Massachusetts, Montana Address TNC-Related Issues

Regulators in both Massachusetts and Montana have recently looked at the extent to which transportation network companies (TNCs) fall within their purview. The most widely known TNCs are Raiser (Uber) and Lyft.

In Massachusetts, the Department of Public Utilities (DPU) issued final rules governing the regulation of TNCs, which the DPU defined as prearranged transportation services that are provided via a digital platform that connects a passenger and a driver. The department observed that the state legislature passed a law last year aimed at encouraging competition in the passenger transportation market.

According to the DPU, one feature of the law created a separate division within the DPU specific to oversight of TNCs. The department said that the new TNC rules were designed to facilitate that regulatory authority.

Among the matters covered by the new regulations are driver certification, vehicle safety, insurance and badging requirements, limitations on hours of service, and nondiscrimination standards. Citing statistics showing explosive growth in the TNC market, but also referencing various reports of TNC driver misconduct, the DPU agreed with numerous stakeholders that strict driver certification rules, such as background checks, are a must. It rejected claims made by some TNCs that such requirements would stunt innovation, economic growth, and transportation options.

The department also dismissed arguments presented by Uber that it is unable to comply with specific requirements because its drivers are independent contractors, not employees of the company. Consequently, Uber asserted, it has no mechanism to ensure that its drivers undertake specific actions. Instead, Uber had suggested an alternative regulation under which a TNC would be required to "promote," rather than "ensure," that its drivers comply with all rules and regulations.

But the department said that the governing statute expressly states that a TNC shall have an "oversight process in place to ensure" that drivers comply with all standards and requirements. That includes

(1) possessing adequate insurance coverage;

(2) comporting with other state vehicle requirements, like inspections and licensing; and

(3) "ensuring" the accommodation of riders with special needs.

The department likewise denied a recommendation from a group representing taxi drivers in Boston, which had asked that the number of TNC vehicles operating in the city and throughout the state be reduced and capped. Nevertheless, the DPU acknowledged that increased traffic congestion and associated environmental impacts of TNC-related services are important considerations. It therefore directed TNCs to share certain information with it so that state and regional traffic planning entities may better assess the effects of TNCs on the state's transportation infrastructure.

Discussing traffic matters, the department remarked that the new statute permits municipalities to regulate traffic flow and traffic patterns to ensure public safety and convenience with respect to vehicles engaged in the provision of passenger services. And, it said, the TNC law also pro vides that municipalities are to receive funding to help them assess the impact of TNC services on municipal roads, bridges, and other transportation infrastructure.

The department stated that such evaluations are to be conducted by a "Rider-For-Hire Task Force," which was explicitly provided for in the legislation. The law charges the group with examining both the structural and environmental impacts that may result from TNC services. Re Requirements for Transportation Network Companies and the Provision of Transportation Network Services, D.P.U. 17-81-A, Sept. 8, 2017 (Mass.D.P.U.).

Meanwhile, in Montana, the Public Service Commission confronted similar issues in the course of reviewing an application from Lyft, Inc., for a license to operate as a TNC in Montana. The commission remarked that Lyft is the second TNC authorized to operate in the state. Uber was the first to receive such a permit, in December of 2015. The commission observed that the legislature had amended state law earlier that year to help pave the way for app-based, ride-sharing companies to operate in Montana.

That 2015 legislation significantly lowered the regulatory barriers for entry into Montana's passenger transportation industry and established a new class of operating license for businesses like Lyft. The law also created a new certificate of compliance (COC) application process for TNCs, as well as for traditional carriers, including certain buses and taxi companies.

The commission said it viewed the COC standard as having struck an appropriate balance between removing traditional entry barrier regulation and ensuring protection of the consuming public. According to the commission, an important distinction between the existing test for market entry and the new COC standard is that whereas the old test placed the burden of proof on the applicant to show its proposed service is needed for purposes of public convenience and necessity, the new COC test places the burden on the protestant to overcome the presumption of an applicant's fitness to operate.

The commission commented that it was aware that the new COC law had upset various carriers, in that it dramatically increases competition. And indeed, the commission said, the legislature had set in motion a process directed at stimulating the development of an expanded passenger transportation market.

The commission conceded that under the prior certification standard, a motor carrier was granted a license for only a specific, limited operating territory. Thus, by design, carrier competition within that area would be restricted, unless a public need for additional service was demonstrated.

By contrast, though, the new COC rule allows applicants to apply for either a region-specific or a statewide license for a $500 application fee, the commission said. Upon payment of the fee, and provided no party protests the application, a carrier can now enter the marketplace on a statewide basis, regardless of the existence of other carriers within a region.

As to the specific application from Lyft, the commission disclosed that it had received but a single objection, from the owner of a taxi service. The cab company had called into question Lyft's "fitness" to operate, on the grounds that the company could not meet its legal obligations related to insurance.

The challenger explained that, by law, TNCs are required to carry minimum insurance coverage of $50,000 for death and bodily injury per person, $100,000 per incident, and $25,000 for property damage. But, the taxi company stated, when a driver is engaged in a prearranged ride, the requirements go up to $1 million for death, injury, or property damage, as well as uninsured motorist coverage. Given those requirements, the taxi company argued that there may be times when Lyft's insurance becomes inactive, such as when a driver loses connection to the digital network while driving through a cellular deadspot.

In rejecting that line of argument, the commission found that lapses in wireless service coverage do not translate into lapses in insurance coverage. It averred that gaps in cellular service do not impact insurance coverage, as coverage exists from the moment a passenger enters a vehicle until the passenger exits during a prearranged ride.

However, the commission's decision was not unanimous, as Commissioner Bob Lake dissented. He stated that his problem with Lyft and Uber services stems from the fact that they are out-of-state corporations. As such, he said, and unlike existing regulated motor carriers, Uber and Lyft are able to operate in Montana with very little oversight from the commission. Plus, he pointed out that they are not obligated to serve the public.

The commissioner therefore voiced concern that "if these firms are allowed to squeeze out mom and pop taxi companies, critical portions of our population could be left without essential transportation services." Re Lyft, Inc., Docket No. T-17.9.COC, Order No. 7540a, Aug. 24, 2017 (Mont.P.S.C.).