sense. But the law does not always keep up with the times and the law will always be behind advances in technology. As such, legal action against TNC’s and the government relators have failed. In the end, TNCs have acted as a price and quality substitutes for taxicab service and thus have lead us all down the path of elimination of the taxi industry.

Similar in method of transportation, TNC services follow a point-to-point route of travel; therefore these services are often perceived as entrants in the taxi market. However, there are contesting opinions on the debate between taxicabs and TNC services. Supporters of the latter service claim that TNCs such as Uber and Lyft fulfill a previously unmet demand of quick and convenient mobility, as TNC services require as little effort as the tap of a button. This opinion suggests the consumer base of TNCs is not identical to that of traditional taxicabs. Instead, people entered this transportation market specifically due to the unique and convenience of app-based mobility. In opposition, critics claim that TNCs serve identical roles as taxi drivers, but without proper regulations that are used to counteract negative externalities such as “job misconduct” in taxi services. While some may believe TNCs and taxicab companies operate differently, I believe in equality and that TNCs should be regulated the same as other FHVs. To do otherwise may not be illegal, but it is surely a distinction without a difference. My prediction is that in the long term, TNCs will be fatal to the taxi industry, acting as a substitute and not a complement.

Regulations are used to be favorable for taxi drivers. Generally speaking, government regulation is implemented because it is demanded by the regulated industry and provides favorable gains for the industry. Economic regulations in taxicab markets exist because of the presence of negative externalities such as air quality, traffic congestion, and asymmetric information. With an unlimited amount of taxis, quality is bound to decrease which is bad for the consumer and incentivizes taxi companies to cut corners when it comes to costs such as vehicle maintenance. Favorable to cab companies, government regulation theoretically allows for higher fares than those that would exist in the free marketplace. Regulation of Taxis and other FHV’s is fine, but when all other FHVs are heavily regulated and TNCs are not regulated or regulated with minor disruption, then there will be an oversupply of drivers and the devaluation of taxi licenses. This is exactly what happened in NYC.

While it still claims to be simply an app-based technology rather than a transportation company, Uber is essentially a modernized version of the traditional taxi. Operating free of regulations, Uber and similar companies compete against the taxi industry at a lower cost, making each ride cheaper for the consumer and more profitable for the business. The increase in supply makes each taxi medallion license lower in value and each taxi driver less profitable.

By nature, TNC apps have an advantage due to accessibility. With the exception of upfront costs such as the purchase of a smartphone device, these transportation apps are free to download and easy to use. In order to reach a driver, a rider simply opens his app and taps “set pickup location.” The app uses GPS services to locate the exact location of a smartphone, send the location and contact information to the nearest driver, and notify riders of the remaining time before a car arrives. Fast, reliable, and efficient, TNCs take the guesswork out of transportation. One of the top reasons people use a TNC service is the ease of payment. TNC’s provide an added convenience by allowing consumers to pay directly from their phones. At the end of a trip, the rider is billed directly to a preset card in the app, and both parties are ensured that payment has been received. For some, this method of payment is definitely preferable, however it is less attractive to others. The perception of these services is likely to be linked to the use of technology, and younger populations associate technology with efficiency. Older generations who have not grown up in a technological world are often less trusting of online payment methods, generally find it more convenient to pay manually at the end of a trip, with the option to use alternative forms of payment. But the baby boomers are getting older and older and the millennials are soon going to be running the major corporations of the world.

At the very least, TNCs have provided consumers with the freedom of choice. These companies expanded quickly and have made an impact within a matter of years, however this impact is not solely positive. Although TNCs have the potential to improve welfare for some individuals, it is likely to be at the expense of others. To gain a thorough understanding, it is important to weigh the costs and benefits associated with the eventual demise of the traditional taxicab and the taxi driver.

While my opinions on the impact of TNCs on the taxi industry is not conclusive, it does lean towards one particular outcome. The combination of minimal regulation, low prices, short wait time, and certain preferences gives TNCs an enormous advantage over taxis. And although TNCs have come under fire recently, the barriers to entry have been and remain relatively low. Additionally, the new age of technology refuses growth to taxicab companies, who have made few technological changes throughout the years. Despite their success, TNC’s continue to find new ways to innovate. Recently, Uber introduced UberPool, a carpooling services that allow riders to share rides and split costs with others traveling a similar direction. Uber has also introduced Uber for Business and UberRush, each with features that appeal to different demographics. Assuming that TNCs continue to function under current circumstances, I predict they will drive out the taxi industry.

