Lyft is suing the city of San Francisco, claiming the city unfairly charged the rideshare company over $100 million in taxes.
© 2024 TechCrunch. All rights reserved. For personal use only.
Pavlo Gonchar/SOPA Images/LightRocket via Getty Images
Lyft has accused the city of San Francisco in a lawsuit of overcharging it $100 million in taxes over five years, arguing that the city used a calculation that doesn't reflect the ride-hailing firm's business model.
The lawsuit, filed at the California Superior Court in San Francisco, says the city calculated Lyft's 2019 to 2023 taxes based on the total amount passengers paid for rides. But Lyft says it makes money from what drivers pay to Lyft, not what passengers pay to the drivers. Drivers make at least 70% of what the passenger pays, according to Lyft's website.
Lyft considers drivers as customers who use its service and not employees, the company said in the state court complaint. The city's formula is "distortive and will grossly overstate Lyft's gross receipts attributable to Lyft's business activities in the city," the filing says.
The filing says the US Securities and Exchange Commission doesn't consider driver's fees as part of Lyft's revenue. Driver fees are also not recognized as income for income-tax purposes on a state or federal level. Lyft is seeking a refund for the amount it overpaid.
Lyft and the San Francisco City Attorney's representatives didn't immediately respond to requests for comment.
"Lyft doesn't take operating in San Francisco for granted and we love serving both riders and drivers in our hometown city," the company said in a statement to Bloomberg on Wednesday. "But, we believe the city is incorrect with how it calculated our gross receipts tax for the years 2019-2023."
The complaint is another example of ride-hailing and quick-delivery platforms such as Lyft, Uber, and DoorDash making it clear that drivers on their US platforms are gig workers, not employees. Having drivers on a payroll would mean paying employment benefits such as vacation and overtime pay, minimum-wage protection, and health insurance.
Last year, gig-economy companies scored a big win after a California appeals court upheld a law that classified gig workers as independent contractors, not employees. But that argument hasn't always worked out for these companies in other markets: In 2021, the UK ruled that Uber drivers must be treated as company employees and not independent workers after a five-year legal battle.
Waymo
If Waymo One's robotaxis continue expanding to airports, human ride-hailing drivers could see their incomes take a big hit.
Airport trips are "incredibly important" for ride-hailing drivers, particularly those who work near cities with major airports, said Lindsey Cameron, an assistant professor of management — whose research focuses on AI and gig work — at Wharton School of the University of Pennsylvania. She added that airport pickups can be especially profitable because those rides often have higher fares, which are driven by strong customer demand.
"Those are the most lucrative rides," she said. "You've got a captive audience who wants to go home, and so they're willing to pay."
Many Uber and Lyft drivers have told BI their gigs are already less profitable than they were a few years ago — due, in part, to an increase in competition from both human and robot drivers. The threat of robotaxis further chipping away at their business has put some of them on edge.
Nicole Moore, a part-time Lyft driver and the president of the driver advocacy group Rideshare Drivers United, said that in the last couple of weeks, she's seen a significant uptick in concern from LA-based drivers about the impacts of robotaxis on their earnings. In November, Waymo One began offering rides to anyone in Los Angeles after previously operating a limited service with a waitlist.
"You put more drivers on the street — whether they're robot drivers or people — everybody makes less money," she said, adding, "We're thankful they're not in the airport yet."
Waymo One, which is owned by Alphabet, is the only company operating autonomous vehicles at US airports, Waymo told BI. It's also the biggest autonomous taxi service in the US: In October, the company said it was providing more than 150,000 weekly paid rides in Los Angeles, San Francisco, and Phoenix. Additionally, the company announced this fall it will offer rides to the public in the Atlanta and Austin markets early next year and in Miami in 2026.
While Waymo One airport trips are available in Phoenix —and the company has approval to begin pilot testing at the Austin airport — robotaxis are still restricted from airports in Los Angeles and San Francisco. In these cities, approval for airport rides would come from groups that oversee the airports' operations.
The experts BI spoke to said it's unclear if and when robotaxis will receive widespread approval for airport trips in the markets they're operating.
