Technology, Taxicabs, and Transportation in Toronto: City of Toronto v Uber Canada Inc
A defining feature of this decade has been the advent of disruptive technological innovation. Airbnb is now challenging the traditional hotel industry, Rover is providing drivers with alternatives to astronomically high parking rates, and RelayRides is making it increasingly easier for city-dwellers to not own vehicles. These services are creating increased competition among established industries—residential rentals and commercial parking, for example—and are providing ordinary people with increased alternatives, lower prices, and the chance to earn a bit of extra spending money.
Perhaps the most widespread, disruptive, and controversial of these new technologies is Uber, an online “ride-sharing” application operating in hundreds of cities across forty-five countries. Although it continues to receive the backing of thousands of Torontonians who regularly use its services, it has drawn the wrath of the taxi industry and its regulator, the City of Toronto (the “City”). The tension between these camps culminated in legal action, with the City seeking an order prohibiting Uber from operating within its boundaries without a proper license. Despite the City’s best efforts, the request was dismissed by Justice Sean Dunphy of the Superior Court of Justice earlier this year, in City of Toronto v Uber Canada Inc et al, 2015 ONSC 3572 [City of Toronto].
Regulation of the Taxi Industry and the City’s Injunction
Pursuant to the City of Toronto Act, 2006, SO 2006, c 11, the City has the authority to pass by-laws in relation to “business licensing,” and to establish fares and limit the numbers of taxicabs in Toronto (see sections 8(2)(11) & 94(1)). As such, the municipality’s regulatory system obliges all owners and drivers of taxicabs and limousines to obtain a license relating to their day-to-day operations. Incidentally, the City also required all taxicab brokers and limousine service companies to be regulated and licensed, despite the fact that they provide no actual transportation service to the public (City of Toronto Municipal Code, chapter 545 [Code]).
It is within this framework that the City brought its application, seeking (inter alia) a permanent injunction restraining the respondents from operating a taxicab brokerage and limousine service company in Toronto, and from contracting with users to arrange or provide rides from any location in Toronto through its mobile applications.
Although Uber is becoming a ubiquitous part of Toronto’s social and political landscape, its services are relatively new, and its corporate structure complex. Using instantaneous internet and GPS technology, Uber offers a “peer-to-peer” service model, which matches drivers with prospective passengers, and allows the latter to make his or her way around town with just the click of a button, for only a fraction of a cost of a cab ride. Its services include Uber X, Uber XL, Uber Select, Uber Black, and Uber SUV, all of which employ ordinary people with clean vehicles and clear background checks as drivers. Uber Taxi and Uber Access instead rely on existing taxis and licensed limousines.
Responding to the City’s application are three separate Uber affiliates (collectively, the “Uber respondents”), with important distinctions between them in terms of their role and function. Uber Canada Inc is an “ancillary local” service within the overall Uber business model, which handles complaints, and has “a general role in reviewing and analyzing service data and ‘heat maps’ to assist in the fine tuning of the system to meet local conditions” (City of Toronto, para 29). However, Uber Canada Inc has no contact with either drivers or passengers during any particular trip. Uber BV is a Dutch company that licenses users of the smartphone application used by Uber passengers and drivers who apply for Uber Black, Uber SUV, Uber Taxi, and Uber Access services. Finally, Raiser Operations BV is a related Dutch company that licenses the Uber application to those who apply to drive for Uber X and Uber XL.
The Uber App itself, however, is owned by yet another entity—Uber Technologies Inc—which was not a party to the City’s application.
The Superior Court’s Decision
Four issues were at play before the Court:
- What is the proper definition of “taxicab” and “limousine” under the Code?
- Does Uber operate a “Limousine Service Company,” as defined by c 545 of the Code?
- Does Uber operate a “Taxicab Broker,” as defined by c 545 of the Code?
- If Uber is required to license any or all of their operations under c 545 o the Code, does such requirement breach their protected right of freedom of expression contrary to s 2(b) of the Charter?
After narrowly interpreting the definition of “taxicab,” Justice Dunphy first decided that none of Uber’s drivers, other than those Uber Taxi and Uber Access drivers, operate vehicles that are captured by the plain meaning of the word. Therefore, Uber cannot fall under the classification of a “taxicab broker” outside of the services provided through Uber Taxi and Uber Access. Instead, all unlicensed cars and licensed limousines affiliated with the respondents “default to the category of ‘limousine’ if they are operated as part of a business and are used for hire for the conveyance of passengers in the city if they are caught at all” (City of Toronto, para 61).