The taxicab industry is heading towards extinction; but I believe that certain modifications could change its direction. First, regulation for TNC must be the same as other FHVs. Without the same level of regulation, taxicabs and TNCs are competing for a similar consumer base on uneven playing fields. Next, taxis must improve their technology and communication methods—an update that is long overdue. By evolving with the general population’s interests, the taxi industry is more likely to be successful. It would be beneficial to create an app similar to those created by TNCs. Lastly, the taxi industry must seek innovative ways to re-recruit riders. Taxis have the advantage of time and experience, and unlike TNCs, they have been around for over a century, surviving through the darkest economic times. In order to stay competitive with a company like Uber, taxi companies must be innovative and strategic in their methods.

Since their inception six years ago, TNCs have already made a significant impact on the taxi industry. These companies entered the market without the restrictions and regulations that serve as barriers of entry for traditional taxicab drivers. As a result, this advantage allows TNCs to operate with lower costs, and therefore provide better prices to consumers. Like all other service-oriented industries, the transportation industry is reliant upon consumer demand. Riders will always choose the service that provides them with a higher utility based on individual preferences. For transportation, the top three preferences are variations on speed, convenience, and low pricing. Weighing the evidence, I predict that TNCs will eventually cause the taxi industry to go the way of the dinosaur. Despite the odds, traditional taxicabs do have the power to stay competitive as long as changes are made. Unfortunately, the odds of such change being made is minimal, if at all. The elected leaders in NYC and New York State are heavily in favor of TNC’s and governor Cuomo’s budget bill that legitimized Uber all across New York State will cause the demise of taxis throughout the state. Time will tell, but one thing I believe for sure is that while the needs and desires of the marketplace created an opportunity for TNC’s, the elected leaders of NYC and New York State have turned their backs on traditional FHV operators. And remember, these FHC operators in NYC who are now facing foreclosure and extinction are the ones who provided transportation in NYC at a time and place in history when it was not so pleasant to do so. (i.e. remember the crack epidemic of the 1980’s and the scene on 42nd Street before Rudy Giuliani came to town). Also, many traditional FHV operators are immigrants who came to this country to live out the American dream. For decades, immigrants lived out the American dream and used their taxi medallions to pay for their kids to go to college. Now, these same immigrants are facing foreclosure of their taxi medallions and financial ruin, all because the NYC regulators failed to do what they were supposed to do in the first place, which is to regulate for-hire vehicles, including Uber. The regulators failed in their jobs and the effects of such failure, whether good or bad, will not be fully known for decades to come.

A Company Should Not Ignore Its Tax Problems

Many cash-strapped companies fail to deposit its payroll taxes and unemployment tax. Unlike other creditors, Federal and state taxing authorities are not usually knocking at the company’s door demanding payment of money. The company may resolve to pay tax deficiencies later on, when cash is available, yet that day never seems to arrive, and the problem only compounds itself by acting as if it is not there. Eventually, tax collectors will appear and seek to collect the tax, penalties, and interest owed by the company. If immediate payment cannot be effected, the tax collectors may enter into an installment agreement. If payment is not made or an agreement not reached, judgments will be obtained and liens in the company’s property arise in favor of the taxing authorities for the amount of the tax, penalties, and interest due them. The taxing authorities will record notices of their tax liens in the register of deeds’ office of the county where the company is located, disabling the company from selling or mortgaging interests in real property, and impairing the company’s credit. If the company does not cooperate with the taxing authorities, the taxing authorities will seize the property of the company.

The taxing authorities may also seek to assess the company’s taxes due against the company’s “responsible persons”—those who controlled the company’s available cash, and used it to pay debts other than taxes. In the Federal scheme, such an assessment is called a “trust fund recovery penalty.” A misnomer, it consists of Federal income tax and Social Security tax withheld by the company from employees’ wages but not remitted to the Internal Revenue Service. It excludes employer matching Social Security tax. From the time a trust fund recovery penalty is assessed, the IRS has ten years to collect it. A Federal tax lien encumbers all property owned by the responsible person at the time the trust fund recovery penalty is assessed, or acquired by the responsible person during the ensuing ten years. The IRS records notice of the Federal tax lien in the register of deeds’ office of the county of the responsible person’s residence. In addition to disabling the responsible person from selling or mortgaging interests in real property, and impairing the responsible person’s credit, a notice of tax lien recorded against a responsible person may affect his or her ability to secure new employment or obtain credit for other business ventures. A trust fund recovery penalty is also not dischargeable in bankruptcy.

