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InnovatorsorRuleBreakers?

RegulatingUber,Airbnb&TheSharingEconomy

LucyHenderson

AdissertationsubmittedinpartialfulfilmentofthedegreeofBachelorofLaws(withHonours)attheUniversityofOtago—TeWhareWanangaoOtago.

October2016

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TableofContents

ACKNOWLEDGEMENTS 4

INTRODUCTION 5

CHAPTERONE 8ValueintheSharingEconomy 8Regulation 9RegulatoryPrudence&Precaution 11RegulatoryLegitimacy 12RegulatoryEffectiveness 13RegulatoryConnection 13Airbnb 14Uber 14

CHAPTERTWO 16Uber 16TheUberRider 16TheUberDriver 17PassengerEndorsements 17ApprovedTaxiOrganisation 20IndependentContractorvEmployeeDistinction 22PeerReviews 27Airbnb 29PeerReviews 29Safety&Accessibility 31

CHAPTERTHREE 32LawCommissionforEngland&WalesAdvisoryReport 32NewSouthWales 36

CHAPTERFOUR 41

CONCLUSION 48

BIBLIOGRAPHY 51 59

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ACKNOWLEDGEMENTSTomysupervisor,ColinGavaghanforhisinsightandguidanceonthisprojectthroughout

theyear.Yourhelpwasgreatlyappreciated.

Tomyfamilyfortheirloveandencouragement.

AndtoBritt,Georgia,Jake,Jan,Marco&Mattforyoursupportandthenumerouscoffeedatesthroughouttheyear.

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INTRODUCTIONFormostpeople,gettingataxiinthestreetin1990wasnotmuchdifferenttoacquiringataxi in 1890. Certainly, the taxiwouldbemore likely to runon a fuel combustionengineratherthanbedrawnbyhorses,butthemeansofhiringonewasmuchthesame:wewenttoa rankor you flaggedonedownas itpassed. Theadventof the cellphone changedallthat.Taxis couldnowbeordered tocome tous.But theemergenceof theUberapphastakenthattothenextlevel,allowingusnotonlytoorderthetaxi,buttofindoutinadvanceinformationaboutthedriver,trackhis/herlocationandafterthejourneyprovidefeedbackaboutit.Untilabouttenyearsago,bookingaccommodationstillfollowedthetraditionalmodel.Wewouldlookupregisteredhotels,motelsorbed&breakfastoperatorsandcontactthemtoenquireaboutvacanciesandrates.TheonlyrealdifferencesfrompreviousgenerationswasthattheenquirymayinvolveawebbrowserandanemailratherthantheYellowPagesanda telephone call. The possibility of arriving in a city and using a smartphone to organiseaccommodationinastranger’shomewas,however,unthinkable.ThesuccessofappssuchasUberandAirbnbarerevolutionizingthewayinwhichthetaxiandaccommodationmarkets,forexample,haveoperatedforgenerations.Flyinginthefaceof age-old ideas about stranger danger, they are utilising the ‘sharing economy’ to offerflexibleandaccessibleservicesandcompetitiveprices.UberandAirbnbcreatevalue.Theyenable owners to capitalise on their under-utilised assets, provide more choice whichresults indownwardpricepressure and increase innovation leading tobetter service andefficiencyoutcomes.1They also, however, create regulatory challenges. Conformitywith current legislation andregulations is not the primary concern of innovators. Technology can be built aroundregulations. They seek to disrupt and change the market as we know it, so currentregulatory schemes no longer fit the new technology offered. As a disruptive innovatorUber’sstrategycanbedescribedasenteringamarketfirstandonlythendealingwithlegalcomplianceissues.2ThecurrentNewZealandregulatory frameworkdoesnotprovideeffectiveregulations forapps such as Uber and Airbnb who are operating in the sharing economy. Regulatory1NayeemSyed“RegulatingUberfication”201622(1)CTLR14at14.2JulieNowag“TheUberCartel:UberbetweenLabourandCompetitionLaw”(2016)LundStudentEULawReview3(forthcoming).

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interventionandreformarerequiredandthisdissertationseekstoidentifytheappropriatecourseofactionforNewZealand.Chapter Iseekstoexaminethetheoryofregulationandwhyweconsiderregulatorytoolsvaluable inmodern societies. RogerBrownsword’s four key regulatory challenges3will bediscussedinrelationtoAirbnbandUber.Thesechallengeswillbedevelopedinmoredetailthroughout the remainder of the dissertation. Regulators will need to overcome thesechallengesiftheyaretosuccessfullyregulateUberandAirbnbinNZ.Chapter II will compare and contrast the regulatory standards to which providers of thesameservicesbutthroughdifferentplatformsaresubjectinNZ.ThefocuswillbeonUberandAirbnboperatorsincomparisonwithtaxiandordinarybed&breakfast,motelandhotelproviders. The following regulatory issues will be considered: licensing requirements,employment lawcompliance,competitionandsafetystandards.Thepractical implicationsofthesedifferentruleswillbediscussedwhileseekingtoanswerwhetherwecanattributetheappssuccessestotheirefficientsystems,ormerelytotheiruseofregulatoryarbitrage.4ThekeyconsiderationwillbewhetherAirbnbandUberare innovating inasensethatweshouldwelcomeorwhethertheyaresimplyinnovatingaroundtherules.Chapter IIIdiscussestheoverseasexperienceinrelationtoUber.Given itwas launchedinthe USA in 2010, overseas jurisdictions have hadmore time to deal with the regulatorychallenges posed by it’s business model. The Law Commission for England and WalesAdvisoryReportandNewSouthWalesPointtoPointTransportAct2016willbediscussedindepth.Themeritsof theseregulatoryregimeswillbe identified inanattempttohighlightthemostappropriatecourseofactionforNewZealand.Chapter IV assesses the currentNew Zealand legal landscape in relation to theUber. Ananalysis of the Future of Small Passenger Services Consultation Paper and the LandTransport Amendment Act 2016 will be undertaken in order to determine whether theypossesstheabilitytoregulatethisspheresuccessfully.Momentumintheapperaisnotslowing.Thedifficultythatarisesisthattechnologiesarebeingcreatedatafasterratethantheregulatorscankeepupwith.Appsarebeingcreatedoffering services that consumers initially were not even aware they needed, but now

3RBrownswordandMGoodwinLawandtheTechnologiesoftheTwenty-FirstCentury(UniversityPress,Cambridge,2012)at46.

4Regulatoryarbitrageisdefinedasthepracticewherefirmscapitaliseonloopholesintheregulatorysysteminordertoavoidliabilityunderunfavourablelegislationandregulatoryregimes.

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without them day to day activities would seem increasingly more difficult. The sharingeconomypresentsregulatorswithmultiplechallengesrelatingtoavarietyofareasoflaw.Left untouched, these challenges will only continue to grow. Regulators need to ensureconsumer safety, the market remains competitive and that opportunities for furtherbeneficialinnovativeactivitiesareprovided.

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CHAPTERONEAninherenttensionexistsbetweenregulationandinnovation.Consumersenjoycreativity,new measures and revolutionary ideas that promote efficiency in the marketplace, butsimultaneouslyvaluethelawsandprotectionswhichstructuresociety.Regulatorsfacethechallenge of striking a balance when allowing for original ideas but minimising theassociated risks. This chapter first seeks to establish that regulation is required in thesharing economy and then discusses the challenges regulators must overcome tosuccessfullyimplementaregulatoryframework.RogerBrownsword5hasidentifiedfourkeychallenges;- regulatory prudence and precaution, regulatory legitimacy, regulatoryeffectiveness and regulatorydisconnect and their application in the sharing economywillformthebasisfordiscussioninthischapter.

ValueintheSharingEconomyUberandAirbnbareoftendescribedasproductsofthe“sharingeconomy”butthislacksashared definition.6 Generally, it is viewed as an offspring of the peer to peer businessmodel.7 Owners are able to take advantage of their underused belongings by renting orsharingthemwithothersviatheInternetandmobilephoneapplications.8Atfacevalue,itappears advantageous for all parties involved; consumers enjoy efficient service andcheaperprices,whileproducerscapitaliseontransformingsparecapacityintoaproductiveasset.Thequestion,however,iswhetherthesesharingeconomypracticescanbequalifiedas innovations worth encouraging and protecting.9 In a society where individualism andwaste are at their peak, sharing systems, collaborative consumption and the efficienciestheygenerateareexactlythetypeofinnovationrequired.Thesharingeconomycreatesvalueinatleastfiveways.10Firstitprovidesfortheproductiveallocationofunderutilisedassets.Airbnb,forexample,enableshomeoccupierstorentoutspareroomsthatwouldhaveotherwisesatempty,whiletheoccupierisabletocontinuetooccupy their home as per usual. Secondly, the sharing economy enables a multitude of

5RBrownswordandMGoodwin,aboven3,at46.6RachelBotsman“TheSharingEconomyLacksaSharedDefinition”(27September2016)CollaborativeConsumption<www.collaborativeconsumption.com>.

7TaliaLoucks“TravelersBeware:TortLiabilityintheSharingEconomy”(2015)10(4)Wash.J.L.Tech.&Arts329at330.

8Loucks,aboven7,at330.9SofiaRanchordas“DoesSharingMeanCaring?RegulatingInnovationintheSharingEconomy”(2015)16(1)MinnJLSci&Tech413at414.

10 Christopher Koopman, Matthew Mitchell and Adam Thierer “The Sharing Economy and ConsumerProtectionRegulation:TheCaseforPolicyChange”(2015)8(2)J.Bus.Entrepreneurship&L.529at531.

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buyers and sellers to interact through its user friendly platforms, which facilitatecompetitivenessonboth the supplyanddemandsideof itsmarkets.11Third, itdecreasestransactioncostsbyreducingthecostoffindingwillingtradersthroughinnovativeapps,andfourth, peer review systems are able tomitigate the problemof asymmetric informationbetweenproducersandconsumers,12contributingtoahighlyefficientmarketplace.Finallyitallowssupplierstocreatevalueforcustomerslongunderservedbythoseincumbentswhohavebecomeinefficientandunresponsivebecauseoftheirregulatoryprotections.13Duetothis creation of value, an outright ban of the services offered by sharing economyparticipantswouldbeneitherefficientnoraneffectivecourseofaction.Therearehowever,veryseriousshort-termrisksifthissphereislefttoflourishwithoutanyformofregulatoryintervention.14

RegulationRegulation signifies “the sustained and focused attempt to alter the behavior of others,according to principles or goals, with the intention of producing a broadly identifiedoutcome or outcomes”.15 Mechanisms of standard setting, information gathering andbehaviourmodificationaretypicallyinvolved.16Thelawmakesthemostformalcontributionto the regulatoryenvironmentbut regulators canemploy a varietyof signals designed tochanneltheconductofregulatees.17Thesharingeconomyrequiresregulationascurrentlytheapplicablelegislation18doesnotfitthetechnologiesoffered.Brownsworddescribesthisas “regulatory disconnect”, where the current definitions and descriptions no longercorrespondtothetechnologyrelatedpracticesthatarethetargetoftheregulation.19Duetothisdisconnectthesharingeconomyisdisruptingtraditionalindustriesacrosstheglobe20andappbasedservicessuchasUberandAirbnbhaveenjoyedvastamountsofsuccess.Thismay arguably be due to themore efficient businessmodels employed by the companieshowever,theirtraditionalcompetitorsconsiderthisislargelyattributabletotheirregulatoryarbitrage.11At531.12At531.13At531.14Syed,aboven1,at14.15 Julia Black, ‘What is Regulatory Innovation?’ in Julia Black, Martin Lodge and Mark Thatcher (eds.),RegulatoryInnovation(Cheltenham:EdwardElgar,2005),1,at11.

16At11.17BrownswordandGoodwin,aboven3,at51.18 See forexampleLandTransportAct1998,Operator LicensingRule2007,EmploymentRelationsAct2000andInnkeepersAct1962.

19BrownswordandGoodwin,aboven3,at25.20SarahCannonandLawrenceHSummers“HowUberandtheSharingEconomyCanWinOverRegulators”(13October 2014) Harvard Business Review <hbr.org/2014/10/how-uber-and-the-sharing-economy-can-win-over-regulators>.

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Uber’s success has triggered amassive outcry from taxi service providers as they believeUberisathreattotheirviability.Manyclaimthatbyfailingtocomplywiththetraditionalregulatory requirements that burden taxi companies21 or by taking regulatory shortcuts22Uber is engaging in unfair competition. The New Zealand Taxi Federation claims Uber ismisleading theGovernmentand thepublic23and isnot in factcommitted toensuring thesafetyofpassengers.InseveraljurisdictionstaxicompanieshaveinitiatedlegalproceedingsagainstUbertodeclaretheiractivitiesillegal.24Riskmanagementisakeyfactorinsupportofaregulatoryregime.Regulationpromotestheuniformapplicationofhealth,safetyandenvironmentalconcerns.Regulatorsareabletobecalled into account if they fail adequately to address the risks presented by emergingtechnologies.25Protectingconsumerwelfareisoneoftheprincipalrationalesforeconomicregulation.Thetraditionalprinciplesofthepublicinteresttheoryofregulationprovidethatregulation is sought to protect consumers from perceived market failures, includinginadequate competition, price gouging, asymmetric information and unequal bargainingpower.26 By seeking to mitigate these risks, regulation can also be the most significantbarrier to future growth for sharing economy firms. This is particularly inopportuneconsidering the incentives of sharing economy firms are often aligned with governmentincentives.27 The challenge for regulators is striking the balance between ensuring thatsharing economy innovations are not stifled by excessive and outdated regulation andproviding adequate protection for both consumers and producers. This is difficultconsidering the sharing economy is predicated upon mutual trust, which is why thesepracticeswillneverberisk-free.