Spokespeople for Los Angeles World Airports and the Airport Commission for San Francisco International Airport told BI there is no estimated timeline for when Waymo One will receive approval, but the groups are monitoring the robotaxi's progress.
The LAWA spokesperson said the airport can experience significant curbside congestion and that for driverless taxis to gain airport approval, they would need to operate safely and efficiently and not impact the airport's current commercial and private vehicle operations. The Airport Commission spokesperson said driverless taxis would need to demonstrate the ability to operate on freeways and in communities near the airport and ensure they could safely meet the needs of customers.
Waymo told BI that it's providing thousands of trips each week to and from Phoenix Sky Harbor International Airport, the most popular destination for its riders in the city. The company also said it's in active discussions with San Francisco International Airport and Los Angeles International Airport about expanding its fleet to these airports, but didn't give BI a timeline for when it expects to receive approvals.
The company added that it was granted approval to provide robotaxi trips on freeways in San Francisco, Los Angeles, Phoenix, and Austin, but that it hasn't begun offering those rides to the public yet: Access to these trips is currently limited to Waymo's employees in San Francisco and Phoenix.
A spokesperson for Austin-Bergstrom International Airport told BI that the airport would monitor Waymo One's pilot testing before deciding whether to approve airport pickups.
Uber did not respond to Business Insider's request for comment, and Lyft said that its drivers have generally earned more on airport trips than on non-airport trips.
It's not just drivers who are feeling the pinch from Waymo One's expansions. GM announced on December 11 that it was retreating from the robotaxi business "given the considerable time and resources that would be needed to scale the business, along with an increasingly competitive robotaxi market."
Meanwhile, on December 5, shares of Uber and Lyft traded lower after Waymo announced it was expanding to Miami.
To be sure, Waymo isn't the only company rolling out robotaxis: Tesla and the Amazon-owned Zoox are also developing their own versions of a robotaxi.
Moore said that airport trips aren't as profitable for drivers as they used to be, but that they remain important.
"They have been our bread and butter for many, many years," she said.
Jason D., a 50-year-old driver in Phoenix, told BI he does more airport trips than any other type of ride — in part because he drives an Uber XL vehicle that has the space for luggage and multiple passengers. He said competing with Waymo One at airports and elsewhere has hurt his earnings.
"Driverless taxis are flooding an already competitive Phoenix market and taking money from human drivers," Jason D, who drives full-time for Uber and asked that his last name not be included for fear of professional repercussions, previously told BI. He added that Waymo One's cars also contribute to significant congestion at the airport because they don't know how to follow traffic officers' hand and voice commands.
Sergio Avedian, a part-time Uber and Lyft driver based in the Los Angeles area and senior contributor to the gig-driver-advocacy blog and YouTube channel The Rideshare Guy, told BI that airport drop-offs tend to be quick, pay relatively well, and often come with a tip.
In comparison, doing airport pickups can require drivers at major airports to wait in designated lots until a passenger books a ride. Avedian said this process can be frustrating, but that airport pickups often pay better than drop-offs because the fares are higher — which is why some drivers think they're worth the wait.
"You have a chance of maybe catching a 'unicorn,'" he said, referring to the highest-paying trips. He added that many airport riders are business travelers who can expense their trips and are therefore less likely to balk at a high fare or not tip.
While robotaxis are already operating in the LA market, Avedian isn't overly concerned about robotaxis impact on drivers' earnings in the short term. But he knows the clock is ticking.
"Long-term, definitely it's going to be a threat, and that's why we suggest everybody not treat Uber and Lyft driving as a career," he previously told BI.
If more airports approve robotaxis, Moore said she hopes riders will value the customer service humans provide.
"Customers often expect you to put their luggage in the trunk — is the robotaxi going to do that?"
We want to hear from you. Do you work in the gig economy? Please fill out this form.
Correction: December 13, 2024 — An earlier version of this story misstated the number of weekly paid rides Waymo provided. It was more than 150,000, not 100,000.
Matt York/AP
Some Uber and Lyft drivers said the driverless taxis operating in their markets are driving down their earnings.
Jason D, a 50-year-old Uber driver based in Phoenix, told Business Insider it's become harder to make money in recent years due to increased competition with human drivers, lower fares, fewer tips from riders, and higher operating costs. Now, he said the rollout of Waymo One robotaxis has made this problem even worse.