Under Internal Revenue Code Section 7202, anyone required to collect, account for, and pay over to the IRS any tax is guilty of a felony, punishable upon conviction by fine of up to $10,000, or imprisonment of up to five years, or both, for each offense.

New York state has a parallel scheme for holding officers personally liable for their business’ undeposited taxes. There are some things a company can do to protect its principals from personal liability for the company’s taxes:

• Keep spouse out of harm’s way. This should be a no brainer

• Retain competent counsel. A company with tax delinquencies needs to consult competent counsel about the problem. Inappropriate tax assessments may have been made against the company. The company may have grounds for seeking relief from tax penalties which have been assessed against it. The company may have made tax payments for which it has not been given credit. Perhaps the company should be advised to abandon its business entity. Certainly the company should be advised to allocate some of its monies to pay its tax obligations.

• Allocate voluntary payments. Often the best advice counsel can give a company struggling to pay its taxes is to make voluntary payments

• Do not delay without a good defense. A mistake commonly made by a company delinquent in paying its taxes is to avoid tax collection authorities. This is ill-advised, for many reasons. A cooperative working relationship with the taxing authority serves the taxpayer’s interests. There can be no such relationship if the taxpayer is evading the taxing authority. Taxpayer evasiveness will draw the ire of the taxing authority, prompting them to redouble their efforts against the taxpayer, and resolve doubts against the taxpayer.

Lesson to be learned…..DO NOT AVOID PAYMENT OF TAX LIABILITIES…your problems do not go away simply because you want them to. 

When will the Elected Leaders of the State and City of New York Learn from Its Past Mistakes?

During the 1920s and 1930s, easy entry into the taxi cab industry led to an oversupply of taxis, resulting in traffic congestion, fare-cutting wars, low driver wages and other unsafe and sometimes illegal activities. The Great Depression created an influx of unemployed workers which worsened these problems, with the number of cabs spiraling to 21,000 in 1931.

To address problems of oversupply, in 1937 the City of New York enacted the “Haas Act” (sponsored by City Alderman Lew Haas) in order to freeze the number of taxi medallions. In 1996, 2004 and 2006, the City auctioned off a total of 1450 medallions. Thus, by 2012 the total cap was set at 13,237. While being a passenger in a taxi was not always the most pleasant of experiences, it was just another option for the millions of New York City residents and the multi millions of City visitors to obtain transportation for-hire on demand. Of course, demand always exceeded the supply of available taxis. That is why the value of the yellow medallion soared from $10 in 1937 to approximately $1,000,000 (one million dollars) in 2012. The purchase of the yellow medallion was one the best, if not the best investment in the world. It also provided many immigrants with the ability to realize the “American Dream”.

While the yellow taxis have traditionally served those persons who live and seek transportation in Manhattan, the non-medallioned “livery” industry has always served the residents of the 4 outer boroughs of New York City. The residents of Brooklyn, Queens, the Bronx and Staten Island always had a reliable car service to call to obtain transportation by pre-arrangement. By 2012, the livery industry has some 38,000 licensed drivers in 23,000 vehicles that were affiliated with approximately 450 bases.

As far back as January 2011, Mayor Bloomberg first proposed allowing non-medallioned livery vehicles to accept street hails (i.e., a person standing on the street waving to vacant taxicabs to be picked up, as opposed to a trip pre-arranged by telephone or other means) outside of Manhattan. With the help of the Mayor Bloomberg and then TLC Commissioner Yassky, the State legislature created a law, later known as the “Street Hail Law” that allowed the Mayor to issue up to 2,000 new taxicab medallions and allowed the TLC to issue 18,000 “HAIL licenses,” valid for street hails outside the Manhattan Central Business District. Thus, the creation of the green taxicab. These granny apple green cabs were supposed to provide the residents of the 4 outer boroughs of New York City with more transportation options.

Those who had been heavily involved in the for-hire transportation industry and knew much more than the elected leaders in Albany about what was good and what was bad for the transportation industry in New York City were essentially ignored. The leaders of the taxi and livery industry knew that the Mayor’s proposal and the state’s new law was a bad idea and vigorously fought it all the way to the New York Court of Appeals, New York State’s highest court. The Court of Appeals upheld the law as it is required to give great deference to enactments of the State Legislature when it comes to matters of health, safety and welfare of its citizens. Of course, transportation always involves the health, safety and welfare of the citizens of New York State and New York City.