21DamienGeradin“UberandtheRuleofLaw:ShouldSpontaneousLiberalizationbeApplaudedorCriticised?”(2015)11(1)CompetitionPolicyInternational15at16.

22BenjaminEdelman“WhitherUber?:CompetitiveDynamicsinTransportationNetworks”201511(1)CompetitionPolicyInternationalat1.

23NZTaxiFederation“SubmissiononFutureofSmallPassengerServicesConsultationPaper”at1.5.24EricAuchardandChristophSteitz“GermancourtbansUber'sunlicensedtaxiservices”(18March2015)Reuters<www.reuters.com>.

25BrownswordandGoodwin,aboven3,at46.26Ranchordas,aboven9.27CannonandSummers,aboven20.

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RegulatoryPrudence&PrecautionRegulatory prudence and precaution requires the identification of potential risks of newtechnologies.28 Regulators must overcome the challenge of facilitating an environmentwhere risk is deemed to be held at an acceptable level by using sensible precautionarymeasures. Simply, risks and benefits must be weighed up against one another. AdamBurgess identified “in the elusive quest to establish a risk free existence, our autonomy,intelligence and capacity for change and enlightenment stand in danger of beingcompromisedanddiminished”,29whichiswhyabalancingexerciseoracostbenefitanalysisoughttobeundertaken.Regulatoryprudenceandprecautionalsorequiresconsiderationoftheideaof“prudentialpluralism”.30Regulatorsmustrecognisethatdifferentpeoplehavedifferentriskthresholdsandensuretheyregulatesothatconsumerscanmakeinformedchoicesinlightoftheirownrisk aversion. Individuals will arrive at very different prudential judgments as to theacceptability of particular risks.31 Inevitably, regulators will not be able to satisfy allconsumersassomecommunitieswillbemoreriskadversethanothers,howevertheywillbecriticisediftheydonottakeasuitablyprudentapproach.32Thereisnoclearformulaforwhat constitutes a suitably prudent approach. Various factors may be taken intoconsiderationandweighteddifferently.Brownswordalsoraisesthisissueandaskswhethermoreweightshouldbegiventotheprobabilityofharmensuingortheseriousnessoftheharmandwhichriskisgreaterthelowprobabilityofseriousharmorthehighprobabilityofless serious harm?33 The answer will depend largely on personal preferences and thecommunityathand.The introductionofUber andAirbnbhas causeda lot of uncertainty inNewZealandandworldwide.This istobeexpectedasnewtechnologiesalways inviteadegreeofsuspicionhowever, uncertainty leads to the creation of a sense of public unease. It is thereforeimperative regulators exercise both prudence and precaution when analysing these newphenomena.Theprudentialchallengemayinthiscasesimplybelimitedtomanagingriskina way that reflects public preferences and allows for consumers to make informeddecisions.This iseasiersaidthandone.Regulatorswillneedtoanalysetherisksthatmay28BrownswordandGoodwin,aboven3,at47.29AdamBurgessCellularPhones,PublicFearsandaCultureofPrecaution(CambridgeUniversityPress,Cambridge,2004)at281.

30RogerBrownsword“Responsibleregulation:prudence,precautionandstewardship”(2011)62(5)NILQ573at574.31Brownsword,aboven30,at574.32BrownswordandGoodwin,aboven3,at47.33At48.

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arise if the statusquo ismaintained, that is, ifUberandAirbnbare left to continue theiroperations subject to currentNZ legislation. Theywill then need to assess howpotentialriskscouldbepreventedthroughregulationwhilststillenablingthetechnologytoflourishandgrow.

RegulatoryLegitimacyRegulatory legitimacy is thesecondkeychallengeBrownsword34 identified.Regulatorsareexpected to operate in a transparent and accountable manner while ensuring thatstakeholdersandthepublicareabletoparticipate.35Typicallylegislativeframeworksenablethisdue todemocraticgovernment function,however there isnoguaranteeparticipatoryprocesseswillbesufficientorproducepositiveeffects.36The Future of Small Passenger Services Consultation Paper37 is an example of regulatorylegitimacy. The paper was released by the Ministry of Transport in response to thesignificantchangesexperiencedinthetransportsectorfollowingtheintroductionofUber.TheMinistry identified the need for change38 due to the regulatory disconnect operatingwithin the sector.39 Five regulatory approaches were discussed40 and public submissionsinvited.ThisillustratestheMinistryexercisingprudencebyattemptingtogaugethepublic’sperception so that proposed regulatory regimes will be supported and effective in theirapplication.The sharing economy largely appeals to younger generations due to its low pricing andrelianceonuptodatetechnologies,howeveritisnottheusersofUberandAirbnbwhowillbe taskedwith the responsibility of their regulation. Public submissions on the Future ofSmall Passenger Services consultation paper were predominantly from the traditionalindustryincumbents.41Itislikelythatthepubliperceptionofriskwillthereforebeswayedinfavouroftheestablishedtaxiservicesoperatinginthemarketplace.Thisraisesconcernsforthelegitimacyoftheregulationsandtheirabilitytominimiseriskswhilemaintainingthebenefitsthatarepresentonbothsidesofthetransaction.

34At48.35At48.36At48.37MinistryofTransportFutureofSmallPassengerServices:ConsultationPaper(December2015).38At9.39At10.40At14.41Seesubmissionsatwww.transport.govt.nz/land/small-passenger-services-review/submissions.

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RegulatoryEffectivenessAregulatoryregimemustbeeffective,economicalandefficienttobefullyfitforpurpose.42Problemscanariseifregulateesareresistanttotheregulationsimposed.Thisisanareathatwill requireattention in the caseofUberandAirbnb. Eachapp classifies themselvesas a“platform”or “technology company” rather than a serviceprovider.43 The apps eliminatesearch costs by removing the middle man and enable buyers to connect directly with agroupofundifferentiatedsellerswhoareseekingtoutilisesparecapacity.UberandAirbnbarguethattheirroleendswhentheconnectionbetweentheserviceproviderandconsumerisfacilitatedandthattheydonotprovidethebedandbreakfastortransportserviceitself.44The overseas experience suggests that regulators tend to be hesitant in recognising thisdistinction.ForexampletheCaliforniaPublicUtilitiesCommissionrejectedUber’sargumentthat theywere not part of the transportation industry and that they simply provided IP-enabledservicesonsmartphones.45Instead,theytookaprogressiveapproachandcreatedanewcategoryoftransportservicescalled“transportnetworkcompanies” 46specificallyforappssuchasUberandLyft.47Amodernapproachisrequirediftheregulationsaretobemetwithsupportbyandhaveeffectonthenewindustryplayers,whomtheyseektoregulate.

RegulatoryConnectionRegulatoryconnection isthemost importantandmostdifficultchallengeforregulatorsofthe sharing economy to overcome. Brownsword identifies regulatory disconnection asoccurringwhen"coveringdescriptionsemployedbytheregulationnolongercorrespondtothetechnologyortothevarioustechnologyrelatedpracticesthatareintendedtargetsforthe regulation".48 Currently,NZ legislation49doesnotmakeprovision for thenew sharingeconomy technologies that are operating. Taxi operators suggest that Uber’s success isprimarilyduetotheirregulatoryarbitrageandifregulationswereapplieduniformlytobothservices then Uber’s ability to offer low prices and undercut the competition would belimited. Inoppositiontothis istheargumentthattheirsuccess isnotsolelyduetoUber’sregulatoryavoidancebut instead fromhavingcreateda farmoreefficientmarket forcar-

42BrownswordandGoodwin,aboven3,at61.43Syed,aboven14,at2.44At2.45At3.46At3.47LyftisanotherappbasedtransportationserviceandUbersmajorcompetitorintheUSA.48BrownswordandGoodwin,aboven3,at61.49SeeforexampletheLandTransportAct1998,OperatorLicensingRule2007,EmploymentRelationsAct2000.

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hire services.50 Either way, regulatory intervention is required in order to resolve thisdisconnect.Regulators face the challenge of first becoming “connected” and secondly “stayingconnected”.51Stayingconnectedisacomplextaskinanevolvingtechnologicalworld.BothUberandAirbnbareconstantlyupdatingthearrayofservicestheyhaveonoffer.Regulatorsneedtobeawareofthedevelopmentstakingplacetoensurethatregulationsremainfitforpurpose.

AirbnbAirbnb isa self-definedcommunitymarketplace that connectshostsandusers ina short-term rental economy outside of traditional rental industries. Hosts are able to earnadditional income and guests can experience the city as a local. It adds value to localeconomiesasguestsstayinlocalneighbourhoods,eatatlocalrestaurantsandshopatlocalvendors. Initially when Airbnb was founded in 2008, CEO Brad Kitsche would travel toinspecteachofthepropertieslistedwiththeplatform.Nowwithover60,000,000usersin34,000citiesacross191countries52itwouldbeinefficientandnearlyimpossibletomaintainthis verification process without substantial costs being incurred. Naturally, regulationswould need to accommodate this change to “stay connected” as this further removesAirbnbfromthehostingprocess.

UberUberisacommercialtransportappthatmakesuseoftechnologicaldevelopmentstobettermatchpassengerswithavailableforhirevehicles.53ItbeganwithasimpleideaonasnowyParis evening in 2008. Founders Travis Kalanick and Garrett Camp were having troublehailingacabanddiscussedhowtheirproblemswouldbesolvediftheycouldsimplytapabuttonandgetaride.54ThismarketinefficiencyledtotheintroductionofUber.Sincethenithasgrownanddisrupted the transport industryasweknow it.Uberoffersa varietyofservices in 510 citiesworldwide. There’sUberX, the standard five seater vehicle;UberXL,which as the name suggests seats more than five passengers; UberBlack, where ridersreceive a premium vehicle at a premium price; and UberPOOL, a carpool version of the

50BrishenRogers“TheSocialCostsofUber”(2015)82UChiLRevDialogue85at86.51BrownswordandGoodwin,aboven3,at61.52Airbnb“AboutUs”<www.airbnb.co.nz>53CorporatePartnershipBoardAppBasedRideandTaxiServices:PrinciplesforRegulation(InternationalTransportForum,9May2016).

54Uber“OurStory”<www.uber.com>.

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servicewhere users share the costs travelwith a driverwhowas already heading in thesamedirection.BuildingonfromthisthereisnowUberRUSH,adeliveryservice,andmorespecifically UberEAT, a food delivery service.55 Furthermore, Uber is currently trialling itsfirst self-driving fleet inPittsburghwhereusers can summon self-driving cars through theapp.56Thecompanyplan todevelopa fullyautonomouscar that is ready for the roadby2021.Growthand investment intonew typesof servicesarenot likely tocome toahalt.Regulatorsneedtoconsiderhowregulationscanstayconnectedwiththenewtechnologiesthat are likely to enter the marketplace in the foreseeable future, which in Uber’s caseincludesdriverlessvehicles.Ideallyanyrulesimplementedshouldallowthetechnologiestoflourishandgrow.Thisishowever,complicatedbythefactthatspecificratherthangenerallawsappeartobethemostpreferredandeffectivesolution.57Thesharingeconomyallowsuserstoownlessbuthaveaccesstomore.Itisinnovativeandtherefore by nature difficult for regulators to deal with. Regulators are at a crossroads;where public health, safety and competition considerations require them to act but thetechnologiesevolutionand futuregrowthmaybehinderedby theirdoing so.Anoutrightbanisnottheanswer.InsteadIproposeanewlegalframeworkisrequired.Tosuccessfullyimplementanewframework,thechallengeshighlightedaboveneedtobeconsideredandovercometoeffectivelyregulatesharingeconomypractices.

55Uber“Ride”<www.uber.com>.56MaxChafkin“Uber’sFirstSelfDrivingFleetArrivesinPittsburgThisMonth”(16August2016)Bloomberg<www.bloomberg.com>.

57Ranchordas,aboven9,at472.

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CHAPTERTWOSocialmediaandtechnologyaremajorforcesbehindthesharingeconomy’sexpansionintobigbusiness.LeadingbusinessessuchasUberandAirbnbwhohaveadvancedtheconceptofcollaborativeconsumptionoughtnotbeconsiderednewcomersanylonger;insteadtheynow rival and in many instances surpass their traditional counterparts.58 This has led toincreasedlevelsofcompetitioncausinganuproaramongstthetraditionalincumbentsinthetransportationandaccommodation industries,whobelievetheyaredisadvantagedduetothe regulatory disconnect that is present. The issue is that themajority of the applicableregulationsweredraftedduringandspecifically fora timewhen technologies suchas theInternet, GPS and mobile communications were a science fiction.59 In this chapter I willexplaintheservicesofferedbyUberandAirbnbthencompareandcontrasttheregulatorystandards the “traditional service providers” 60 are subject to. Specific instances ofregulatory disconnectwill be identified and an analysis of the effect that this has on themarketplacewillbeundertaken.

