Seattle raises fees for Uber and Lyft rides with new tax, passes minimum wage for drivers

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Inside Uber’s Seattle office. (GeekWire Photo / Monica Nickelsburg)

The Seattle City Council unanimously passed legislation Monday that will establish a minimum wage for Uber and Lyft drivers and raise per-ride taxes to pay for city programs.

Seattle Mayor Jenny Durkan introduced the pioneering “Fare Share” program in September as a way to extend the city’s worker protections to gig economy drivers. The program is the latest in a series of regulatory headaches for Uber and Lyft as regulators crack down on their labor practices.

“Our Fare Share plan invests in first-in-the-nation protections for drivers, more housing near transit, and transit projects that will help keep Seattle moving,” Durkan said in a statement Monday. “It is the right thing to do, and I applaud the City Council for moving quickly to ensure that more drivers can afford to live near where they work, and everyone, regardless of income or ability level, has access to high-quality transit.”

Durkan plans to sign the legislation into law later this week.

Fare Share introduces a new tax of 51 cents per Uber and Lyft ride to fund affordable housing construction and complete the city’s beleaguered streetcar project. Seattle already charges 24 cents per Uber and Lyft ride to fund wheelchair accessible taxis and cover the costs of regulating the industry. The new tax will bring the total fees to 75 cents per ride. It will apply to all rides that originate within Seattle city limits. Durkan estimates the tax will generate $133 million in new revenue by 2025.

(Editor’s note: The new fee is technically 57 cents but 6 cents will be offset by lowering existing fees on ride-hailing services)

Details of the minimum wage for drivers are still being hammered out. The city is commissioning an independent study to determine how to apply minimum wage standards for drivers who are currently categorized as independent contractors and largely responsible for their own expenses. The minimum wage will take effect July 1, 2020.

The city plans to spend $56 million of the new revenue to complete construction of the Center City Connector streetcar, an overdue project costing tens of millions more than initially estimated. More than $52 million will be invested in affordable housing projects that the city estimates will produce 500 new homes near transit. An additional $17.75 million will be used to create a Driver Resolution Center, an organization that will arbitrate between ride-hailing companies and drivers who have been deactivated from the apps.

Seattle Deputy Mayor Shefali Ranganathan, Mayor Jenny Durkan, and Sam Zimbabwe, Director of the Department of Transportation, announced the new tax on Uber and Lyft in September. (GeekWire Photo / Monica Nickelsburg)

The new regulations will apply to ride-hailing companies that facilitate 1 million rides per quarter in the city. Only Uber and Lyft meet the criteria. At a media roundtable in September, Durkan said that her team focused narrowly on those two companies because business models in the gig economy vary too much to establish one standard.

Lyft spokesperson Lauren Alexander said the company supports minimum driver earnings but is “disappointed” by the City Council’s decision to pass the tax.

“An additional regressive tax directly hurts those who rely on the affordability of rideshare the most,” she said in a statement. “Very little of the money actually goes towards benefitting drivers, with the vast majority of it instead being used to plug a massive hole in the city’s budget. If the City was serious about helping riders and drivers, they wouldn’t burden them with another regressive tax, pure and simple.”

Uber spokesperson Nathan Hambley shared this statement with GeekWire:

“In May 2019 we began a series of conversations with Mayor Durkan’s Office, Lyft and the Teamsters in a good faith effort to reach a comprehensive agreement on rideshare policy in Seattle. The discussion included a new earnings standard and benefits requirements for rideshare drivers in Seattle. We consistently pointed out that any tax increase could reduce earnings opportunities for drivers and impact the availability of convenient and reliable transportation. We also advocated that any revenue from an increased tax should benefit drivers, but unfortunately, the Teamsters continued to reject our proposals.”

The Teamsters Local 117 is a union representing taxi drivers, truck drivers, and other workers. Uber and the Teamsters have been at odds for years over various issues, including a Seattle law allowing drivers to unionize.

Teamsters 117 Secretary-Treasurer John Scearcy celebrated the Fare Share news in a statement Monday.

“This is an historic step forward in our fight for fair pay and to establish basic labor protections for Uber and Lyft drivers,” he said.

Based on past comments, it’s likely that Uber and Lyft will pass the increased fees on to riders.

Both companies, like their gig economy peers, classify workers as independent contractors rather than employees. That underlying business model is in peril as lawmakers across the country seek to extend minimum compensation and benefits to the workers powering the gig economy.

California state lawmakers approved a bill in September that makes it harder for companies such as Uber and Lyft to classify their workers as independent contractors. The companies are fighting the legislation through legal challenges and a proposed ballot initiative.

Earlier this month, New Jersey slapped Uber with a $649 million fine for back taxes, claiming that by miscategorizing drivers the company had skirted employment taxes for years.

Hours before Seattle approved its Fare Share program, London officials decided not to renew Uber’s operating license in the city, citing ongoing safety issues.

The increased scrutiny comes during Uber and Lyft’s initial year as publicly-traded companies. Both went public earlier this year and have seen their stock prices drop as they remain unprofitable. Analysts believe investors are apprehensive about the longevity of the ride-hailing business model and the regulatory uncertainty plaguing gig economy companies.

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