On the implicit promise from the City of New York that these green cabs would be money makers, similar to the yellow medallions, and because the City was offering incentives for green cabs retrofitted to accommodate passengers in wheelchairs, many small time investors bought into this bad bill of goods. A new generation of immigrants who were looking for the same “American Dream” that their predecessors did via the yellow medallion, bought into the green cabs. All the while, there was this little know company named Uber that was lurking in the background.

The leaders of the taxi and livery industry knew at the time that Uber was operating illegally. They surely complained to the City Council, the TLC, the New York State Attorney General and even the Federal Trade Commission. All elected leaders and those in power ignored the pleas of the leaders of the taxi and livery industry to stop Uber from operating illegally. It was not a matter of Uber taking away business from the yellow taxis and the livery bases, but a matter of fairness. Two entities that provide the same service were being treated differently. The taxi and livery industry have always been heavily regulated, but Uber was not being regulated. This created an unfair playing field that is the antithesis of our American way of life that has thrived on fair play and substantial justice. This was the seed of the downfall of the industry. The City’s failure to regulate Uber created a vacuum that allowed it to expand in ways that Uber surely planned, but the City’s leaders refused to acknowledge.

The elected leaders of the City and the TLC took no action to regulate Uber. They all bought into Uber’s claim that they were not a transportation company, but a technology company. While I believe that Uber’s technology was surely excellent, I also believe in the old saying of don’t pee in my ear and tell me it is raining. By the time the City and the TLC got around to regulating Uber, it had become a behemoth with money, political power and influence. In no time at all, Uber’s fleet of vehicles eclipsed the number of yellow taxis….and then some.

I and many of my friends and colleagues in the for-hire vehicle industry pled to the City Council Transportation Committee and the Mayor to place a temporary cap on the growth of Uber until all interested parties could get a handle on what the effects of Uber were likely to be. The City’s leaders took no action and the City’s transportation regulators even took affirmative action to let Uber thrive. Before Uber’s explosive and unchecked growth, the yellow taxi industry was still doing well and the livery industry too. Then the TLC allowed a driver of a for-hire vehicle to accept dispatches form more than one base. This old requirement that a livery or black car vehicle be affiliated with only one base and its driver only be allowed to accept dispatches from that base was created for the safety of the public. All of a sudden, without any real reason or justifiable explanation, the TLC allowed drivers to accept dispatches from bases in which there was no affiliation. This was the equivalent of the ability to mint 18 carat gold bars for Uber because it allowed them to send dispatches to virtually anyone it wanted and thus expand its fleet in ways that few, except Uber, ever imagined.

Today, Uber and other companies such as Lyft, have an army of nearly 50,000 licensed vehicles that transport hundreds of thousands of people across the city every day. Uber and Lyft are rapidly transforming transportation in New York. They not only threaten the existence of the taxi industry, but they siphon passengers away from subways and buses, all while raising concerns over worsening street congestion. According to city data, the proliferation of Uber and Lyft appear to be contributing to increasingly gridlocked streets. Average travel speeds in the heart of Manhattan dropped to about 8.1 miles per hour last year, down about 12 percent from 2010. Uber and Lyft are also succeeding at the expense of others. The Metropolitan Transportation Authority has taken a hit to its budget because it receives financing from a 50-cent surcharge on taxi trips. Officials at the MTA say the shift from taxis to Uber has cost the MTA about $28 million since 2014.

So back to the taxis industry. Many of those who invested in yellow or green cabs have seen their investments wiped out. For-hire vehicle drivers are flocking to Uber with their false promise of making large sums of money all while being your own boss. Since 2013, approximately 5,000 taxi drivers have thrown in the towel. Those who own yellow medallions are either barely paying their loans back or are in foreclosure. Last month Queens-based Melrose Credit Union, one of the largest lenders of money to those who purchased taxi medallions, was seized by state after delinquent taxicab loans soared tenfold in just 18 months. The stock price of another one of the City's taxi lenders, Medallion financial Corp., has fallen so far that one share of its stock now costs less than a ride on a NYC subway. And lets not forget that the City itself has a financial interest in the sale of medallions as it takes a 5% transfer tax on each sale/transfer. This is much less money to go to the City coffers.