UberTheUberRiderUber services two typesofusers: riders anddrivers.Riders can signup to the company’sserviceswithinamatterofminutes.Theysimplyneedtodownloadtheappontheirmobiledevice,createaprofilewhichdiscloses theirname,mobilenumber,emailandcreditcarddetails and then they are good to go!61 The process of becoming anUber driver ismorecomplex,andIwilldiscussthisinfurtherdetaillaterinthischapter.A rider’s experience of Uber typically plays out as follows. Riders login to the appwhichpinpoints their current location on a map along with the location of all of the driver’svehicles inthenearbyareaandeachvehicle’sestimatedtimeofarrival.Ridersthenentertheirdesireddestinationandcanviewa fareestimatebefore tapping the ‘request’a rideoption.Riders thenwait tobenotifiedthatadriverhasacceptedtheir riderequest.Theyare then given access to that driver’s profile,which includes the driver’s photograph, cartype, registrationnumberandtheiraverageratingoutof fivestarswhich iscollated from

58JoannaPennandJohnWiheby“Uber,Airbnbandconsequencesofthesharingeconomy:Researchroundup”(3June2016)<www.journalistsresource.org>

59Syed,aboven14,at20.60“Traditionalservicesproviders”willbeusedtodescribetaxioperatorsandbedandbreakfastoperatorswhoarenotoperatinginthesharingeconomy.61InterviewwithMattFluhler,UberRider(LucyHenderson,OtagoUniversity,3October2016).

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other rider’s reviews. Riders then have the option to accept or refuse the driver. If theyaccept,avehiclewillbeenroutetowardsthemandtheywillbeabletocontinuouslytrackthevehicle’slocationuntiltheyaredroppedoffattheendoftheirjourney.Once riders reach their designated location they are free to leave the car without anyEFTPOSor cash transaction taking place. Instead they receive an emailwithinminutes offinishingtheirtrip,statingthattheirdebitorcreditcardhasbeendebitedforthepriceoftheride.Thenexttimethepassengerlogsintotheappontheirmobiledevice,theywillbeaskedtoratetheirlastexperience–i.e.toratethedriveronascaleofonestartofivestars.Thisratingsystemisreciprocal,aswillbediscussedinfurtherdetaillaterinthischapter.Nophonecalls,nounknownlengthywaitsandnowalletsarerequired.Uberappearstosolveall the problems conventional taxi users face, so it is nowonder that it is disrupting thetransportsector.

TheUberDriverFuelingthehighdemandofridersarethedriversofthevehicles.TheprocessofbecominganUberdriverinNewZealandisrelativelystraightforward,interestedapplicantscansimplyvisitwww.uber.co.nzandfillouttheonlineform,andtheyarealmostreadytodrive.Uberfirstobtainsthedriver’spersonaldetails,followedbytheirvehicleinformation.Vehiclesforprivate hire must have four doors, be free of visible body damage and have a cleaninterior.62 Drivers then must upload pictures of their vehicle, evidence of their vehicleinsurance,vehicleregistration,copiesoftheirdriverlicenseandwarrantoffitness.UberwillthenreviewthisinformationandconducttheirownassessmentofwhetherthedriverisafitandproperpersonbeforeauthorisingthemtoworkasanUberdriver.63TheLandTransportRule:OperatorLicensing2007setsouttherequirementsforobtainingandretainingapassenger licenseinNewZealand.TaxidriversandUberdriversmustholdthe same license qualifications; that is, a NZ driver license and a P endorsement.64 ACertificateofFitness(issuedsix-monthly)isalsorequiredforbothtaxiandUbervehicles.65

PassengerEndorsementsThe Passenger endorsement (P endorsement) is a requirement for all drivers driving apassengerservicevehicleforreward.ToholdaPendorsementthedrivermusthavehelda62Uber“HowtoBecomeanUberDriver”<www.partners.uber.com>63RadioNZ“Uberstickswithrulechangedespitewarnings”(29April2016)RadioNZ<www.radionz.co.nz>64LandTransport(DriverLicensing)Rule1999,s26.65MinistryofTransport,aboven37,at10.

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fullNZdriverlicenseforatleasttwoyears,66passafitandproperpersoncheckconductedby theNewZealand TransportAgency67 (NZTA) in accordancewith the requirements laidoutintheLandTransportAct68andcompleteaPendorsementcourseconductedbyaNZTAapprovedcourseprovider.69Taxidriversmayalsoberequiredtohaveanareaofknowledgecertificate.70 Drivers of small passenger services are not permitted to drive until the Pendorsementhasbeenaddedtotheirlicense.71InUber’sexperience,themedianprocessingtimeforPendorsementapplicationswiththeNZTAistwelveweeks,and58percentofcompletedPendorsementapplicationsfromUberPartnerdriversremainoutstandingaftermorethanthreemonths.72Thistimelagislargelyattributable to what Uber describes as a “discretionary and nebulous”73 fit and properpersoncheckwhichtheNZTAdelegatestotheNewZealandPolicetoconduct.TheMinistryofTransport in theirRegulatory ImpactStatementconfirmthe timeframe fordeterminingwhetheraperson is fitandproperhas lengthenedsince2014andstate improvedservicedeliveryisrequiredonbehalfoftheNZTA.74ToqualifyasafitandproperpersontheNZTAassesses the applicant’smedical, criminal, behavioural anddrivinghistories. For someonewho is looking to drive part time for a few hours a week, this lengthy and costlyadministrative process is likely to be a significant disincentive. Uber considers “theseadministrative burdens kill off the potential of flexible transport that ride sharing canprovide”.75 A twelve week lapse between signing up to become a driver and actuallyoperatingavehicleontheroaddoesnotfitwiththeflexiblenatureofbeinganUberdriver.Uber markets itself to drivers on its’ flexibility,76 and in doing so typically attracts largenumbers of part timeworkerswho are looking for an simple and fastway to earn extraincome.Thismarketdemographicisunlikelytoregisterandwaittwelveweeksbeforebeingpermittedtodriveforthebusiness.ThisreducesthesocialadvantagesthatUberisabletoprovide.Ridesharingbenefitsthepassengerbyprovidingefficientandon-demandserviceaswellasthedriverwhoisabletodeterminetheirownworkinghours,locationandwhetherdriving will be supplemental to or their sole form of income. Uber adds value tocommunitiesandthecurrentPendorsementregimehindersthisvaluecreation.

66LandTransport(DriverLicensing)Rule1999,s27(1)(b).67LandTransport(DriverLicensing)Rule,s27(1)(g).68LandTransportAct1998,s30C.69LandTransport(DriverLicensing)Rule,s27(1)(d).70LandTransportRule:OperatorLicensing2007,s4.13.71LandTransport(DriverLicensing)Rule,s26.72Uber,“UberresponsetotheFutureofSmallPassengerServicesconsultationpaper”,at4.73Uber,aboven72,at4.74MinistryofTransportRegulatoryImpactStatement:FutureFrameworkforSmallPassengerServices(MinistryofTransport,AgencyDisclosureStatement,15March2016)at20.75Uber,aboven72,at5.76At2.

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TheprocessofobtainingaPendorsementisinefficient,costly77andlengthy78whichhasledto Uber’s explicit disregard of the current regulatory regime in favour of their own lessburdensome procedures. In April 2016, Uber removed the requirement for its drivers tohaveaPendorsementfortheirlicenseandacertificateoffitnessfortheircar.79Theyarguethat the P endorsement is outdated and “the existing administrative processes areunworkable”.80InUber’ssubmissiontotheFutureofSmallPassengerServicesconsultationpaper, they state “it is unreasonable and unrealistic to expect that these individuals willtolerateadministrativebarrierstoentryasgreatasatarget20daywaitingperiod,anactual12-weekwaitingperiod, or theexisting $800endorsement fee.”81 Thepresent regulatoryregime is not operating effectively and therefore is being met with resistance, asBrownsword predicted.82 Uber instead conduct their own fit and proper person test.83Meanwhile, taxi companies still abide by the Operator Licensing Rule 2007 and requiredriverstohavePendorsements.ThebarrierstoentryforUberdriversarethereforelowerthan those of taxi drivers, which increases Uber’s ability to attract partner-driverscontributingtotheirhighgrowthrateandpositiveprofitmargin.Despitebeingwarnedby theNZTAthat theyarenowoperating illegally,84Uberconsidersthat, by conducting their own Ministry of Justice criminal history checks and TransportAgency driving history checks, they are ensuring a higher standard85 of safety for theirpassengers whilst reducing the start-up costs of becoming an Uber driver. This does nothowever,denythefactUberisoperatingillegallyinNewZealandbydoingthis.Uberdriversnow face being forced off the road and fines of up to $10,000 if caught without a Pendorsement.86However,thereisnothingtosuggestthethreatoffineshasworkedtodeterdriversfromsigningupwiththecompany.Instead,thecompanywhenaskedwhethertheywouldpaytheirdriver’sfinessaid“Wewillstandbyourdrivers100percent.Wewillstandbyourdriverpartnersandwewillsupportthem".87Sowhiletheymaybereducingtheinitial

77TheadvertisedcostofobtainingaP-endorsementthathasafiveyeardurationperiodis$458.90,howeverUberstatesthatthiscancostupto$800ifhiddencostssuchas‘otherfees’aretakenintoconsideration.

78Uber,aboven72,at5.79RadioNZ“Uberwillcontinuetodefylicensingrules”(6July2016)RadioNZ<www.radionz.co.nz>.80Uber,aboven72,at4.81At5.82BrownswordandGoodwin,aboven3,at62.83RadioNZ,aboven79.84RadioNZ,aboven79.85UberdoesnotacceptanydisclosablecriminalrecordontheplatformunlikethepassengerendorsementwhichallowsdriverstocomeontotheroadwithcertaincriminalrecordsseeRadioNZ,aboven79.

86CharlieMitchell“DozensofillegalUberdriverscaughtinNZTAstings”(14June2016)Stuff<www.stuff.co.nz>.

87GlennMcConnell“UberdriversoperatingillegallyinNewZealand,NZTAsays”(29April2016)Stuff<www.stuff.co.nz>.

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start-up costs when becoming a driver for the company, it may be that they are simplyallocatingthemelsewhere,ordelayingtheinevitable.

Regulatoryeffectivenessisofmajorconcernhere.88ThecurrentPendorsementregulationsarenothavingthedesiredeffectasUber’sexplicitdisregardofthemindicates.Afineofupto$10,00089todrivers isnotanadequatedeterrentforacompanywithanestimatednetworth of $68 billion.90While these fineswouldmount up if enoughdriverswere caught,Uberdriversaredrivingprivateunmarkedvehicles,makingitdifficultforregulatorybodiestodetectlicenseinfringements.Asat22ndofJune2016,onlysevendrivershadbeenforcedoff the road and eleven infringement notices issued.91 Arguably the benefits of feweradministrativedelays leading tomoredriverson theroadandthegrowthof thebusinessoutweighapotential fine intheeventadriver iscaught.This iswhythere isadisconnectbetween Uber’s services and the current legislation. Taxi companies by comparison arehindered by the P endorsement regulatory process. Billion dollar corporations do notsupportthemthereforeconductingacostbenefitanalysissuggeststhecostofpayingdriverfines may outweigh the benefit of a faster sign-up rate. Uber is therefore able tomonopolisethe labourmarketandattractagreaternumberofdriversastheywillnotbehindered by administrative delays. The P endorsement regulations are not operating tofacilitate an open-market with equivalent barriers to entry. Taxi companies aredisadvantaged in their ability to compete if they are unable to attract new recruits.Regulatory interventionandreform is required toensure themarket remainscompetitiveand the rationale of a P endorsement, that is safety, is upheld. If Uber’s self-checkingapproachisconsideredanadequatesafetymechanism,thenitshouldalsobeadequateforregulartaxiservicesandtheburdensofPendorsementregimeremovedforbothUberandtraditionalserviceproviders.

ApprovedTaxiOrganisationUntiltheintroductionofUber,taxicompaniescollectivelyhadamonopolyovertheprivatefor hire passenger transport market. The barriers to entry for taxi companies in NewZealandare relativelyhigh; theymustbecomeanapproved taxi organizationbefore theyare permitted to operate. Sections 30P and 30Q of the Land Transport Act92 set out theminimumrequirementsapprovedtaxiorganisations(ATOs)mustmeet,whiles8oftheLand88BrownswordandGoodwin,aboven3,at61.89RadioNZ,aboven79.90LiyanChen“At$68BillionValuation,UberWillBeBiggerThanGM,Ford,AndHonda”(4December2016)Forbes<www.forbes.com>.

91FionaRotherham“UberurgesdriverstochallengeNZTAillegalityrulingincourt”TheNewZealandHerald(onlineed,Auckland,22June2015).92LandTransportAct1998,s30Pand30Q.