"Driverless taxis are flooding an already competitive Phoenix market and taking money from human drivers," said Jason, who drives full-time and asked that his last name not be included for fear of professional repercussions.
Several companies are competing for a share of the US robotaxi market. However, Waymo One, Alphabet's autonomous taxi service, announced in August that it was providing more than 100,000 paid rides weekly in Los Angeles, San Francisco, and Phoenix. Waymo One also plans to expand to Atlanta and Austin early next year and will be facilitated through the Uber app. While the robotaxi industry could be slowed by regulatory hurdles and safety concerns, ride-hailing experts previously told BI that growing adoption would likely hurt Uber and Lyft drivers' earnings in the years to come. Some drivers told BI this is already happening.
To be sure, it's unclear how much robotaxis like Waymo One's are currently impacting drivers' earnings. Carl Benedikt Frey, a professor of AI and work at the Oxford Internet Institute, previously told BI there's little evidence that robotaxis like Waymo One have had a significant impact on Uber and Lyft drivers' earnings so far. But as more robotaxis hit the road, and fare prices come down, he said he would expect drivers' income to take a hit.
"As the technology gets better and cheaper, drivers will feel it in their wallets," Frey said. "We've seen this movie before: When Uber first showed up, it reduced traditional taxi drivers' earnings by about 10%."
Waymo and Uber did not respond to BI's request for comment. In February, an Uber spokesperson told BI that the company hadn't seen any significant impacts on drivers' earnings in Phoenix and Las Vegas, the two cities where Uber had autonomous vehicle partnerships at the time.
A Lyft spokesperson did not respond to BI's question about the impacts driverless taxis could have on ride-hailing drivers but said the company's goal is to build a hybrid network of human drivers and autonomous vehicles. Additionally, Lyft partnered with Mobileye to roll out autonomous vehicles on the Lyft network.
John, a 43-year-old Uber and Lyft driver based in Phoenix, said he said he thinks Waymo One's robotaxis have hurt his earnings. He sometimes asks his passengers about their experiences using driverless taxis to get a better understanding of his competition.
He said Waymo One autonomous vehicles compete with him for rides and are sometimes cheaper than Uber and Lyft trips, which he thinks could deter passengers from using traditional ride-hailing services. John's identity is known to BI but has been withheld for his fear of professional repercussions.
Comparing the costs of Waymo One against Uber or Lyft is difficult because prices vary by market, length of trip, promotional offers the passenger may have, and whether the client tips a human driver.
There is some relief for human drivers: Restrictions on where robotaxis can drive could help limit the impact on ride-hailing drivers.
Brad, a full-time Uber driver based in Los Angeles, said he doesn't feel too threatened by Waymo One robotaxis in the city because they primarily offer shorter rides that he doesn't consider to be very profitable.
"I stopped picking up local rides a long time ago," said Brad, whose identity is known to BI but has been withheld for his fear of professional repercussions.
He added the most profitable rides tend to be airport trips — specifically when he picks up passengers from their terminals — and robotaxis aren't allowed at the airport. Waymo One airport trips are still restricted in Los Angeles and San Francisco but are available in Phoenix.
Nicole Moore, a part-time Lyft driver and the president of the driver advocacy group Rideshare Drivers United, previously told BI that trips to and from airports are many drivers' "bread and butter." She said that competition from robotaxis for these rides would be a concerning development for drivers.
A key factor in the success of robotaxis could be whether riders feel comfortable without a human driver. In Phoenix, Jason said that robotaxis are sometimes a "hazard on the road."
"They often cut me off," he said. "I have seen them signal left and right before making a sudden turn across multiple lanes of traffic."
In June, Waymo One recalled 672 of its driverless taxis after one hit a utility pole in Phoenix — the company said there were no passengers in the vehicle.
Jason said some riders he speaks with are comfortable with driverless cars or even think they could be safer than those driven by humans. But he's firm in his stance.
"I am fundamentally opposed to driverless rideshare because I do believe my income is being impacted," he said.
We want to hear from you. Do you work in the gig economy? Please fill out this form.
Spencer Platt/Getty Images
Brian started driving for Uber in California in 2013. At the time, it paid enough to be his full-time job.
