In an attempt to bypass New York City minimum wage rules, Uber (NYSE:UBER) is locking out drivers during non-peak hours, causing drivers to rack up fewer hours and less pay, Bloomberg reported on Monday.
Uber (UBER) says the action stems from a six-year-old rule in New York which requires ride-sharing companies to pay drivers for idle time between rides. The New York City Taxi and Limousine Commission (TLC) calculates how drivers are paid for non-passenger time by an industry average, which includes Lyft (LYFT) and NYC taxi drivers. Therefore, when demand for Lyft (LYFT) drops and non-passenger time increases, Uber (UBER) is forced to increase driver pay for non-passenger time, thereby making Uber (UBER) pay more for lack of demand for Lyft (LYFT) drivers. To compensate, Uber (UBER) is now eliminating the time their drivers spend on non-passenger time.
“The city’s rule bizarrely holds Uber responsible for Lyft’s failures,” Uber spokesperson Freddi Goldstein said to Bloomberg.
The company acknowledges the need for lockout periods and claims they are based on rider demand at any given time. If demand drops below the supply of available drivers, the app will temporarily shut drivers out. But for drivers, the lockout periods can occur multiple times during the day, sometimes for up to an hour. As a result, the lack of consistent work has negatively impacted earnings and made it financially prohibitive for some to work for the company.
The latest measure is an attempt to combat ever-increasing NYC regulations against ride-sharing companies. In 2018, New York City officials passed legislation requiring ride-sharing companies to pay drivers a minimum pay rate of approximately $17.22 per hour, a raise of $5 per hour, and in February, that was raised again by 3.49%. Uber (UBER) and Lyft (LYFT) have repeatedly pushed back on the new pay rules, claiming higher wages for drivers will make rides more expensive and undermine competition.
New York City laws also require Uber/Lyft drivers to obtain a TLC license, a complex array of regulations that require a valid DMV chauffeur’s license, followed by drug testing, medical exams, and a multitude of driving courses. And even after completing NYC’s regulatory maze, Uber (UBER) has a waiting list for new drivers as a result of TLC’s utilization regulations.
Uber (UBER) shares were fractionally higher at Monday’s close but were drifting lower in after-hours trading.