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TransportRule:OperatorLicensing2007detailsthelegalstandardsandrequirements.ATOsmust have their operating rules approved by the NZTA,93 maintain a register of allcomplaints94receivedandadvisetheNZTransportAgencyofanyseriousmisconductbyadriver.95 Uber is not an ATO, instead they are defined in the Future of Small PassengerServices consultation paper as a “transport network company” who providecommunications functionsbetweenpassengersanddriversandomitresponsibility for thetrip itself. As the legislation does not currently make provision for “transport networkcompanies”,Uberavoidsresponsibilityfortherequirementslistedabove,savingthembothtimeandmoney.ThisisaclearexampleofBrownsword’sregulatorydisconnect96wherebythecurrentlegislationnolongercapturesthebusinessmodelsthatarebeingemployedtooffersmallpassengerservicesinNewZealand.InsteadofviewingUberasarulebreakerthismay serve better as an example of technology developing at a faster rate than whatregulatorsareabletokeepupwith.The lack of regulatory connection places Uber at an advantage when operating in themarketplace.AnATOmustprovidetaxiservicesandtakephonebookings24-hours-a-day,seven-days-a-week,unlessexemptedbytheNZTA97andregister itsfareschedulewiththeNZTA.98Uberontheotherhandpermitsdriversworkwheneverandwherever.Uberdoesnot enforce any strict working requirements, apart from stipulating that drivers mustprovideoneridepermonth.99TheoreticallytherecouldbenoUberdriversontheroadatanygiventime,ortheirwholedriverbaseforacitycouldbeoperating.However,inpracticethis isunlikely tooccurdue to thealgorithms thatefficientlymatch supplywithdemand.Uber’soperations relyonsimpleeconomics; theyseek toachievemarketequilibriumandfrequently alter their prices to accomplish this. The apphas beenprogrammed so that ifthere isahighdemandfordrivers,apricesurgewilloccur100 inorder toencouragemoredrivers to offer their services. This promotes efficiency by ensuring that drivers are onlyoperatingwhenthereisdemand,unlikethe24/7model,andisfacilitatedbythefactthatthey,unliketaxiservices,areabletocontinuouslyaltertheirprices.Thereisnosuchthingasa fare schedule on display101 in an Uber vehicle. Uber’s avoidance of the 24/7 set farebusinessmodel enables them to capitalise on amore efficient businessmodel leading to93LandTransportRule:OperatorLicensing,s8.4(1).94LandTransportRule:OperatorLicensing,s8.5(1)(f).95LandTransportRule:OperatorLicensing,s8.5(1)(f).96BrownswordandGoodwin,aboven3,at65.97LandTransportRule:OperatorLicensing,s8.5(1)(b).98LandTransportRule:OperatorLicensing,s8.6(1).99GrantBrown“AnUberdilemma:EmployeesandIndependentContractorsintheSharingEconomy”(2016)75MdLRevEndnotes15at19.

100Apricesurgeisatemporaryincreaseinstandardprices,whichtheriderisnotifiedofandacceptsbeforebookingtheirjourney.

101SeeLandTransportRule:OperatorLicensingRule,ss4.7and4.8.

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lowerpricesfortheconsumer.Theirtaxicounterpartsareunabletoachievethesamelevelsofefficiencyastheyarerestrictedbyoutdatedregulations.The regulatory disconnect102 where Uber is not subject to the same regulations as anapproved taxiorganisationoperates toadvantageUberand theirusersat theexpenseoftaxicompanies.Taxicompaniesarguethisfacilitatesunfaircompetitioninthemarketplace.Uber’s response is that it is not unfair as they are a technology company not atransportationcompany.Therationaleforrequiringprovidersoftaxiservicestooperateasapproved taxi organisations is to ensure regulatory compliance of drivers as theorganisationhasasignificantinfluenceoverthestandardsofsafetyandtheserviceoftheirdrivers.103ThisisasapplicabletoUberasitistotaxiservicesthereforethereisaproblemifitisbeingappliedtothelatterandnottheformer.Thedisconnectincreasesthebarrierstoentry for taxi services and hinders their ability to offer innovative products. Change isrequiredintheformofaregulatoryreforminordertoensureanopenmarketandalevelplayingfield.

IndependentContractorvEmployeeDistinctionUber’sbusinessmodelprecludestheemploymentofdriversdirectlybytheplatformitself;insteaddriverswhoregisterwiththecompanyareclassifiedasindependentcontractors,104distinguishing Uber from taxi services. Section 6 of the Employment Relations Act 2000definesanemployeeas“anypersonofanyageofanyageemployedbyanemployertodoanyworkforhireorrewardunderacontractofservice”;105anindependentcontractorfallsoutside of this definition as their contract is “for service”.106 The distinction in therelationship classification largely results from Uber’s characterisation of itself as a‘technology company’ rather than a ‘transport company’. They state in their terms andconditions:

YOU ACKNOWLEDGE THAT UBER DOES NOT PROVIDE TRANSPORTATION ORLOGISTICSSERVICESORFUNCTIONASATRANSPORTATIONCARRIERANDTHATALLSUCHTRANSPORTATIONORLOGISTICSSERVICESAREPROVIDEDBYINDEPENDENTTHIRDPARTYCONTRACTORSWHOARENOT EMPLOYEDBYUBERORANYOF ITSAFFILIATES.107

102BrownswordandGoodwin,aboven3,at65.103NewZealandTransportAgency“LandTransportRules:WorkTimeandLogbooks2007(Rule62001)andOperatorLicensingRule2007(Rule81001)”<https://www.nzta.govt.nz>.104Uber“Legal:UBERB.V.TERMSANDCONDITIONS”(4November2015)Uber<www.uber.com>.105EmploymentRelationsAct2000,s6.106CunninghamvTNTExpressWorldwide(NewZealand)Ltd[1993]1ERNZ695(CA).107Uber,aboven104,at2.

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They limit their role to the development of applications that connect riders with driver-partners who provide transportation services and exclude themselves from responsibilityfor their drivers. This self-classification is critical to their low cost business model108 asemployees are entitled to more statutory rights and protections than independentcontractors.109 Unlike an ATO in New Zealand, Uber avoids having to offer workerscompensation,holidaypay,sickpay,KiwiSaverbenefits,110and itsdriversdonothavetherighttounionise.111ThisisaclearexampleofregulatoryavoidanceonUber’sbehalf.Theyhavedesignedtheirbusinesssothatitfallsoutsidethetraditionalindustrystandardsandasa result have successfully eliminated the costs associated with employment and liabilityundertheEmploymentRelationsAct2000.Classification of drivers as independent contractors also minimises Uber’s liability in theevent of an accident or misconduct. If an Uber driver commits a tort, this employmentstructureenablesUbertoavoidliabilityforharmcaused,leavingtheplaintiffwithoutclearrecoursetoUber.112Fisherstatesthisisaloopholecommonlyseeninthesharingeconomy:

As the so-called “sharing economy” expands with the proliferation of digitaltechnologymaking it simple tomatchupwillingbuyerswithwillingsellersof justabout anything you can imagine, the traditional job of tort law – matching upvictimsofmisfortunewiththepeoplewhomustpaythemfortheirlosses–isfallingbehind.113

In this event, the courts will consider is whether the users of these sharing economyservicesareemployees.UnsurprisinglytheNZTaxiFederationarguesthatsafetyrationalesjustify drivers being classified as “employees”. They contend that the Uber independentcontractorresponsibilitymodel,whichinvolvesallocatingresponsibilityandfaulttodriversto the greatest extent possible, reduces and decentralises workers’ ability to collectivelyengagewithsafetyissues,114potentiallyplacingbothdriversandridersatrisk.Safetyisthedominant rationalebehind thesmallpassenger services regulatory regime,115 therefore in

108Syed,aboven1,at15.109EmployeesreceiveallofthestatutoryrightsprovidedforintheEmploymentRelationsAct2000.110KiwiSaverAct2006,s9.111EmploymentRelationsAct2000,s12.112ErinMitchell“UbersLoopholeintheRegulatorySystem”(2015)HLReOffRec6(1)75at78.113DanielFisher“TheBigQuestionwithUber,AirbnbandTheRestofThe`SharingEconomy':WhotoSue?”(25March2015)Forbes<www.forbes.com>

114NZTaxiFederation,aboven23,at10.6.115MinistryofTransport,aboven37,at6.

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so faras thecurrentemploymentstructuresdonot reflect this, regulatory intervention isrequiredtoensuresafetyisprioritised.The Health and Safety at Work Act 2015 defines a vehicle as a “workplace”116 defines“workers”widelytoincludebothemployeesandcontractors.Uberarguablyfallsunderthedefinition of a person conducting a business or undertaking (PCBU)117 and therefore issubject to theduties laidout in theAct.This includes theprimarydutyof care inSection36(1)(a)whichrequiresa“PCBUmustensure,sofarasisreasonablypracticable,thehealthandsafetyofworkerswhoworkforthePCBU,whiletheworkersareatworkinthebusinessorundertaking”.Ubermayarguethattheirrequirementalldriversoperatearegisteredandwarranted vehicle and their passenger rating system fulfils this duty. However, theirdisregard for driver licensing requirements118 and lack of control over driver hours andbreaks119islikelytosuggestotherwise.Thedutyins36(1)(a)onlyextendstoworkerswhoworkforthePCBU.ThereforewhileUbermaybeliabletotheirdriversthisdoesnotresolvetheissueidentifiedabove,wherebyUberomitsliabilityforthesafetyofpassengersduringthe duration of their journey. If Uber drivers were classified as employees rather thanindependent contractors, then the company could be held accountable for the safety oftheirpassengers.Uber’savoidanceofthelegalandfinancialburdenstowhichtherestofthetransportationindustryissubject,bymeansoftheirself-classificationofindependentcontractors,hasledtaxidriverstoarguetheirsuccesscanonlybeattributedtotheirregulatoryarbitrage.Therehave been suggestions thatUber’s drivers are not truly independent contractors asUber“controls the details of the services performed”120 through their company policies fordrivers and vehicle standards.121 Recently California’s Labour Commissioner in Berwick vUber Technologies Inc122 held Uber drivers were employees and not as the companyclaimed, independent contractors. The Commissioner outlined that an employmentrelationshipwillbefoundif:

116HealthandSafetyatWorkAct2015,s20.117HealthandSafetyatWorkAct,s17.118RadioNZ,aboven79.119UberdoesnotimposeworktimelimitsonitsdriverscftaxidriverswhoareonlypermittedtoworksevenhourswithouttakingabreakseeMinistryofTransport,aboven37,at31.

120Mitchell,aboven112,at83.121Uber,aboven62.122BarbaraAnnBerwickvUberTechnologiesCaliforniaLabourCommissioner(11-46739EK,10March2015).

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…persuasivecontrolovertheoperationasawholeisretained,theworker’sdutiesareanintegralpartoftheorganization,andthenatureoftheworkmakesdetailedcontrolunnecessary.123

In New Zealand s 6(3)(a), of the Employment Relations Act 2000 states that all relevantmattersmaybeconsideredwhendeterminingthenatureoftheemploymentrelationship.The following common law tests are typically taken into consideration under thissubsection: the control test,124 the organisation or integration test125 and the economicrealitytest.126ThesetestsreflecttheCalifornianLabourCommissioner’ssummaryofwhatconstitutesanemploymentrelationship inCalifornia. It is thereforeuseful toconsider theargumentsputforwardinthatcaseandtherationalefortheCommissioner’sfindingasitislikelyasimilarsituationwillbeseeninNewZealand.InBerwick127Uberarguedtheywereaneutralplatformwhomaintainedlittlecontroloverthe plaintiff128 a “partner-driver”. They emphasised their flexible working arrangementswhich enables employees to work as much or as little as they desire, whenever andwhereverwithnomaximumorminimumworkinghourstobefulfilled.Theyarguedthatthisarrangementwasmoreakintothatofanindependentcontractor.Despitethis,theLabourCommissionerconsideredthatthefactUberrequiredthedrivertoregisterandmaintainacarofaspecifiedstandard,controlledthesmartphoneapplicationthatthedriversused,setandcontrolled the faresand thatdriverscouldnothireotherdriverswhomUberdidnotalready approve, all pointed toward the conclusionBerwickwas an employee ofUber.129Control and the fact the defendants were involved in every aspect of the operation130appeartohavebeenthemainfactorsrelieduponbytheCommissionertopointtowardanemployer/employeerelationship.Berwick131 indicates that Uber drivers do not fall neatly within the category of either anindependentcontractororemployee.However,asthelawpresentlystands,Uberisabletoenjoy a low cost independent contractor business model without having to facilitateemployee rights and responsibilities,which contributes tounfair competition in the smallpassengerservicessector.Ontheotherhand,todemandthatallUberdriversautomatically123BerwickvUber,aboveatn122,referringtoYellowCabCooperativevWorkersCompensationAppealsBoard226F3d1288(9thCir1991).

124ZuijsvWirthBrosPtyLtd(1955)93CLR561.125Stevenson,JordanandHarrisonLtdvMacDonaldandEvans[1952]1TLR101.126CunninghamvTNTExpressWorldwide(NewZealand)Ltd[1993]1ERNZ695(CA).127BerwickvUber,aboven122,at9.128At9.129At9.130At9.131At9.

