The Need for a Universal Driver's Lease: Part 1

Speaking of exercises in Nostalgia and theory ...

As many readers know, I have no love for the leasing system and would like to see a return to employer/employee method of organizing the taxi business. There are two main reasons for this:

1. A split meter would take cab companies out of the leasing business and put them back into the taxi business where they belong. They would be forced to deal with the realities of the market place. Their incomes thus would depend upon finding better methods of giving service rather than looking for new ways of extracting money from their drivers.
2. The so-called "Independent Contract" deprived cab drivers of basic "worker's rights" and left them unable to form unions and powerless to fight abuses by the companies.

I've come to realize, however, that my dream ain't gonna happen. The only other person with a voice (the vast majority of drivers are unrepresented and have no voice) speaking in favor of "employee rights" for drivers is Christopher Fulkerson and the two of us don't a movement make.

Company owners and managers like leasing because:

 1. It reduces company expenses. They don't have to pay:
     a) Payroll taxes.
     b) Social Security Taxes.
     c) Unemployment taxes.
     d) Medical or retirement benefits.
     e) Sick pay, vacation pay, etc.
2. Companies don't have to worry about unions that might strike for all or part of the above.
3. They don't have to worry about the ups and downs of the market. In fact, they tend to do very well in mild recessions because so many unemployed people are desperate enough to fill even the worst shifts.


Medallion holders like leasing for many of the same reasons that companies do:

1. They benefit, we benefit, from reduced company expenses, and don't have to worry much about the ups and downs of the market place.
2. We're the real "Independent Contractors" in this scenario.
     a) Companies bid for our services.
     b) If we don't like one company, we can take our medallions to another.

The Municipal Transportation Agency doesn't want taxi drivers to be employees because:

1. I suspect that MTA administrators don't much like the unions they do have. They sure don't want a gang of striking cab drivers on their hands.
2. This makes it easier for them to raise fees and dream of "income streams."

The United Taxicab Workers might talk about a union but they've done precious little to bring one about.

1. I think that they're caught in a conflict of wanting "employee rights" for drivers who aren't employees and they've never quite figured out what to do about it.
2. If they demanded that all drivers should be employees, they're afraid of losing the support of drivers who want to be under a lease.
3. If they fight for the people on the lease, they lose the ones who want "employee rights."
4. In this confusion, they've been divided and conquered.

Lease drivers may not want to become employees because:

1. They like the freedom that leasing gives them. They can go anywhere they like and work any way they want.
2. They may not fully understand what they are giving up when they sign the lease.
3. What they are actually free of are all the legal rights that have been granted to employees over the last hundred and fifty years including: age, race and sex discrimination laws; the right to a minimum wage; the right not to be fired without a cause, the right to collect unemployment, etc - not to mention the right to having half their social security taxes paid as well as actually having social security benefits to collect when they get old.

To be fair, it should be said that the high number of medallion holders (probably around 20% of all drivers) has drastically cut cab company profits. According to Pre K medallion holder, Art Lempke, the money given to the medallion holders created by Prop-K have made it impossible for companies to afford paying benefits to regular drivers.

On top of this, the whole industry has been geared to leasing for over 30 years. Changing to a employee/employer system would drastically change the business in unpredictable and, possibly, destructive ways.

Yet -  the "Independent Contract," which defines the relationships in the lease, is more a fictional than a legal document in the way it's used in the taxi business. It is supposed to be a contract between parties of equal power.  While this really does describe the relationship between companies and medallion holders (see the bit about medallion holders above), it's a joke when applied to non-medallion holding drivers. They are powerless and easy prey for those who want to abuse their power at the drivers expense.

The problem is how to stop these abuses while keeping the companies solvent and improving service to the public.

Next up: Company scams.

Yellow Needs More Cabs? For Whom?

There are several questions and interesting aspects about Yellow Cab manager Jim Gillespie's claim to the MTA Board that Yellow needs 139 more taxis in order to service all the radio calls that the company gets.

1. Why 139? Why not 140 or 135? Must be scientific, huh? Let's do the math:

• Gillespie says that Yellow failed to pick up 280,000 or 25% of its radio calls during the last 6 months.
• 280,000 / 139 = 2,014 radio calls that Gillespie expects each new taxi to pick up in 6 months
• 2,014 / 182.5 days = 11 radio calls per cab picked up per day.
• /2 shift a day = 5.5 radio calls per day per driver.

