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Friday, February 12, 2016

Carsharing: The Legality of an Innovative Industry

  

It is without question that the car-sharing industry has become a hot business over the last 5 years. There are a number of different services within this industry that are offered; including,  Uber/Lyft (taxi-like ride services), Relayrides (peer to peer car rental service), zipcar (membership based car reservation service) among others.  The influx of car-sharing companies and the market expansion  has not been without legal hurdles.

               First let’s take a look at RelayRides. This peer-peer car rental service found itself in a bit of legal trouble over the past few years (Click Here). RelayRides, according to the Department of Financial Services in New York, sold a false bill of goods and had an inadequate and illegal insurance policy. RelayRides claimed that they had insurance coverage for their consumers, however, the lender of the vehicle was actually held personally liable for any theft/accidents, being they were willingly allowing another person to drive their vehicle.

               Another issue countrywide and specifically in New York, where traditional yellow taxis have had complete control of the marketplace for years, is the implications, both legal and ethical, of the various regulations on the taxi industry.   In 2014 Federal credit unions who made $4,600 medallion loans worth over $2.4 billion as well as individual medallion owners and the Taxi Medallion Owner Driver Association and League of mutual Taxi Owners tried to sue Uber stating that Uber was operating unfairly as drivers were not required to pay for expensive medallions or pay fees (Click Here). Anytime there is change to in a rigid system, the ambiguity creates conflict over the regulations and guidelines which are applicable to that change. Some of these questions raised specifically related to Uber are whether the entity should be governed as a tech platform or as a taxi company? Another issue is whether Uber drivers are considered employees or “freelancers.” Innovative technology has forced us to reassess the implications of various rules and regulations – and unfortunately, as these car-sharing companies have faced, often proven unable to keep up.

               One of the biggest problems facing this industry is insurance standards. As noted earlier, this was one reason RelayRides eventually shutdown operations in New York.   Often, the biggest opportunity is in an industry that is antiquated and over-regulated.  However, as seen in the car-sharing industry it often also creates significant backlash from the establishment.  I would encourage you to understand the federal/state/city regulations that your business implicates in order to properly monitor the risk of your operations.


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