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beclassifiedasemployeeswouldarguablydetractfromtheefficienciesthecompanyisableto offer to their drivers and passengers through this employment structure. Contractorsreceivethebenefitofflexibleworkingarrangementswhichprovideagoodopportunityforan additional source of income outside of standard business hours. Flexible workingarrangements also benefit the consumer as they enable the price surge to occur whichensures that demand will always be met with supply. Whether drivers are independentcontractorsisanuncertainareaoflawmoresothananexampleofregulatorydisconnect.Nonetheless,itdoesplaceUberatanadvantageincomparisontotaxicompaniesintermsof their ability to compete, as the status of drivers as independent contractors enablesloweroperatingcostswhichcanbepassedontotheconsumersintheformoflowerprices.Classificationofdriversasemployees isnot theonlyanswer towhathasbeentermedan“uberdilemma”.132 Julia Black suggests that there is also room for innovation inregulation.133Thetestforemploymentcouldbeappliedonacasebycasebasisasmanyofthedeterminations involved in the control testandeconomic realities test cutbothwaysand depend not on Uber’s app, but how its drivers use it.134 For example typically thepermanencyoftherelationship135isanothercommonlawfactorconsideredwhenapplyingthesetests.WooandBalesstate:

WhenapplyingthiscommonlawfactortoanUberdriverprovidingforafamily,thedriver would have a much more permanent relationship with Uber than, forexample,apart-timeWal-Martassociatewhodriveswhileonalunchbreak.136

This is in line with the International Transport Forum report who also suggested thepermanencyoftherelationshipshouldbeconsideredwhendeterminingthefrequencyforvehicleinspections.Itwasrecommendedthat:

…a car operating three hours aweek on a CTA platformwould likely require nomorethanexistingvehicleinspections–acaroperating40hoursperweekshouldbesubjecttostricterandmorefrequentcontrols.137

Whilethiscase-by–casebasisapproachislikelytoensurethefairestresults,itwouldalsobeincredibly time consuming and costly. It may be that in this instance, Uber has simply

132Brown,aboven99.133Black,aboven15,at1.134ChristianWooandRichardBales“TheUberMillionDollarQuestion:AreUberDriversEmployeesorIndependentContractors?”(2016)MercerLawReviewat29(forthcoming).

135WooandBales,aboven134,at29.136At29.137CorporatePartnershipBoard,aboven53at21.

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“employed”amoreefficientbusinessmodel than the traditionalemployer/employee taximodel. They should be commended for their innovation and the social advantages thismodelisabletoprovidetobothdriversandpassengers.

PeerReviewsPeerreviewsystemsoperateasacontrolmechanisminthesharingeconomy.138RealtimeevaluationbybothpassengersanddriversallowsUbertoensurethequalityandsafetyoftheir rides.ConsistentreviewsaddvaluetoUber’sbrand. Ifanydriverwasprovidingsub-parservice, thenUberwouldbe immediatelynotifiedandcouldengage inanappropriatecourse of action. Traditionally taxi services have relied on driver licenses, their initialscreening of the driver and in car cameras which act as a deterrent to unacceptablebehaviour to facilitate both driver and passenger safety. Sharing economy peer reviewsystems, however, provide continuous quality control via ratings and feedback fromregisteredcustomers.TheUberratingschemeissimple.Passengersratedriversonascaleofonetofivestarsandviceversa,followingthecompletionoftheirjourney.139Whilethesesystemsprovideanadditionallayerofsafetytheyshouldnotserveasthedominantsafetymechanisminthesharingeconomy.Afive-starreviewsystemisnotapttoreplacethefitandproperpersoncheckforexample.Ubershouldnotrelyontheirratingsysteminitsentiretytoscreenfordriversafety.Uber’srating systemmay require drivers, and perhaps even passengers, to engage in what hasbeen called emotional labour, or the work of establishing micro-relationships that makecustomers feel good.140 This isnot indicativeof adriver’s skill, but instead their ability toprovide good conversation, free mints and bottled water. To replace the fit and properpersoncheckwithafive-starratingsystemwouldaddunnecessaryrisktothesector.Perfection is easy to obtain on an Uber app. Users of the app are surprisingly generouswhenitcomestoevaluatingotherusersasindicatedbythe4.6starcutofffordrivers.141Ifdriversfallbelowanaverageratingof4.6starsthentheywillbenotifiedbyUberthattheirserviceissub-parandrequiredtoattendadrivereducationcoursebeforebeingpermittedto drive for the company once more.142 The concern is that positive feedback is

138HannahPosen“RidesharingintheSharingEconomy/ShouldRegulatorsImposeUberRegulationsonUber?”(2015)101IowaLRev405at432.

139Uber“RatingaDriver”<www.uber.co.nz>.140Rogers,aboven50,at97.141JackSmith“UberDrivers:ThePunishmentForBadRatingsIsCostlyTrainingCourses”(2March2015)Observer<www.observer.com>

142Smith,aboven141.

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predominantlydrivenbywhatthecustomerseesandexperiencesduringtheirrideandasaresult,somesafetyaspectsarecompromised.Forexamplewhetherthedriverhasexceededthemaximumworkinghours143 isunlikely tobeapparent to thepassengerand thereforetheir ratings submitted are not indicative of this. This supports the NZ Taxi Federationssubmissionthat“onlinefeedbackonUberdriversisnopanacea”.144Whiletestimonialsgivethe impressionofsafety, in realitysafetyonlyplaysasmall role indetermining theratinggiven,underminingUber’ssubmissionthattheirratingsystemissufficienttoallowthemtoself-regulate.145Feedback systems are also subject to abuse and manipulation on behalf of both thepassengeranddriver.Uberrequiresthepassengertoratetheirexperienceaftertheyhavecompletedtheirjourney.However,itisnotuntilthenexttimethatthepassengerlogsintotheappthattheyarerequiredtosubmittheirreviewviaascaleofonetofivestars.OftenapassengermayusetheapponFridaynightforexampletogethomeafterhavinghadafewdrinks. Ifthis istheonlytimethattheyrequireUberservicesthentheyareunlikelyto logback into the appuntil the following Friday eveningwhen they require a ride again. Thisleaves a week delay between completion of their journey and their rating submission,during which time the details of the trip are likely to be forgotten. Continuing with thisexample, onemight also askwhether drunkpost-clubbing reviewers reallywell-placed toevaluate a driver’s performance? Awholly subjective evaluation criterion is employed byeachindividualrider,whichwilldependonavarietyoffactors,someofwhichthedriverhasnocontrolover.Consideringthecutoffrateisrelativelyhighat4.6stars,theoreticallyonlyafewonestarreviewsarerequiredbeforethedriver isdisconnectedfromthecompany’sapp.Thisalsoopensupopportunitiesforratingstobeinfluencedbydiscriminatoryviews.Thepeer review systemhasbothpositive andnegative features. It promotes trust in thesharing economy as passengers are able to report on the quality of the ride reducinginformation asymmetries. This mitigates market failure as it requires the provision ofinformation that is immediately relevant to the customer. However, ratings may be ill-informed,theresultofdiscriminatorybeliefsorbasedonhazyorincompletememoriesofthe ride home. Ratings undoubtedly add value to the system, but ought to remain as asupplementarysafetyscreeningmechanismalongsidetraditionalrequirementssuchasthefit and proper person check, in vehicle security cameras and complaints registers, whichserveasstrongersafetyprotections.

143NZTaxiFederation,aboven23,at8.1.144At8.145Uber,aboven72,at2.

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AirbnbSimilarly, toUber,Airbnbhasbeen termeda “disruptive innovation”, that isaproductorservice that transforms the market sometimes even overturning previously dominantcompanies.146 Airbnb also does not fit within the heavily regulated hotel and guestaccommodationindustry.AirbnbisslightlydifferenttoUberinthattheytargetadifferentmarket to hotels andmotels. They seek to attract the intrepid traveller. Theirmarketingcampaignemphasises theattractionofexploring the city likea local.147 Thisexplainswhythesame levelsofangerhavenotbeenvoicedbyotheroperators in theaccommodationindustry in response to the app, as we have seen in response to Uber. Airbnb does notmarket itself as a direct replacement for the services provided in the accommodationsector,asUberdoesitselffortaxiservices.However,AirbnblikeUberalsoexhibitsaspectsofregulatoryavoidanceanddisconnect,whichenhancestheirefficiencyaddingtotheirnetprofits.

PeerReviewsAirbnbseekstoensurethesafetyforitstravellersthroughafive-starratingsystem,similarto what is used by Uber. However, unlike Uber, Airbnb’s review system also invites theguests and hosts to include text in their reviews. Initiallywhen the company first began,their CEO Brad Kitsche would travel and visit and inspect each property on the websiteindividuallytoensurethatitwasasthephotosandprofiledescribed.Obviously,nowwith60,000,000usersthistaskisfartooinefficientanduneconomicaltopursue.Thisiswhathasled Airbnb to rely on the ratings system to facilitate safety and promote qualityaccommodation.The first issue thatariseshere is that the system, likeUber’s, is reactiveratherthanproactive;problemswithaccommodationcanonlybefixedaftertheguesthasstayed there and completed their local experience. Furthermore, Airbnb disclaims anyresponsibilityforensuringthatthepropertymeetsfire,safetyandcleanlinessstandards.148They state on their website that it is a host’s responsibility to be familiar with localgovernment requirements in terms of what a host is legally responsible to provide.149 Itcouldbesaidthattravellersareimpliedlybeingadvisedtomakereservationsattheirownrisk.

146DanielGuttentag“Airbnb:disruptiveinnovationandtheriseofaninformaltourismaccommodationsector”(2015)18(12)CurrentIssuesinTourism1192at1194.

147Airbnb“LocalLens”<www.blog.airbnb.com>.148Airbnb“ResponsibleHosting”<www.airbnb.co.nz>.149Airbnb,aboven148.

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Airbnb’s ratingssystemhascomeunderscrutiny recently.Online reviewsareasignificantdriver of consumer behaviour, providing a way for consumers to discover, evaluate, andcompare products and services on the web.150 Obviously there are many advantagesassociatedwithhostsbeingcompulsorilyreviewedonline;unlikeahotelwhomayreceiveamysteryguestonceamonth,theirperformanceisunderconstantscrutiny.Alsoconsumersfeelcomfortablereadingothertraveller’sviews inthattheybelievetheyarereceivingthetrue story behind their stay, more than a flashy hotel website would ever describe.However, recentlya studyconducted into the supposedly transparent reviewsystemthatAirbnb hosts, revealed that travellers are not as honest aswemay be led to believe. Ananalysisofratingscollectedforover600,000propertieslistedonAirbnbworldwide,foundthat nearly 95 per cent of Airbnb properties boast an average user-generated rating ofeither4.5or5stars(themaximum)andvirtuallynonehavelessthana3.5starrating.151ThestudywentontoexplainthattheaverageTripAdvisorhotelratingis3.8stars,whichismuchlowerthantheaverageAirbnbpropertyrating.Thissuggeststhat,whileTripAdvisorratingsemploythesamefivestarscaleemployedbyAirbnb,TripAdvisorreviewersappeartohaveagreaterwillingnesstousethefullrangeofratingsthanAirbnbreviewers.152This is an example of Brownsword’s regulatory disconnect153 arising, but in a slightlydifferent manner than described above with regard to Uber. Airbnb unlike Uber is notrequired to conduct the equivalent of a fit and proper person check before the userregistersontheirsystem.Theyrelyentirelyontheratingsschemetoensurethattherehasbeennomisrepresentationas to thedescriptionof thepropertyandhospitalityprovided.Reviews to allow guests to make informed choices when selecting an accommodationprovider.Regulatorydisconnect thereforearisesas the ratingson the systemare inflatedandthereforedonotensureanaccuratedescriptionofthepropertyprovided,asintendedbyAirbnb.However,thisdisconnect inAirbnb’sownregulatoryregimedoesnotoutweighthe benefits that Airbnb provides to local communities. It allows hosts to generateadditional income and boosts local economies by attracting guests to alternative holidaydestinations. Ideally regulation could be implemented to provide quality assurance.However,duetothescaleofthecompany’soperationsthisislikelytobedifficultandcostlytoperform, resulting inhigherprices forguests. Instead, itmaybesimply that theriskofmisrepresentation ought to lie with the traveler when making a booking via sharingeconomyservices,asregulationwoulddetractfromthesocialadvantagesAirbnbprovides.150GeorgiosZervas,DavideProserpioandJohnByers“AFirstLookatOnlineReputationonAirbnb,WhereEveryStayisAboveAverage”(28January2015)SocialScienceResearchNetwork<papers.ssrn.com>at1.

151At1.152At4.153BrownswordandGoodwin,aboven3,at61.

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Safety&AccessibilitySafety is a key concern that an accommodation provider typically is required to considerwhen allowing others to stay in their property. Airbnb disclaims responsibility formaintenance,repairsandcleaningofunits.Theyexcludethemselvesfromresponsibilityforregulatorycomplianceandstateitisthehost’sresponsibilitytobeawareoflocalregulatoryregimesrequiringfireexitsandsmokealarms.154TheFireSafetyandEvacuationofBuildingsRegulations 2006 set out that “an owner of the buildingmustmaintainmeans of escapefrom fire for thebuilding”.155 ScheduleOne lists the typesof “building” towhich thisActapplieswhichincludes“hotels,motelsandotherpremisesprovidingaccommodationtothepublic.”156ItisunclearwhetherAirbnbrentalsfallwithinthemeaningof“otherpremises”,aliteral interpretation would suggest they do, however the primary function of the hosts’premisesisdesignedtobeusedasapersonalhome,whichsuggeststheyfalloutsideoftheregulatory regime. The Act also states that the owner of a building must provide anevacuationprocedure157thatmustbeapprovedbytheNationalCommander158andatrialevacuationmusttakeplace159-aburdensomeprocessforanaveragehomeowner lookingtoutiliseaspareroom.However,theseregulationshavebeenputinplacetoensurepublicsafetywhenstayinginaccommodationforwhichtheyhavepaidafee.Thisrationaleappliesequally to the provision of Airbnb services as it does to hotels, motels and hostels.ClarificationofthestatusofAirbnbrentalsisrequiredtoensurefundamentalpublicsafetyrequirementsaremet.IfAirbnbisnotsubjecttothisregulatoryregime,thentravelersneedtobemadeawareofthis,viathedescriptionoftheaccommodationonthewebsitesothattheyareabletomakeaninformedchoice.Uber and Airbnb’s business models both provide examples of regulatory disconnect. Insome instances, the rationales for the regulationswhich each businessmodel avoids areoutdated,andtorequirecompliancewiththeregulatoryregimestraditionalprovidersaresubject towould detract from the benefits their innovativemodels able to offer to bothproducersandconsumers.However,wherefundamentalsafetyconcernsarenotprovidedfor and traditional industry incumbents are being hindered in their ability to compete,regulatoryinterventionisrequired.

