Photo by Michael M. Santiago/Getty Images.
At the conclusion of a two-year journey aimed at improving the conditions for ridehail drivers in Minnesota, state Sen. Omar Fateh, DFL-Minneapolis, expressed what a lot of people were feeling when he emotionally referred to HF4746 as “this damn bill.”
He had every right to be emotional. The conversation sparked by Gov. Tim Walz’s 2023 veto of a minimum pay bill — and the subsequent city of Minneapolis’ 2024 ridehail ordinance — brought out fierce emotions in people across Minnesota.
On the surface, the new law will provide many benefits for drivers, including, as Rep. Hodan Hassan, DFL-Minneapolis, put it: “fair wages, fair treatment, and protecting workers.”
Take a look under the surface, however, and you’ll see that this is a damned bill indeed.
Minnesotans shouldn’t be happy with new law, least of all the drivers, as the Legislature has all but cemented an Uber/Lyft duopoly and increased costs for ridership.
Yes, drivers will be seeing an 14% raise in their take-home pay over 2022 levels.
Yes, drivers now have a right to appeal being fired, or “deactivated” from a ridehail app.
And yes, drivers can now keep 80% of a canceled ride.
Although these are fantastic, hard-fought developments leading to a great many positive results in the short-term, in the long-term the winners are once again Uber and Lyft — and the drivers will be right back where they were when this all started.
A handful of innovative technology startups and entrepreneurs pulled out all the stops to offer solutions to Uber and Lyft’s extortive threats to leave Minnesota. Walz may have been dismissive of Minnesotan entrepreneurial solutions, but problem solvers built, tested and validated alternatives. These alternatives like Wridz are providing real rides today. But the new law includes a series of anti-competitive mechanisms that will disadvantage any new competitor against the incumbents.
The application fees for ridehail companies are the biggest unaddressed issue that cements an anti-competitive market in place. Any Uber competitor entering the market first has to hand over nearly $100,000 in annual licensing fees to Minneapolis, St. Paul, and the Metropolitan Airports Commission.
For context, Washington’s Democratic trifecta set their statewide license fee to $5,000 with a $0.18/ride surcharge, and Texas’ Republican trifecta (in response to Austin’s rideshare wage ordinance) moved their administrative fee to the state level with a flat $10,500 charge.
The Minnesota bill removed cities’ ability to set wages, enforce those wage rates, and to collect data about ridehail operations in their jurisdiction.
Cities can’t arbitrarily raise licensing fees due to statutory limits, but given that it’s the only lever of power they have left, one could imagine a creative city council implementing environmental, health and safety studies to justify much higher surcharges for ridehail companies. Uber and Lyft would be unaffected, as these costs are absorbable at their scale.
This aspect of the bill is fundamentally anti-competitive for new entrants that don’t have billions of dollars backing them alongside the best lobbyists that money can buy. But it’s the other less obvious elements that are more insidious:
First, the increased insurance requirements mean that competitors’ insurance prices will nearly double, and although these are large expenditures for Uber and Lyft, their scale allows for more efficient pricing and the absorption and redistribution of these costs. Small startups cannot shoulder that burden in the same way.
Second, the bill requires all ridehail companies to independently contract with a “driver’s advocacy organization” — a non-profit independent organization operating for at least two-years and that can have no “influence” from a rideshare company. At the moment, the Minnesota Uber-Lyft Drivers Association, known as MULDA, is the only qualifying group, and MULDA is not revealing the fees that Uber and Lyft have proposed to pay them for this service. In addition to the cost, the ban on a ridehail company “influencing” the driver’s advocacy organization would prohibit entrants like The Drivers Co-Op and Wridz from engaging with MULDA and educating potential drivers, further locking-in the Uber/Lyft duopoly.
Lastly, the bill didn’t advance Minneapolis’ ordinance language requiring ridehail companies to pay 80% of special event or surge pricing, and drivers know very well that “platform fees” and “external fees” eat deeply into their existing take rate. Some drivers have publicly posted earnings of $13 on a $55 Lyft ride. As only 28% of riders ever tip, and gross Uber wages are overall down 17% since 2022, it would be no surprise if drivers saw even less earnings after the implementation of this bill. It’s odd that this element of Minneapolis’ language didn’t make the final bill, but then again, it’s odd that most elements of this bill benefit Uber and Lyft at the cost of drivers, riders and competitors.
So, to summarize: the Legislature’s ridehail bill is anti-competitive. It increases the costs for new competitors and for riders, and raises the barriers of entry for competitors, while not readjusting the regulatory fee to compete against Uber and Lyft. It removes the ability for drivers to influence their city councils to secure higher wages again. It introduces potentially hundreds of thousands of dollars of undefined and extortive costs to be compliant with nameless driver’s advocacy organizations, while disallowing those organizations to once again coordinate with competitors to provide an alternative for Uber and Lyft. And it does all of this in return for a one-time increase in wages that’s 3% below the 2022 gross levels.
Politicians can now advertise this as a legislative victory, a promise kept after two years of work. In their noble quest to secure a better outcome for low wage workers, the DFL have instead given a handout to corporations and further cemented a tech giant duopoly in Minnesota. Ope.
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