Moreover, the drivers that have flocked to Uber and Lyft are not looking at the big picture. Uber has made its plans to develop a self-driving vehicle very clear. In other words, the day will come very soon, when Uber will no longer need drivers. Then the for-hire vehicle drivers will have no work. The taxi industry will be on life support or dead and the out of work drivers will then cause the unemployment lines to swell.  Worst of all, the public just does not see the ills inherent in Uber and Lyft. Their explosive growth was made possible by luring riders away from taxis and the traditional modes of for-hire vehicle transportation (livery/community car services) with artificially low prices because they are being subsidized by a massive influx of cash by large pocketed investors. Uber has engaged in anti-competitive conduct since its inception. Competition has always been good for the consumer as it keeps prices low and the incentive to innovate high. This is why the law prohibits monopolies. So all while Uber and Lyft take all measures necessary to kill off the competition, they continue lure the public to their apps.

The public and the elected leaders of the City and State need to wake up and realize that at some point in the near future, the combination of significantly reduced competition with the eventual need for Uber to turn a profit, will lead Uber to drastically increase prices. When Uber has little or no competition, what options will the public have? Taxis may very well be gone, community car services will slowly be wiped out and the MTA is always in disarray, financial and otherwise. Uber will then be in the position to raise prices to whatever it wants and will be able to fleece the pockets of anyone with a smartphone. If we stay on this path, the public will have two options. One is to walk to their destination or be financially raped by Uber. Neither sounds like a very good option to me. And what will the elected leaders do then? Will they seek to regulate the prices of Uber trips? Will they create further regulations to stagnate the vitality of for-hire transportation in the City? Will they do nothing and just let the public deal with the problems? At this point in time, all I know is that the City and State have not learned the lessons from their past errors and mistakes. Someone needs to force the elected leaders of the City and State to open their eyes…or perhaps the public should just vote those with blinders on out of office.  

So at this point in time, what can the public do, short of voicing their opinion through the power of the ballots? The public can support their tried and true local car service. Don’t turn your backs on the liveries that provided transportation to the City during a past time in recent history, such as the late 80‘s and early 90s, when it was unsafe and unpopular to so, especially in the outer boroughs. Car services such as Carmel Car and Limousine Service and Dial 7 Car and Limousine Service have been in business since the late 1970's/early 1980’s and have apps that are just as good as the one created by Uber and Lyft. Carmel and Dial 7 have been there for the public in its time of need and now the public should return its loyalty to Carmel and Dial 7, and other livery bases, by refusing to utilize Uber and Lyft. Support your local car service is akin to only buying American made goods. Sometimes it may be hard to do so, but in the end, who will be the loser by continuing to use Uber which will allowing Uber to kill off the competition. The public will suffer. I speak my peace not because I have the magic 8 ball that allows me to see into the future, but because I care. I take the time to think about the future of our City, the needs of the public and the path to destruction that the transportation industry is now on. I hope that some elected leaders take a good long look at history, think about what I am saying/preaching in this article and give my opinions its due consideration and not let campaign donations and the desire to stay in office cloud their judgment. I also hope that members of the public think about what I am saying and use your good sense to realize that Uber is not the solution, but is the problem. 

Federal Judge Rejects Uber's $100M Settlement Offer to Its Drivers

Now it is time for the real game of chicken. Since the Federal District Court Judge overseeing what is likely the biggest labor law case in history has rejected the $100,000,000.00 settlement Uber was going to pay to its drivers, both sides will have to move forward. The stakes are high for the drivers, even higher for the lawyers for Uber and the highest for Uber itself. The drivers have little to lose as most would only get peanuts. The lawyers for Uber agreed to reduce their legal fee from $25,000,000.00 to $10,000,000.00 to push the settlement through. But for Uber, it may be winner take all. Uber may move forward and win simply because the appeals court may not permit the class action to move forward at all, thus killing the case as all drivers would be then forced to arbitration on a case by case basis. On the other hand, if the case moves forward in class action status and Uber loses, the gig economy may be upended, Uber's $65 billion dollar valuation make implode and Uber as we know it may be over. I for one am happy that the case must move forward. The drivers are the client's and they should be zealously represented and not sold out by their lawyers who simply wanted to cash in before the oven got too hot and they were at a severe risk of losing any legal fee they could have earned. As I have written before, I have never seen a case so clear for employee-employer relationship as Uber and its drivers in my 20 years of practicing law. The Judge overseeing the case must agree that the case has great merit, otherwise, the $100M offered would have been a windfall and no judge would have declined to approve such a settlement for a meritless case. Time will tell what happens when the appeals court rules on the class action status (obligation of each driver to go to arbitration as opposed to court) and we will see who blinks first.......the 800 pound Gorilla (Uber) or the lawyers who are now forced to either move the case forward on its merits or to obtain a better and increased monetary settlement from Uber. Grab tour seats because this issue is far from over.