"How Uber and Lyft Used a Loophole to Deny NYC Drivers Millions in Pay", 10 October 2024

One August morning in south Brooklyn, Mohamed Mohamed did what he’s done almost every day for nine years: He woke up at 5 a.m., said his morning prayer and got ready for work as a rideshare driver. He opened up Uber’s app, and in the center was a big blue button that said “GO.”

Except that Thursday, pressing “GO” didn’t do anything. Instead, a familiar banner flashed red: “Unable to go online.” Below it, Uber explained, “TLC rules force us to limit access,” a reference to New York City’s Taxi and Limousine Commission. “Try going to a busier area.” Lyft’s driver app told him the same thing: “You can’t go online right now.”

This happened again. And again. Mohamed was locked out of Uber three times, unable to accept rides for three of the five hours he was on the road. He was locked out of Lyft the entire time.

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The whole summer was like this for rideshare drivers in New York City. Under a local law, drivers are supposed to be paid even for the time they spend between trips. But Uber and Lyft found a money-saving loophole: Simply prevent them from logging into the apps, erasing some of their working time from the record. Because these so-called lockouts happen without warning, and can last anywhere from several minutes to several hours, drivers have had to work longer to keep their wages up. And in many cases, they can’t.

When Bloomberg first reported on the existence of lockouts, Uber and Lyft said they were locking out drivers only during periods of low demand. But the practice has been more pervasive, widespread and financially damaging for drivers than previously understood, a Bloomberg investigation found. These lockouts occurred almost every hour of every day, according to the data, which included more than 800 drivers, or roughly 1% of registered drivers in the city. They even happened in high-demand areas, leading to some increased fares because there were fewer cars available for hire. By making drivers seem busier on paper, the companies set themselves up to save as much as hundreds of millions of dollars in driver payouts, according to Bloomberg estimates — all while telling the drivers, falsely, that the lockouts were required because of the law.

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Bloomberg interviewed almost 120 drivers, many of whom described the physical, financial and mental health burden of losing a previously predictable stream of income. For years, Uber and Lyft have fought with regulators across the world to define drivers as independent contractors, not employees — arguing that workers are better off having a flexible schedule and being their own bosses. But over this long, frustrating summer, drivers never knew when they’d be allowed to work, and often had no choice but to spend more unpaid hours on the road if they wanted any chance of matching their typical earnings.

Both Uber and Lyft acknowledge the practice is harmful to drivers, but argue they’re necessary.

“We agree that lockouts are horrible,” said Uber spokesperson Josh Gold...

The city’s minimum-pay rule — the first in the nation designed for rideshare drivers — sets an hourly wage using a complicated series of factors, including trip time and mileage, plus time spent with passengers, driving toward pickups and waiting for new trips. Unlike other cities and states that have since enacted a fixed minimum wage for drivers, the minimum pay in New York City is designed to be an ever-shifting number that’s based on trip data from the major rideshare companies. TLC recalculates this industry-wide pay rate once a year.

The key metric is the “utilization rate” — and it’s more or less what it sounds like: a measure of how much time drivers spend with passengers.

The higher the utilization rate, the lower the minimum fare for each ride. At first, it appeared an elegant solution to a complex problem. If the companies keep drivers busy, drivers earn a fair wage from fares. But if drivers have too much downtime, riders’ fares aren’t covering as much of the minimum pay and Uber and Lyft have to make up the difference.

The pay formula leads to the lockouts solution, said Lyft spokesperson CJ Macklin. “Which means drivers continue to see limits on when they can earn, riders are still waiting longer to get to where they need to go, and Lyft can’t serve New Yorkers in the way they are expecting,” he said. (By Lyft’s calculation, its customers have been waiting about two minutes longer per trip.)

“This poor experience is why we don’t deploy lockouts anywhere else except in this unique situation, and it’s why we need a long-term fix,” he added.

Regardless of how regulators respond, the damage to drivers is already done. Dozens told Bloomberg that the unsteady income during months of lockouts caused them to fall behind on taxes, auto loan payments, rent and credit card bills.

Two drivers mentioned contemplating suicide as they worried about not being able to support their families.

They’re all victims of the way Uber and Lyft decided to solve a supply and demand problem: The rideshare companies had accepted new drivers faster than they could add more customers. That meant they were on the hook for meeting New York City’s minimum-pay requirements.

“It’s outrageous, it’s stressful and it’s unprecedented, as far as I know, in the history of labor to just tell people there’s no notice that, ‘You have to leave,’ and not tell them when you can come back,” said Michael Reich, a labor economics professor at the University of California, Berkeley, who helped design the pay model for the city. “I have never heard such behavior that’s so dismissive and disrespectful of these workers.”

When asked about Reich’s comments, Uber’s Gold said, “We are taking steps to increase utilization, just as his paper called for.”

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The companies frame the lockouts as something they’re doing reluctantly, and fighting against. In a June 25 letter to TLC that Bloomberg obtained through a public records request, Lyft acknowledged that ride demand has declined and driver supply has remained unexpectedly high despite having halted new driver onboarding last year. “We know drivers dislike this and we don’t like it either as it is very disruptive to drivers,” Chief Policy Officer Jeremy Bird wrote in the letter. “No product manager at Lyft wants to build a product that makes driving more challenging and none of our employees want to see upset drivers protesting the company.”

But TLC regulations do not force the companies to do lockouts. Uber and Lyft adopted the practice in order to save millions on future driver wages, Bloomberg’s analysis found.

Without the lockouts, the rideshare companies would likely have to pay tens or even hundreds of millions of dollars more when TLC resets the citywide utilization rate early next year.

Uber and Lyft say Bloomberg’s financial model is too simplistic because it doesn’t take into account that if they pass on higher prices to riders, that will scare some customers away, leading to lower demand.

Legal representatives for the New York Taxi Workers Alliance, which represents more than 28,000 drivers, allege that the private agreement between the mayor, TLC and Uber and Lyft have allowed the companies to exploit a duopoly and engage in collusion. They said TLC and the mayor have permitted the companies to engage in the private agreement “right under their noses to restrain competition in order to set and suppress minimum wage rights.”

In an emailed response to Bloomberg, TLC commissioner David Do called the lockouts “harmful,” saying the “multi-billion-dollar companies intentionally exploited loopholes in our minimum pay rules to avoid paying hardworking drivers more.” The firms “recklessly onboarded hundreds of new drivers, then cut tens of thousands of drivers off to juice their utilization rates and keep driver pay low,” he added. “This defies the intention of our rules and the underlying local law, so we will amend and tighten those rules,” he added.

Do said in a Sept. 27 public testimony at the city council that his agency intends to announce rules by the end of the year that would limit new driver onboarding as a way of deterring future lockouts. “Drivers are more than what Uber and Lyft refer to as ’supply’: they are human beings who deserve the protections our city intended,” he said.

The urgency in resolving the human toll of the lockouts has also prompted New York City Comptroller Brad Lander, a former city councilor who sponsored the minimum-wage bill when it was introduced in 2018, to seek data from TLC to understand the scope and impact of the lockouts.

Federal officials have also begun to take notice. ...FTC commissioner Alvaro Bedoya attended a listening session with Uber and Lyft drivers in New York, where he said “these are very serious allegations” that the commission wants to better understand.

A spokesperson for the Federal Trade Commission declined to comment on whether TLC’s agreement with the rideshare companies is in violation of antitrust laws, and said the agency does not comment on or confirm the existence of investigations. Bedoya, too, said on Monday that his remarks do not necessarily mean the FTC will launch a probe.