Since then, working for the ride-hailing app has become less profitable, he said. But Uber and its rival Lyft still play an important role in his work — to recruit customers for his black-car service.
"I get a lot of people that I pick up randomly on Uber asking me, 'Hey, do you do private rides?'" Brian said in an interview with Business Insider. "And I say, 'Yes,' and I give them my business card, and if they want to book me, I'm happy to give them a price quote."
Brian is one of four drivers who told BI about starting his own business offering rides outside Uber and Lyft. He and the other drivers interviewed for this story asked that BI not use their full names for fear of being deactivated by Uber and Lyft. BI has verified their identity and work for the apps.
All four have had a similar experience: Driving exclusively for Uber and Lyft used to pay well, they said. But over the past few years, ride-hailing drivers' earnings have fallen to as little as $3 a ride. They say their businesses offer customers more reliable, higher-quality rides than they can often find on the apps — and sometimes, for less money.
About half of Brian's trips come from his list of private clients, he told BI. The other rides he still finds on Uber and Lyft, mostly to fill in what some drivers call "dead miles" — distances driven to get to or from a ride, which the apps don't compensate drivers for.
A trip for a private client could involve picking someone up at 3:30 a.m. to go to the airport or driving to and from a baseball game on the weekend. Those trips tend to make him more money than similar routes on the apps, he said, since Uber and Lyft aren't taking a share of the fare.
Unlike his experience with the apps, he's gotten to know many of the people he drives for, which he said helps generate repeat business and get him new customers.
"I won't advertise, but someone will post me on the Nextdoor app like, 'Hey, this driver is good, reliable — his prices are reasonable.'"
When BI asked whether drivers can pitch their own businesses while on a trip for Uber, an Uber spokesperson said the app's drivers are independent contractors. The spokesperson also referenced company statistics that Uber drivers make more than $30 an hour "while active on the app."
A Lyft spokesperson referenced the company's terms of service, which state that drivers can have other employment "including but not limited to providing services similar to the Rideshare Services to other companies."
Torsten Kunert, a ride-hailing driver and YouTuber who makes videos about the industry, said he's noticed more drivers trying to develop their own businesses over the past year and a half. He offers an online course for drivers looking to make the change, with advice ranging from pitching Uber and Lyft riders on their services to navigating commercial insurance.
Riders are often looking for a better deal. Kunert said that he often prices his rides for private clients below the going rate for a similar trip on Uber. Prices for various app-based services, such as Uber and Airbnb, have increased over the past few years as the so-called millennial lifestyle subsidy has dwindled.
"The rider and the driver are pretty much experiencing the same story, really," he said.
Offering private rides has its costs, Kunert said. Drivers have to buy their own commercial insurance and develop their list of clients. Many drivers who start their own businesses also drive high-end vehicles, such as luxury sedans and SUVs, which can involve a higher monthly auto loan or lease payment, he said.
The drivers BI spoke with said the switch was worth it.
Phil, an Uber driver in Ontario, Canada, told BI he offers rides around his town for 10 Canadian dollars regardless of distance. He still occasionally works for Uber, picking up similar rides for 3 or 4 Canadian dollars just to pitch riders on his private service. "The pay is so poor," he said.
One driver in San Diego who runs his own black-car service told BI that he drives a Cadillac Escalade and mostly serves business clients who pay him more than he would make on Uber's black-car service.
It's more work than just picking up trips through Uber or Lyft. The driver said he spends more time cleaning his car and texting clients to set up rides than when he relied on the apps for work.
But he said his earning potential has gone up. Some clients pay him $100 an hour to wait outside business meetings just so they can have a car ready to leave as soon as they're finished, he said.
Many drivers for the apps are "just saying 'this is not worth it anymore,' or they're becoming independent contractors on their own," he said.
Kunert said many drivers he advises enjoy not having to worry about Uber or Lyft deactivating their accounts or figuring out whether the pay the apps offer for a trip will make them any money.
"You truly, for the first time, you step into your self-worth, and you become a true independent contractor," he said.
Do you work for a ride-hailing or gig delivery service and have a story idea to share? Reach out to this reporter at [email protected].