Sounds a bit lame, doesn't it? But, maybe Yellow doesn't expect much from new drivers. Let's look at the veterans for comparison:

• If 280,000 = 25% then 840,000 (280,000*3) calls must have been picked up during the last 6 months by Yellow's 500 cabs.
• 840,000 / 500 = 1,680 radio calls picked up per driver for 6 months.
• 1,680 / 182.5 = 9.2 radio calls taken per cab per day.
• /2 = 4.6 radio calls per driver per day.

Hmmm. Seems like the vets are even lamer. Let's do a little more math. What if each vet picked up 5.5 radio calls per day?

• 5.5*2 = 11*182.5 = 2,007.5 picked up calls per cab for 6 months * 500 = 1,003,770 radio calls picked up.
• If 280,000 = 25% then Yellow handles 1,120,000 (280,000*4) radio calls per 6 months.
• 1,003,770 / 1,120,000 = the percentage of calls that would be picked up by Yellow drivers if the vets were as good as Gillespie expects the rookies to be = 89.6% of the calls picked up.

 What if the vets worked just a little harder and picked up 6 rides per shift per day?

• 6*2 = 12 pickups per cab per day*182.5 days = 2,190 pickups for 6 months*500 taxis = 1,095,000 pickups.
• 1,095,000 / 1,120,000 = 97.8% of the calls picked up.

Well, it looks like we've found a solution to Yellow Cab's problem - train or whip the slackers.

In short, this is the only time that I can recall a company using the incompetence of its personnel as a reason to expand its business.

In short, the only science involved in Gillespie's speech was the science of bs.

2. Yellow Cab will not guarantee that all, or any, of the new drivers will take radio calls.

Perhaps you, gentle and misinformed reader, imagine that Yellow has a dispatching system that will use GPS to automatically assign the closest of those 139 cabs to one of those 280,000 radio calls?

Alas - that's not the case. Yellow's computer will inform their closest empty cab that there is a nearby radio call but whether or not the driver will accept the order is anybody's guess. He or she can take it or leave it. This also assumes that the closest driver actually has his computer on, which is problematical.

What's going on here?

3. Yellow Cab (along with all other San Francisco taxi companies) is in the leasing business, not the taxi business.

• They make their money from leasing taxis to drivers, not from the actual fares.
• The drivers pay the companies first and then make their money from picking people up.
• As long as a cab company can fill it's shifts with lease drivers, it doesn't matter how much actual business the company does.
• Mild recessions (with declining demand for taxis) are usually good for cab companies because desperate, unemployed people will take bad shifts. A little money is better for them than nothing.
• Yellow Cab, for instance, wasn't hiring in 2008 and 2009 because all their shifts were filled. 

4. Yellow Cab (along with all other San Francisco taxi companies) will never tell a driver to take a radio call. Why?

• Cab drivers in San Francisco are Independent Contractors, not employees.
• What these drivers are is independent of are all laws that protect employees.
• Cab companies do not have to pay unemployment taxes, social security taxes or (for Long Term Lease drivers) Worker's Compensation, etc on Independent Contractors.
• Telling a driver to take a radio call would make said driver an employee. 
• Telling a driver to take a radio call would mean that Yellow Cab would have to pay the taxes etc listed above.

5.  Yellow Cab (along with most other San Francisco taxi companies) is more and more operating its medallions under long term lease arrangements.

• The medallions are leased by the month and the taxi companies have no control over who drives the cab.
• Hundreds of experienced drivers have lost their shifts due to this trend.
• They have been replaced by new drivers who aren't trained (for Yellow to train them would make these drivers employees).
• Most of these Long Term Lease drivers hang out at the airport or head downtown.
• These new drivers are much less likely to take radio calls than the people they replace.

And, those are the real reasons why people in the Bayview, the Sunset, the Richmond and Noe Valley, not to mention the attractive blond at Greenwich and Scott, aren't getting taxis as quickly or as often as they should.

As long as the current taxi system remains in effect, 139 more Yellow Cabs will do little or nothing to improve San Francisco's radio business. 

Gillespie was quoted in the Examiner as saying, "If we had more taxis and they were more spread out, people could get their cabs quicker and more people would call ..."

If the cabs were "more spread out" ... but they won't be any more spread out than the current cabs are. Under the current system there is no leadership or direction, there is no one to tell the taxi drivers where to spread. The new taxis, like the currents ones, will gravitate to areas where the service is already good like SFO and Union Square but service to the outlying areas would not be improved one whit.