154Airbnb,aboven148.155FireSafetyandEvacuationofBuildingsRegulations2006,s4.156FireSafetyandEvacuationofBuildingsRegulations,sch1(j).157FireSafetyandEvacuationofBuildingsRegulations,s6.158FireSafetyandEvacuationofBuildingsRegulations,s21C.159FireSafetyandEvacuationofBuildingsRegulations,sch2.

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CHAPTERTHREETheregulatorychallengesposedbyuberficationandresponsesofoverseasjurisdictionsareusefulwhenanalysingwhatactionsshouldbetakeninNZ.Thishapterwill focussolelyonUberasregulatoryinterventionismorepressingforUberthanAirbnb.TheEnglish&Walesand Australian jurisdictions have had more time than New Zealand to deal with thechallengesfacedwhenregulatingUber.TheoverseasexperienceswillbeusedtopredicttheissuesthatmayariseinNZandthemeritsofthestrategieseachjurisdictionhaspursuedwillbeidentified.

LawCommissionforEngland&WalesAdvisoryReportInMay2014, theLawCommission forEnglandandWalesconducteda reviewof taxiandprivatehireservicesandproducedanadvisoryreport.ThereportanalysedthecurrenttwotiersystemthatwasoperatinginEnglandatthetime,wherebytaxivehiclesandprivatehirevehicles (i.e. Uber) were subject to different regulatory regimes. The Law Commissionconcluded this distinction should remain160 and that regulation should continue todistinguishbetweentaxiswhodominatetherankandhailmarketandprivatehirevehiclesthatcanonlybepre-booked.Therationaleforthisdistinctionwasthat“competitiveforcesdonotworkfullyinrankandhailingmarkets”.161Intheprivatehiremarket,theCommissionconsideredthatconsumershavetheopportunitytoshoparoundandcomparefactorssuchasprice, reliabilityandavailability162which justifies light touch regulation,whereas in therankandhailmarketaconsumerwilltypicallytakethefirsttaxiattherankortopassinthestreet. The first hail rule is upheld by members of society and therefore regulation isrequiredtopromotequalityandregulatefares163astaxiservicesareunabletocompeteonthese grounds due to social norms at play. TheCommission commented that therewerestrong arguments made for common safety regulation of both markets, but said thatconsiderationsregardingpriceandqualitycontrolswereverydifferent.164Theirconcernwasthat over-regulation would increase costs for providers, which would be passed ontoconsumers165andtakeawayfromwhatisgoodandpopularabouttheprivatehiremarket.Beforereachingthisrecommendation,theCommissionconsideredthemeritsofaonetiersystemwherebytaxiservicesandprivatehirevehicleswereregulatedinthesamemanner.

160LawCommissionforEnglandandWalesTaxiandPrivateHireServices(8824,May2014)at2.28.161At2.12.162At2.13.163At2.12.164At2.24.165At2.24.

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Infavourofaonetiersystemthefollowingargumentsweremade:firstthatasinglesetofruleswould improveenforcementand reduce regulatory loopholes166andsecondlyaonesizefitsallapproachwouldbeeasierforbothpassengersanddriverstounderstand.Itwasnotedthetwoserviceswerelikelytobeconsideredinterchangeablebymost.167However,theCommissionultimatelyheldcompetitionandqualityconsiderationsshouldbeofhigherimportance. If a one tier systemwas implemented then all services would be subject toprice regulation, thus preventing the operation of the price surge algorithm on theUberapp.ConcernsvoicedbyTransportforLondonsupportedthisconclusion.Theyarguedifthecurrenthighstandardsimposedontaxiswereextendedtoprivatehirevehicles,thiswouldexclude many drivers from the market and potentially create a larger unlicensed, illegalmarket.168Intheirreport,theCommissionsoughttoredefinetaxiandprivatehireservices.Mostoftheanalysis undertakenwas specifically relevant to the English jurisdictionwhere taxis werereferred to as “hackney carriages”.169 However, comments were made in regard to theadvertisingofeachservicewhichisrelevanttotheNZlegallandscape.TheCommissionalsoconsidered that that only the providers of licensed taxi services should be allowed todescribe themselves using the term “taxi” on vehicles or in advertisingmaterials.170 Thisrestriction would be difficult to apply in NZ as Uber’s advertising campaigns likensthemselves to taxi services - “Uber gets you home safely”171 - however, they do notexplicitlyusethe“taxi”terminology.Therefore,perhapsfurtherregulationsarerequiredtooutline theboundaries forwhich comparisons to taxi services are able tobemadewhenmarketingprivatehireservices.TheCommission’s report isofparticular relevance in lightof theSmallPassengerServicesConsultationPapercurrentlywelcomingsubmissions inNewZealand. It is interesting thattheyhavechosentoreinforcethedistinctionbetweenaonetierandtwotiersystem,whilstacknowledgingthat:

…itishardtodisputetheclaimthat,ingeneral,thepublicneitherknowsnorcaresabout the distinction [between taxi and private hire services], and indeed eventhosewhoworkintheindustrymaywellrefertoaprivatehirevehicleasataxifor

166At2.19.167At2.19.168At2.17.169TransportAct1980.170LawCommissionforEnglandandWales,aboven160,at3.34.171Uber“Safety”<www.Uber.com>.

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sakeofease.Thistiesinwiththefactthatbothtypesofservicemaybesaidtodothesametask,oftransportingpassengersforafee.172

Part of the rationale formaintaining a two-tier systemwas due to the different servicesrequiring separate price regulations in order to operate efficiently. The Commissionrecommended the information obligations for private hire vehicles should include fareestimates.173 The rationale for this was to retain transparency in pricing,174 which theCommissionconsideredtobefundamentaltopromotingcompetitionintheforhiremarket.The requirement to provide a specific price, like taxi services, was rejected by theCommission.175 This is a feature which NZ could consider implementing in the SmallPassengerServicesTransportBill.Apriceestimaterequirementseekstoreduceinformationasymmetries operating in the private hire vehicle market. Critics have applauded Uber’sabilitytoreduceoverallinformationasymmetriesinthemarket,byprovidingthepassengerwith the driver’s name, registration number, rating, time until arrival and fare estimate.Reduction of information asymmetries prevents market failures. There is, however, norequirementthatdriversmaintainpriceswithinaspecifiedrangeoftheestimateprovided.Thisopensupopportunitiesforregulatoryavoidance,anddriversmaytakelongerorslowerroutes in attempt to receive a greater fare. This undermines the rationale for therecommendation,thatistogivedriverstherightincentivestoplantheirjourneysefficientlyandtoallowpassengerstomakeaninformedchoice.176Anadditionalrequirementthatthefare should not exceed a certain percentage of the estimate, unless there is a significantchangeincircumstances,isrequiredtoresolvethisissue.If the two tier distinction was employed in NZ legislative framework, it is unlikely tosuccessfullymitigatetheregulatorydisconnectcurrentlyexperiencedinthesmallpassengerservices market. The Commission’s rationale for maintaining the two-tier system wascentredaroundthefactconsumershavetheabilitytoshoparoundandmakeaninformeddecision before requesting the service. However, in practice Uber’s app operates moresimilarly to a taxi service, whereby the services are requested in real time and not pre-bookedinthesamewaythatalimoorshuttleservicegenerallyis.Ifthisdistinctionistobeupheld,acleardefinitionofwhatitmeanstopre-bookaserviceisrequired.The Law Commission’s report may encourage New Zealand to introduce separateregulations for transport services provided via the sharing economy. It is however,

172LawCommissionforEnglandandWales,aboven160,at2.23.173At3.40.174At3.41.175At3.42.176At3.41.

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importanttoacknowledgethatgenerally taxiservicesoperating inEnglandandWalesaresubject to more stringent regulatory regimes177 than taxi operators in New Zealand.Nevertheless,theCommission’srationalesregardingpriceandqualitycontrolsprovidegoodreasons for maintaining the distinction between the two services. Furthermore, taxiregulationisspecifictothelocalmarketinwhichitisoperating,whichpreventsanddetersfrom a singlemodel approach being taken.178 Others have also favoured a lighter touchregulatorypolicywhendealingwithnewtechnologies.Syedconsiders:

…a lessprescriptiveapproachcannonetheless fitwithin thewider local transportpolicies and regulation, allowing Uber to complement other transport options,ensuringgreatermobilitybyproviding safeand reasonablypriced choices, easingandnotaddingtocongestion.179

ThereforewhiletherearedifferencesbetweentheNZandEngland&Walessmallpassengerservices markets, the advisory report and rationales contained within provide a goodstartingpointforNewZealandwhenassessinghowweoughttoregulateuberfication.TheCommissionalsodiscussedindepthhowintermediariesfitintotheproposedregulatoryregime,referringspecificallytotheappHalio180.HalioissimilartoUberwherebycustomersopenanappontheirphoneandrequestaride,adriverthenacceptstheirrequestandtheapp provides payment mechanisms.181 However, the key difference is Halio drivers arealready licensedtaxioperators,drivingregisteredtaxiswhentheysignontotheapp.TheCommission considered that operator licensing should not be extended to coverintermediariesmoregenerallythanpresent182duetothefactthatusersofanintermediarycanprotectthemselvesthroughcontractualarrangements.Anintermediarywasconsideredtobesomeonewhodoesnotprovideanyservicesbeyondcommunicatingwitha licensedoperator.183 This reasoning could not be applied in New Zealand when considering UberdriversduetothefactthatUberhasremovedtherequirementfortheirdriverstopossessPendorsements. Furthermore, the Commission also highlighted “it is often unclear as towhether the contract is being made with the intermediary who then effectively sub-contracts thebooking,ordirectlywiththe licensedoperator”.Thesamecouldbesaid forUberinregardtowhetherbookingsaremadewithUberwhosub-contractstotheirpartner-driversordirectlywiththepartner-driversthemselves.Uberhowever,definethemselvesas177Forexample,inLondontaxidriversmustpassanareaofknowledgetest.178Syed,aboven14,at25.179At22.180LawCommissionforEnglandandWales,aboven160,at3.100181At3.100182At3.102183At3.103

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atechnologycompanyand intheir termsandconditionsexcludethemselvesfromliabilityfor the transport service itself,184 therefore it is unlikely users could protect themselvesthrough contractual arrangements. This supports the argument that operator licensingshouldbeextendedspecificallytocoverintermediariessuchasUber.

NewSouthWalesNewSouthWales(NSW)haverecentlyenactedthePointtoPointTransportAct2016.ThisActdealsspecificallywiththeregulationsregardingtheprovisionoftaxiandpassengerhirevehicleservicesinNSW.Itwasenactedinresponsetothechallengesthathaveariseninthetaxi industry due to emerging technologies and changing customer expectations.185 ApassengerlegislationtransportreviewcommencedinNSWinSeptember2012,resultinginadiscussionpaperbeingproduced,similartowhatwehaveseeninNewZealandwiththeSmall Passenger Transport Services review. NSW are ahead of NZ, as they have recentlypublishedacomprehensivereporttitled“PointtoPointTransport–AreporttotheMinisterforTransportandInfrastructure”whichoutlinestherationalesfortheproposedchangestotheindustryandonthe22June2016thePointtoPointTransport(TaxisandHireVehicles)Bill 2016 was passed by the NSW Parliament. Given the similarities in the processesundertakenbyNSWandNZ,theNSWlegislationisausefulpointofcomparisonforwhatwecanexpecttoseeinNZ.The Point to Point Taskforce acknowledges that the transport industry has experiencedfundamentalchangesregardingthewayinwhichservicesaredeliveredtocustomers.186Theindustry has been overcome by innovation leading to better value for service, improvedmanagement of peaks and troughs and enhanced booking, payment and trackingtechnologies.187 This innovation should not be stifled by regulation, which is why thetaskforceconsidered:

…itwouldnotbeenoughtograftridesharingprovisionsontotheexistingregulatorystructure… Simply amending the law by creating a new category for ridesharingwould lockexistingpoint topointproviders,particularly the taxi industry, intoanoutdatedregulatoryframeworkandbusinessmodelthatwouldmakeitmuchmoredifficultforthemtocompete.188

184Uber,aboven104,at2.185BarryO’FarrellMP“Safer,smarter,cheaperandmorereliable:customerswinfromNSWGovernmenttaxireforms”(mediarelease,8April2014).

186TransportforNSW“PointtoPointTransportTaskforce:ReportfortheMinisterofTransportandInfrastructure”(NSWGovernment,November2015)at4.

