An Uber driver navigates Broadway in Manhattan, in the traffic flow with traditional yellow cabs. (Photo by nycshooter/iStock by Getty Images)

By Michael Stahl

Since app-based, ride-sharing services like Uber and Lyft arrived in cities across the U.S., they’ve become wildly popular with users, while creating a whole new class of laborers. Buying into the work-when-you-want benefit, and using their own cars as built-in capital, hundreds of thousands of people have enlisted as drivers.

But while both Uber and Lyft now earn billions in annual revenue, many of their drivers have faced financial struggles. The companies classify drivers as independent contractors and, thus, these workers are not subject to many of the same rights as full-time employees, or even part-timers.

Minimum-wage laws, for example, don’t apply to independent contractors, and with the influx of ride-sharing cars on city streets, drivers have seen their take-home pay decline. One recent study found that Uber drivers’ wages are, on average, below minimum wage—though the company disputed the study’s findings.

Representatives of both Uber and Lyft say they want drivers to make a living wage as company operatives. However, the situation has become a case study in how disruptive technologies and innovative business models are reconciled with real-world fallout. In this case, elected officials in New York City found themselves under intense political pressure to mitigate the impact on low-income workers, even as the ride-hailing services provided new job opportunities.

In August, Mayor Bill de Blasio signed into law a package of five bills regulating ride-hailing companies. In making New York the first large U.S. city to take such measures, the legislation set a wage floor, ensuring drivers earn at least $17.22 an hour, and capped the number of for-hire vehicles for one year. The latter measure was put in place so that the city’s Taxi & Limousine Commission (TLC) could study the impact of ride-sharing services and decide on future prospective regulations.

After a vote this month, the TLC approved new pay standards for app-based car services, including Uber, Lyft, Via, and Gett. Previously, app-based vehicle drivers were compensated on the basis of the number of rides with a passenger they completed, and how much time each of those trips took. But among other changes, drivers will now be paid based on a trip’s mileage, length of time, and the average percentage of time a company’s drivers actually have passengers in the car.

The TLC says this new pay formula will boost drivers’ annual earnings by $10,000 a year. By raising economic cost of providing the service, the commission also hopes to re-level the playing field in the competition between the new ride-hailing services and legacy taxi and livery-cab companies. Drivers for those organizations have suffered dramatically from that competition, with a number of operators even committing suicide because of their financial woes.

Uber says that it wants its drivers to earn a living wage, but says that New York City's new legislation is flawed. (Photo courtesy of Uber)

The Independent Drivers Guild (IDG), which represents over 70,000 for-hire vehicle operators in New York City, had organized a campaign calling for a minimum pay rate for app-based drivers. The group praised the TLC’s new rules. “All workers deserve the protection of a fair, livable wage,” said Jim Conigliaro, Jr., founder of the IDG, said in a statement, “and we are proud to be setting the new bar for contractor workers’ rights in America.”

Uber and Lyft were critical of the new legislation. Jason Post, director of public affairs for Uber, said the move represented a “poor implementation” of a driver pay-rate formula that “will lead to higher than necessary costs for riders,” according to a statement.

“Uber supports efforts to ensure that full-time drivers in NYC—whether driving with taxi, limo or Uber—are able to make a living wage, without harming outer borough riders who have been ignored by yellow taxi and underserved by mass transit,” Post said in the statement. According to Post, the TLC’s rules “do not take into account incentives or bonuses forcing companies to raise rates even higher.”

In a statement of its own, Lyft agreed that “all drivers should earn a livable wage,” and that the company is committed to helping drivers “reach their goals.”

The company added, “Unfortunately, the TLC’s proposed pay rules will undermine competition by allowing certain companies to pay drivers lower wages," and will discourage drivers "from giving rides to and from areas outside Manhattan." Lyft said that calculating pay on a per-ride basis rather than per-week “incentivizes drivers to take more short rides,” which will lead to increased traffic in already high-volume areas.

“These rules would be a step backward for New Yorkers, and we urge the TLC to reconsider them.”

The bottom line for consumers is that they are likely to pay a little more for their rides, and maybe wait a little longer for their cars. The tradeoff, elected officials hope, will be a more sustainable for-hire vehicle economy and economic justice for low-income workers. But the legislation raises new questions. Could New York City’s laws set a new nationwide standard? Will the highly-capitalized Uber and Lyft challenge them in court?

The legislative experiment will be closely watched, since it's only the first chapter in sorting out the effects of this economic innovation.