If Yellow Cab (along with the other companies) ran their businesses in a more rational manner, if the companies were more interested in serving the public than in avoiding various forms of taxation, the taxicabs we already have on the street would more than adequately handle the radio calls.


The only people who would really benefit from those 139 more medallions would be the owners of Yellow Cab along with the new medallion holders.

The Independent Contract - In Sum

Over the last 30 years, the law has pretty much caught up with the Independent Contract. A series of court cases have given drivers Workers Compensation and, maybe, Unemployment. It's no longer legal for companies to demand insurance deposits from their drivers.

It's also true that I have probably romanced the virtues of being an employee. It's doubtful that, under the political climate of the last three decades, we would have been able to form a union even if we been given employee rights. Unions have hardly proven themselves to be bastions of morality either. A friend of mine, in a Longshoreman's Local, had to tip union agents to get shifts. And, the foundations of building have been poured on many an ex-Teamster.

The level of corruption seems to be about the same. On the other hand, union workers are usually much better paid.

But there are advantages to driving a cab as an Independent Contractor. It's a cash business and nobody tells you what to do. You can take radio calls or not, work the airport or not, use any system you can think of to make money and take breaks (or not) any time or any place you like. Furthermore, an economic recession is unlikely to cost you your job. All that happens is that you make less money. In fact, people laid off from other industries invariably swarm taxi companies looking for work during recessions. Most of them make less money driving cab than they had been making before but at least they make something.

Comparing lease drivers to workers in 19th Century sweat shops is also way off the mark. You can do what you want when you drive a cab and, benefits aside, taxi driving pays better than most clerical or retail jobs. The combination of the freedom and cash is what got me into the business - and what keeps me there.

However, the biggest advantage of the Independent Contract clearly goes to the companies. The ability to fire people (excuse me "cancel their leases") without cause has given cab companies way too much power and led to abuses that I've written about earlier (see Alleged Tipping and the series on the Independent Contract). Beyond that it has saved the companies huge amounts of money that they have not had to pay in the way of taxes and benefits.

The gates and gas system has also made the taxi industry recession proof. Although the taxi business is currently down (by most accounts) 30% to 50%, the companies are flourishing. Former stock brokers, computer geeks, money managers and (god knows) maybe lawyers are lining up to drive cabs. But they can't even get an application. The companies are backlogged with drivers. They aren't hiring.

I guess the question is whether or not this is a good thing. As a medallion holder, I appear to be benefitting from this system. But I wonder? Is is right for companies to be flourishing when the amount of actual business they do is in decline? Is it right for them to be protected from the laws of the marketplace?

Most the plans for "reforming" Proposition K, for instance, call for putting more taxis on the street. The people who drew up these plans act as if the current recession didn't exist. As such, these plans as disconnected from the economic realities of our time. Would this be happening if the companies were actually in the cab business instead of the leasing business?

Is the public truly being served by this system? The major complaint about the taxi service in San Francisco is that it's hard to get a taxi in the outlying neighborhoods. But a company cannot tell an Independent Contractor what to do. That would make the driver an employee. Therefore, the companies cannot assign a driver to a call or tell him or her to work a specific area or neighborhood. Because the drivers themselves are on a gate system, they cannot afford to stay in neighborhoods with little business and naturally head back toward the busy areas as fast as they can.

Because the City has not allowed companies to raise gates thus shrinking their income and to avoid legal problems arising from the current system, taxi companies are more and more going to long term leases. They give up their day to day control but they don't have to sweat the details either.

This is a big problem for dispatchers by the way. The days of FIVE in and FIVE out are becoming a thing of the past. They're lucky if the long term lease drivers toss 'em TWO a couple of times a month ... and that's how it should be.

However, it's difficult to see how the long term leases serve the public. Most of the drivers appear to work the airport and the companies have no control over them whatsoever. It's hard to envision these guys spending a lot of time in the Sunset taking radio calls.

I'm tempted to say that I think the system is broken and needs a drastic reform. In fact, in an earlier version, I did. But that's a drastic exaggeration. I got carried away by my own rhetoric.

On the other hand, the public isn't being served as well as it should be, the drivers are treated unfairly and the companies themselves might do better under a different set up.

The gate and gas system may be outdated. As it is the only way the drivers can make more money is by raising the fares and the only way the companies can make more money is by raising the gates. The fares are already among the highest in the country and it's hard to see how raising them now would do anything other than lose business. The gates are already too high for the amount of business we have.

There has to be a better way. All we need is a Solomon to figure it out.