187At4.188At4.

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This explains themodern189 approach taken to regulationof ridesharing services inNSW.The taskforce advocated for an outcomes based regulatory approach,which ensured thesafetyandsecurityofcustomersanddrivers,whileatthesametimeallowingforallindustryparticipantstotakeadvantageoftheimprovementsinemergingtechnologies.Thisresultedinacomplexregulatoryregimethatisfoundeduponstrongrationaleshowever, itmaybedifficultandcostlytosuccessfullyimplement.TheNSWTaskforcehavetakenasimilarapproachtotheEngland&WalesLawCommissionand considered that the distinction between small passenger services should rest onwhethertheyarebookedbyacustomerorhailedorhiredfromarank.190Theirrationaleforthis distinctionwas that the two services have different risk profiles that justify differentregulatoryapproaches.Rankandhailservicespossessmoreanonymityandinvisibilitythanbookingappswhichsupposedlyprovideahighdegreeoftransparency.191Passengerswhenstandinginlineatataxistand,haveadutytotakethefirsttaxiavailableintherank.Theyrelyonthetaxi’ssignage,driver IDondisplayandfarescheduleondisplay inorder tobeassured first that thevehicle theyareentering isagenuinetaxi serviceandsecondly thattheyarebeingfairlychargedfortheirjourney.Duetothefirsthailruletheydonothavetheopportunitytoshoparoundandcompareprices.Ubervehiclesontheotherhand,eliminatethese sources of potential information asymmetries by providing the vehicle registrationnumber,location,driverprofilephotographandafareestimatebeforetheriderentersthevehicle.The recommended regulations, however, go further than simply imposing a two-tierdistinction.Insteadthetaskforceconsideredthat,fortheobjectiveof“risk-basedregulationthat established clear accountabilities for safetyoutcomes”192 tobeachieved, regulationsshould reflect the four essential functions in the provision of point to point transportservices.Thefourfunctionsarethebookingservice,thetaxiorganisation,thevehicleownerand the driver,193 and each entity has separate obligations specific to their role whichoutlinetheiraccountabilityfortheservicesonoffer.Itisacknowledgedinthereportthatapersonorafirmmaybeperformingmorethanoneroleatatimeandifthisisso,thentheybeartheseobligationssimultaneously.194Thismaybedifficulttoenforceandcouldresultinuncertaintieswhenattributing liability. This signalsa change in the traditionalmodel that

189At4.190At7.191At24.192At6.193At25.194At29.

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focusedsolelyonthespecificservice(eg.taxivsprivateforhirevehicles)usedtoregulatethesmallpassengerservicesindustry.Aflexibleregulatoryapproachbasedontheessentialfunctionsintheindustry,andnotthetraditional entities who are operating transport services, provides the potential forentrenchedcostlybusinessmodelstobereplacedwith innovativeandefficientmodels.195The Taskforce, unlike the LawCommission for EnglandandWales, didnot tailor thenewregulationstotheservicesofferedatthepresentpointintime.Theyacknowledgedthefactthat innovation was growing at an exponential rate and considered “if there is not asubstantial overhaul of the model through which the industry has historically beenregulated,itwilllackflexibility…”196andbeinadequatetorespondtoemergingchallengesinfuture. This signifies the regulators attempt to overcome Brownsword’s challenge of“gettingconnectedandthenstayingconnected”.197AsdiscussedearlierinChapterOne,thetaskofensuringthatregulationsremainconnectediscomplexinaworldwheretechnologyisconstantlyevolving.However,theNSWTaskforceappearstohavedealtwellwiththis,bytargeting the regulation generally at the functions of engaging a small passenger service,rather than specifically at the type of service being offered. In the event of futuredevelopmentssuchasdriverlesscars,198whicharelikelytoprovidefurtherdisruptionintheindustry, the regulatory regime will be able to operate to ensure consumer safetyoutcomes.Regulatoryeffectiveness199wasalsoaconcernoftheTaskforce.Theyidentifiedthat:

Regulation that focuses on achieving particular outcomes is more likely to beeffective and efficient, rather than policymakers, in consultation with incumbentindustryparticipants,seekingtospecifytheindividualstepsthatmustbetakentoachievethoseoutcomes.200

Uber,whodefinethemselvesasatechnologycompany,201arepredictablygoingtodisplayresistance to anyobligations imposedwhichheighten their liability to that of a transportcompany, as this has the effect of lessening their economic efficiency. The Taskforce, bychannelingtheirregulationsatoutcomesratherthanUberortheapplicablebookingserviceitself,islikelytoachievelesshostilityfromthecompany,resultinginahigherlikelihoodthe195At26.196At17.197BrownswordandGoodwin,aboven3,64.198TransportforNSW,aboven186,at17.199BrownswordandGoodwin,aboven3,61.200TransportforNSW,aboven186,at20.201Uber,aboven104,at2.

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rules thatprotect consumerswill be followed.Uberhasaccepted that ridesharing canbefairlyregulated,202andimplicitinthisisthefacttheycannotcontinuetooperateinastateof regulatory disconnect. A degree of uniformity is achieved in the regulation, but in ageneralmannerthatpromotesaccountabilityforsafetyandsecurity,ratherthantargetingthespecificpracticesbyoneindustrymember.Thisismorelikelytopreservethedesirableflexibility intheprovisionoftheseservicesthanregulationwhichsimplyseekstopromoteageoldmodelswithlittleprospectforinnovation.TheTaskforceconsideredthat:

…bylimitinggovernmentregulationtomattersofsafety,securityandconsumerprotection,andadoptinganoutcome-basedapproachtosuchregulation,theseorganisationswillhavegreater flexibility and choice indeciding thebest andmost cost-effectiveway todeliver aqualitycustomerservice.203

ThisapproachiscommendableandshouldbeconsideredbyNZregulatorswhenconductingtheir review of the Future of Small Passenger Transport Services, as it does not seek toconfine all aspects of the operation and reduce future prospects for innovation in theprocess.Safety regulationrelating todriverswasalsoconsidered indepthby theTaskforce. Itwasrecommendedthatthehistoricdriverauthorisationschemeshouldbeoverhauledinfavourof “a system which gives taxi organisations and booking services greater flexibility todeterminehowstandardsaremet”.204PointtopointdriversmustholdanunrestrictedNSWdriver license205 and a background check by the NSW Police is required. Unlike the NZregulatoryregime,specialpassenger licensesarenotrequired.Theequivalentofa fitandproper person test has been maintained however, the taskforce specifically states thatimprovementstoRMSsystemsshouldbemadetoensurethattheregulatorhasaccesstolicensing and criminal charge information in real time from the NSW Police. This was inresponse to similar complaints seen in NZ by industry participants about the delays inconductingbackgroundchecks.Thetaskforceconsideredthatthiswassufficienttoensuresafetyandconsumerprotection.ItwasalsonotedintheNSWTaxiCouncil’ssubmissionthat“these checksneed tobeongoing.Adriverof apublicpassenger vehiclemustbe fit andproper inall respectsatall times.”206This isapoint forconsideration in lightof theSmallPassengerTransportServicesreviewinNZ.Wedon’thavethetechnologyinNZpresentlyto

202Uber,aboven72,at2.203TransportforNSW,aboven186,at29.204At32.205At32.206NSWTaxiCouncil“NSWTaxiCouncilSubmission:NSWGovernmentPointtoPointTransportTaskforceDiscussionPaper”at22.

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achieve thisaffordablyhowever,arguably it is required toensure that theongoing safetyrationaleisupheld.

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CHAPTERFOURUber clearly blurs the regulatory lines. A legitimate regulatory response207 is required toovercometheregulatorydisconnect208 that thesmallpassengerservices transportmarketcurrently experiences. This chapterwill focusonhoweffective regulatory regimes canbeintroduced tomaximise safety,efficiency, competitionand innovation forboth traditionaland app based transport services. The Future of Small Transport Services ConsultationPaper209 and proposed Land Transport Act 1998 and Land Transport Rule: OperatorLicensing2007amendmentswill formthebasis fordiscussion. The rationalesbehind thecurrent regime and proposed changes will be analysed both in light of their immediateeffectandabilitytowithstandfuturetechnologicaldevelopments.The Future for Small Passenger Services review signaled the first legitimate regulatoryresponse to the disconnect evident in the market. As the law stands presently Uber issubject to the regulations for private hire services under the Land Transport Act andOperator Licensing Rule, however, in reality its operations are distinct from pre-bookedlimousineorshuttlehires.RatherthansimplyapplytheexistingrulestonewcomerstotheindustryNew Zealand sought to proactively engage in an analysis of the regulations thathaveplaguedtheindustrysincethe1980’s.210ThereviewwasannouncedinJanuary2014211andNewZealandhadthepotentialtobecomeaworldleader,howeverithastakenalmosttwo years for any form of legislative progress to occur.212 Some critics consider this agracious timeframe to streamline what could already be considered a deregulatedindustry.213 This time lag however, allows for analysis of overseas responses to thechallengesfacedarguablyaddingtothepotentialeffectivenessofanewregulatoryregime.ThepurposeofthereviewwastoensureNewZealand’sregulatoryenvironmentforsmallpassenger services continued to be fit for purpose and flexible enough to accommodatenew technologies.214 Discussions with stakeholders in the industry and consideration ofgovernmentpolicyoutcomesledtotheSmallPassengerServicesConsultationPaper.215Thepaperbeginsbyacknowledgingtheemergenceofridesharingservicesthatoperateoutside207BrownswordandGoodwin,aboven3,at48.208At61.209SimonBridgesandCraigFossFutureforSmallPassengerServices(MinistryofTransport,consultationpaper,2015).

210At6.211Uber,aboven72,at3.212TheLandTransportAmendmentBillhaditsfirstreadingon15/9/16.213Uber,aboven72,at3.214MinistryofTransport“SmallPassengerServicesReview”(23September2016)MinistryofTransport<www.transport.govt.nz>

215BridgesandFoss,aboven209.

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of the current regulatory regimewhich causesdifficultieswhenmanaging the safety risksassociatedwith ridesharing services.216Thepaper considers fivebroadproposals, labelled“options”.Optionone issimplyretainingthestatusquoandoptiontwoconsidersaslightmodification of this.217 Options three and four discuss the creation of a new single classsystem that classifies taxi andprivatehire services alike.Option threeplaces theonusofresponsibility on the driver to ensure they complywith the rules,218whereas option fourshifts the responsibility to the approved transport operator.219 Option five considers theeffectofapplyingtheexistingtaxiregulatoryburdenstoallsmallpassengerservices.220Allof the proposals lack innovation in their approach. They focus on the existing businessmodelsoperating in the industryand fail toconsiderandprovide for future technologicaldevelopments. For example they do not prepare the industry for the event of driverlessUbervehicles221,however,inthemeantimetheydoattempttoclosethegapbetweentheregulations and operations that can be seen at present. The consultation paper exhibitsregulatoryprudenceinresponsetotheimmediatethreatsfacedbytheindustry.Whileitislikely Parliament will have to legislate in future, an immediate response is required toovercomethepresentregulatorydisconnectthatcanbeseen.Option four appeared the favourite amongst the “punters”. The consultation paperconcluded a single class service for all passenger services whereby the responsibility forcompliancewiththeruleswas focusedatanoperator level222was likely tobestmeet theobjectives of safety, further innovation, increased competition and improved customerservices.223 Advocates of this option considered it would impose a low level cost on thesectorwhilstmaintainingasufficientlevelofsafetyandconsumerprotection.224Thereformfocusedonensuringthatthecomplianceburdenwasplacedaslowasitcouldbewhilststillachieving the regulatory objectives,225 which should be true of all regulation. However,arguablythecomplianceburdenhasbeensettoohighbyfailingtorecognizeadistinctionbetweenrankandhailandprivateforhireservices.226Optionfourremovesthedistinction

216BridgesandFoss,aboven209,at7.217At7.218ThisincludesPendorsements,worktime,reportingseriouscomplaintsrequirementsseeBridgesandFoss,aboven209,at21,

219BridgesandFoss,aboven209,at23.220At25.221Chafkin,aboven56.222BridgesandFoss,aboven209,at23.223At7.224At7.225At13.226LandTransportActAmendmentBill2016(173-1)explanatorynote.

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betweenoperatorsand createsa single classof smallpassenger services.227 Theeffectofthis isallpassengerservicesaresubjecttothesamesetofrulesandtheresponsibilityforcompliance with the rules lies with the approved transport operator.228 The approvedtransportoperatoristhepersonincontroloftheservicewhohasbeenapprovedasfitandproperbytheNZTA.229Thisreplacestherequirementofservicesbeingrunbyanapprovedtaxi organisation. Uber would therefore be required to apply to become an approvedtransportoperator.TheywouldberesponsibleforensuringthatalloftheirdrivershadaPendorsement, worked within their worktime limits, maintained log books and that theirvehicles had a Certificate of Fitness.230 Uber has been landed with significantly moreresponsibilitiesthanwhattheyhavepreviouslyenjoyedandthisincreasedburdenisunlikelyto sit well with their technology company business model and the benefits flexibleridesharingservicesprovideinlocalcommunities.The Land Transport Amendment Bill 2016 (the Amendment Bill) discusses the proposedreformsforthesectorandstatesitsobjective,thatistorespondtothechangesinbusinessmodelsandensurethesectorremainscompetitivewhileobtainingthemaximumbenefitsfor consumers. The Bill expands on the proposals laid out inOption four231 and formallyproposesthatasingleclassdefinitionforsmallpassengertransportservices isadopted. Ifimplemented, Uber and taxi drivers would both be required to obtain a P-endorsementwhichincludesundergoingafitandproperpersontest.Uberhasshownastrongdisregardfortheselegislativerequirementsinthepast232andregulatoryeffectiveness233islikelytobea challenge. As of April 2016 Uber removed the requirement for their partner-drivers tomaintainaPendorsementinfavouroftheirownlessburdensomeprocedures.234TheystateintheirsubmissiontotheFutureofSmallPassengerServicesConsultationPapertheexistingadministrativeprocess forPendorsements is “unworkable”235 andhighlight that “over86percentofpartner-driverapplicantsreferredtothePendorsementprocessbyUberdeclineto complete the process because it takes too long or is too expensive”.236 This raisesconcerns for theeffectivenessof theproposed regulations.Brownsword identifies that, ifregulatees are resistant to the regulations imposed, the regimes efficiency is likely to becompromised.ThislengthytimeframeisaddressedintheRegulatoryImpactStatementfor

227BridgesandFoss,aboven209,at23.228At23.229At23.230At24.231At23.232RadioNZ,aboven79.233BrownswordandGoodwin,aboven3,at61.234RadioNZ,aboven79.235Uber,aboven72,at4.236At4.

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theFutureFrameworkforSmallPassengerServiceswhichstates“thereviewrecommendsthattheNZTAshouldcontinuetoberesponsibleforthefitandproperpersonassessments–with improvedservicedelivery.”237However,noactions to improve the servicedeliveryhave been put in place. The regulatory effectiveness of the proposed amendments andconsultationpaperarelackinggiventhattheydonotdealdirectlywiththesignificanttimedelaywhenapplyingforaPendorsement.Asdiscussedearlierthisresultsinlossestobothcustomersanddriversastheyareunabletoenjoytheflexibletransportarrangementsthatareprovidedbyridesharing.Efficiencyhasbeenlabelledasanobjectiveofthereviewandthesingleclassproposalthatignorestheadministrativeburdensoflicensingrequirementsfailstomeetthispurpose.Worktime limits are another area for contention. The Amendment Bill proposes that theapproved transport operator is responsible for ensuring that drivers continue to operatewithintheirworktimelimits.238IfUberisresponsibleforensuringthattheirdriversdonotworkmorethansevenhoursatatime239andtakerequiredbreaksthissuggeststhattheirrelationshipwith their partner-driversmaybemore akin to employees than independentcontractors. This suggestion is likely to be met with strong force from Uber, who areadamant to retain their status as a technology company.240 However, as discussed inChapter Two this is an area requiring clarification to eliminate the regulatory disconnectcurrently blurring the employment relationship boundaries. The proposal that heightensoperator responsibilities suggests that the legislature considers the relationship betweenUberand theirdrivers shouldbeclassifiedasacontractof service.Thisclassification is inlinewiththesafetyandaccountabilityobjectivesthatthereviewseekstopromote.ThiswillincreaseUber’sregulatoryburdenasnotonlywouldtheyberequiredtomaintainevidentialrecordsthatthisfundamentalsafetyrequirementisbeingcompliedwith241buttheywouldalsohavetooffertheirdriversthebenefitsassociatedwithanemployeestatus.242Intermsof competition in themarket this levels theplaying field, byensuring fundamental safetyrequirements are adhered to however, it is likely to result in rigid working hours andincreasedcoststotheconsumer.Safetyisthedominantconcernofregulatorsinthesmallpassengerservicesmarket.TheBillalsoproposesthatvehiclesoperatingwithinthe18mainurbanareasshouldrequireanin-

237MinistryofTransportRegulatoryImpactStatement:FutureFrameworkforSmallPassengerServices(MinistryofTransport,AgencyDisclosureStatement,15March2016)at20.

238LandTransportActAmendmentBill2016(173-1)s71.239BridgesandFoss,aboven209,at24.240SeeforexampleargumentsadvancedinBerwickvUber,aboven122,at9.241BridgesandFoss,aboven209,at24.242SeeChapterTwoforalistofexamples.

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vehiclerecordingcamera,unlessanexceptionorexemptionapplies.Duetothesingleclasscategorisation,thismeansUbervehicleswillberequiredtooperateanin-vehiclerecordingcameraunless theyqualify foranexemption.Therequirement foroperatingcamerasand24/7panicalarmsand invehicleoperatingcameraswas inresponsetothedeathsof twotaxi drivers in 2010243, which arguably could have been avoided if stricter safetymechanismswereinplace.Fromasafetyperspectiveitwouldappearthattheeffectofthisregulation is necessary and adds value to the regulatory regime by ensuring the ongoingsafety and monitoring of both passengers and drivers. However, the installation of in-vehicle cameras is expensive. This increases the barriers to entry in the market place,especially for thepart-timedriverswhodrive less than tenhoursperweekwhomakeuphalfofUber’spartnerdriverdatabase.244Theystatethat75percentoftheirpartnerdriversrely onUber as a supplemental rather than a primary source of income245 therefore therequirementfordriverstoinstallin-vehiclesecuritycamerasintheirprivatevehiclessimplytodrive for less than tenhoursperweek is likely tobe incrediblyburdensomeanddeterpotentialdrivers fromenteringthemarket.Furthermore, taxi servicesdonotmonitor thein-vehicle cameras 24/7. They are a reactive rather than a proactive safety feature. Toincrease the barriers to entry for Uber drivers in this way detracts from the socialadvantagesridesharingprovides.Uber argues their app is able tomitigate safety risks in the sameway that an in-vehiclesecurity camera would. This argument largely rests on the different risk profiles of pre-bookedandrankandhailservices,whichUbersuggest isstrongenoughtoheeddifferentregulatoryresponses.Uberstateintheirsubmission:

…it isnot ‘unfair’ thatonemodeofpersonaltransporthasdifferentburdensorbarriers to entry than another, if the differentmodesmitigate risks in differentwaysandhaveaccesstodifferentportionsofthemarket.246

The riskprofileof the ridesharingmodel canbedistinguished froma traditional rankandhail service due to the following features; Uber provides passengers with their driver’sname,profilepictureandvehicleregistrationnumber247beforeembarkingontheirjourney,whereasatraditionaltaxipassengermustrelyonthesignageanddriverIDdisplayedinthevehicle to be certain that they are riding in a genuine taxi service. Uber drivers andpassengershaveaccesstotheGPSfunctionontheappsotheirjourneyistrackedandinreal243MinistryofTransport,aboven237,at4.244Uber,aboven72,at5.245At5.246At8.247Writersownexperience.

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time248,alsotheappenablesriderstosharetheirestimatedtimeofarrivalandroutewiththeir friends249, minimising the need for monitored panic alarms.250 There is no cashinvolved in the process, instead the riders credit/debit card is automatically debitedfollowingcompletionofthejourney,reducingtheriskofcashrobbery,fareevasionorcreditcardfraudasthecalculationandpaymentoffees isbeyondthecontrolofeitherparty251.There is less anonymity involved in the Uber ride than the traditional rank and hail taxiservice which suggests that a blanket approach to all safety specifications including in-vehiclecamerasonlyheightenstheregulatorydisconnectthatcanbeseen.252Information asymmetries also justify a distinctionbeingdrawnbetween the two typesofservice. Deregulation of taxi services by removing the signage requirements in order toreducetheirbarrierstoentryandequalizetheplayingfieldinthemarket,mustbeweighedagainst the risk profiles associated with each service. The rationale for implementingsignage regulations is to reduce information asymmetries between the passenger anddriver. Passengers need to be assured that they are travelling in a genuine taxi service.Uber’sapphasfoundaninnovativenewwaytodothisbutthereisnosuggestionthattaxiservices will provide the same technologies to passengers to reduce these informationasymmetries.Thisisafactorwhich,ifnotmonitoredandregulatedeffectively,canleadtomarket failures. Uber’s app lowers information barriers. While the absence of perfectinformationalonedoesnotjustifyregulatoryintervention253,efficientmarketfunctionsrelyon the consumer having optimal information254. Uber is creating competition byencouraging greater information disclosure therefore it appears counterproductive toderegulate the taxi industry signage requirements when this would only lead to theprovisionoflessinformationandhindertheirabilitytocompete.The New South Wales and England & Wales jurisdictions both chose to maintain thedistinction between rank and hail and private hire services. New Zealand by choosing toimplement a single class system, falls short of overcoming the challenge of regulatorydisconnect.Theproposedregulationsfocusonthesimplicitythatuniformapplicationwouldprovideinsteadofconsideringthesafetyrisksandinformationrequiredforoptimalmarketfunctions.Itislikelytheproposalswillbemetwithsignificantresistanceandmaybewholly

248Uber,aboven72,at9.249At9.250BridgesandFoss,aboven209,at10.251Uber,aboven72,at9.252BrownswordandGoodwin,aboven5,at63.253AlanSchwartzandLouisWilde“InterveninginMarketsontheBasisofImperfectInformation:ALegalandEconomicAnalysis”(1979)127(3)UPaLRev630at630.

254AnthonyOgusRegulation:LegalFormandEconomicTheory(HartPublishing,OxfordandPortlandOregon,2004)at29.

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disregarded by some industry players thus also failing to overcome the challenge ofregulatoryeffectiveness.Theproposalshindercompetitionbyplacingadditionalregulatoryburdens where they are not essential and fail to account for fundamental safetyconsiderations. Regulators should reconsider their approach to the Land TransportAmendment Act as it is unlikely to successfully overcome the challenges discussed byBrownswordandpreventmarketfailures.

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CONCLUSIONAirbnb cofounder Brian Chesky summarises the legal challenges created by the sharingeconomyasfollows:

Therewerelawscreatedforbusinesses,andtherewerelawsforpeople.Whatthesharingeconomydidwascreateathirdcategory:peopleasbusinesses,"towhich

theapplicationofexistinglawsisoftenunclear.255

NewZealandisbeingovertakenbyuberfication.TheintroductionofUberandAirbnbhavedisrupted the traditional transport and accommodation markets. Both companies areassertingtheirdominance in thesemarkets leavingregulatorsscramblingtodetermineanappropriate regulatory response. Currently there is a regulatory disconnect operatingwhereby the existing regulations do not encompass the “sharing” services on offer. Theypresent new and significantly different challenges that were not foreseen when thegoverning statutes and regulations were enacted.256 Where a regulatory frameworkbecomes disconnected, regulatees cannot be sure where they stand. This will createdifficulties irrespectiveofwhether theregulatoryenvironment is intendedtosupportandpromote certain activities or to prohibit them.257 Clarification and reconnection arerequired.UberandAirbnbarethetwomainplayersinthesharingeconomy.Theyaresimilarinthatthey challenge traditional industry incumbents, however, the regulations which theychallengeand their riskprofilesaredifferent.Simplybecausebothoperate in the sharingeconomy this does not justify the same regulatory response. Uber requires urgentinterventionwhereasAirbnbdoesnotcallforanimmediateregulatoryresponse.Airbnbdisplaysregulatorydisconnecttoadegree,however,astherisksassociatedwiththeservicesprovidedarewell-known to the travellerand theyareable tomakean informeddecision. Innovation should not be regulated simply because it is “innovation” rather

255AndyKessler,TheWeekendInterviewwithBrianChesky:The'SharingEconomy'andItsEnemies(WallStJJan17,2014)<www.wsj.com>.256Airbnb/ACaseStudyinOccupancyRegulationandTaxationat104.257BrownswordandGoodwin,aboven3,at61.

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prudential pluralism requires the risks of the activity to first be assessed to determinewhetherinterventionisrequired.Uberasaninnovativebusinessposesmanychallenges,somesimilartotraditionalindustryincumbents and some different. The safety rationales behind many traditional taxiregulationsstillapply to theservicesUberprovides.Uber’s innovationhowever,mitigatestheneedformanyoftheregulationsthathaveplaguedtheindustrysincethe1980’s.Theapp’spre-booking service reduces informationasymmetries, providing for a safer journeyandmoreefficientmarketplace.Aonesizefitsallapproachtoregulationdoesnottakethisinto consideration. Regulators need to balance the need to safeguard public health andsafety, protect consumers from problems with liability and fraud while ensuring furtherinnovativeactivitiesarenotstifled.New Zealand should take note of the approach taken in New South Wales wherebyregulation was imposed based on the various risk profiles of the services offered. Thetaskforce identified the key functions involved in providing both taxi and ridesharingservices and established accountabilities for safety outcomes on this basis. This ensuressafetyandprovidesflexibility,ensuringtheregulatoryregimewillremainconnectedwhilesimultaneously allowing for innovation. The proposals in the Land Transport AmendmentAct 2016 fall short of this. New Zealand has taken a step backwards in attempting toestablishauniversaldefinitionforallsmallpassengerserviceproviders.Instead,thesystemshouldberevisedtoreflectthenewparadigm.Iftheamendmentsareaccepted,thenthisislikely to lead to a litigious industry response to future innovation. This will threatenconstructiveindustrydevelopment258reducingthepotentialbenefitsthatflexibletransportservicesareabletooffertobothdriversandriders.Afterall,sharingiscaring.

258Syed,aboven1,at26.

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