This then brought Justice Dunphy to the issue of whether the Uber respondents can be viewed as operating a Limousine Service Company, defined as “any person or entity which accepts calls in any manner for booking, arranging or providing limousine transportation” (City of Toronto, para 63, emphasis added). He found that it did not for three reasons. First, Uber itself plays a passive, mechanical role in connecting a driver and a passenger. Unlike ordinary taxicab brokers, Uber does not accept requests from passengers, and instead merely provides an interactive forum wherein the driver has the ultimate choice of accepting or declining a ride request. Furthermore, the automatic, algorithm-driven process of sending “ride requests” from prospective passengers to Uber drivers does not constitute a “call,” plainly defined. Finally, even if relaying the message between passenger and driver had any bearing on this point, Justice Dunphy found no evidence suggesting that any of the Uber respondents had any role in that function—especially since the owner of the Uber app (Uber Technologies Inc) was not named in the application. All things considered, the Court ultimately concluded that Uber’s services did not meet the definition of a “limousine service company.”
Regarding Uber Taxi and Uber Access services, Justice Dunphy again found that none of the respondents were captured by the definition of a taxicab broker—i.e. “any person who accepts requests in any manner for taxicabs used for hire” (City of Toronto, para 60)—given the fact that they had no role in “accepting” any requests for taxicabs. Therefore, because the Uber respondents could not be considered taxicab brokers or limousine service companies, there was no legal or regulatory requirement that they be licensed, and no reason to grant the permanent injunction requested by the City.
The Sharing Economy and the Law
The dispute between Uber and the City needs to be understood in its proper context, that is, within the contemporary peer-to-peer (“P2P”) sharing economy. This socio–economic development is challenging the traditional approach to our production and consumption patterns by providing members of the public with alternative means of accessing otherwise unused services, and earning some extra capital by sharing them with others. These new systems largely eliminate the need for middlemen, empowering both the provider and the consumer to take their relationship in their own hands. By their nature, P2P programs are informal, flexible, and generally quite convenient.
Although quite popular, these new economic systems challenge more traditional business models—including those in industries subject to heavy regulation and public oversight. Regulated industries, such as the taxicab industry, operate outside market-based systems, and their framework is structured in a manner that sharply limits industry disruptors in exchange for a “wide range of public interest concessions, including price controls, guaranteed access … licensing requirements, oversight, and continuing education.” This, it is argued, benefits the end–user by ensuring that the service is predictable, reasonably priced, safe, and insured.
Enter Uber, and its P2P equivalents in other markets, which are taking these regulated industries by storm. By their casual and flexible nature, P2P market entrants have evaded the regulatory costs and restrictions borne by their traditional counterparts, and are therefore in a position to offer cheaper and more convenient alternatives. Uber is said to have recruited over 13,000 drivers, about 3,000 more drivers than exist in the regulated taxicab industry. Similarly, more and more travelers are turning to the comfort of Airbnb as an alternative to traditional hotel chains. Those working in downtown cores are renting residential driveways in lieu of commercial and municipal parking lots.
Although P2P models have introduced intense competition, traditional businesses have not been fading away without a fight. As Michael Geist of the Toronto Star points out, “using their remaining influence, they often look to laws and regulations that increase costs, prohibit activities, restrict consumers or regulate pricing to create barriers for new entrants.” Indeed, proponents of traditional service providers may have a point: P2P services raise a host of novel social and legal questions. These issues include, in particular, those relating to labour and employment, municipal regulation, insurance, commercial and anti-competition, intellectual property, and even crime control.
Limits of the Common Law
Understanding current market dynamics, and the battle between traditional and P2P offerings, makes the decision in City of Toronto all the more interesting. Having undertaken a thorough analysis of the City’s statutory and regulatory framework, Justice Dunphy refused to re-invent the Code’s wording and legal interpretation to capture the services Uber provides. In other words, Uber appears to have fallen through the regulatory cracks, and indeed, cannot be subject to regulation from the Code as presently drafted. This notion was perfectly captured in framed in paragraph twelve of the decision:
Have the City’s regulations, crafted in a different era, with different technologies in mind created a flexible regulatory firewall around the taxi industry sufficient to resist the Uber challenge, or have they instead created the equivalent of a regulatory Maginot Line behind which it has retreated, neither confronting nor embracing the challenges of the new world of internet-enabled mobile communications?
The answer, understandably, is the latter. As discussed early, Justice Dunphy refused to extend the definition of “taxicab” to capture the controversial Uber X and Uber XL services (City of Toronto, para 55). . Simply put, the regulatory framework was not drafted with the potential of a technologically-driven ride-sharing program in mind, and there was nothing in Justice Dunphy’s power to change this.
Certain newspaper outlets reported in August of this year that the City of Toronto intended on filing a notice of appeal Tuesday to challenge the Superior Court’s ruling, although there appears to have been no follow up, and no indication that the Ontario Court of Appeal will be the next court to assess the legal implications of Uber. This suggests a shift in the City’s legal strategy. Instead, the city seems to be concentrating its efforts on democratic amendments to the Code. If Justice Dunphy’s analysis is anything to go by, this is likely a wise move:
Questions of what policy choices the City should make or how the regulatory environment ought to respond to mobile communications technology changes are political ones. Such questions are, of course, the stuff of democracy. While democracy can be a messy business, our system wisely recognizes that the perfect must sometimes yield to the practical at the risk of a wrong turn or two along the way. Courts determine disputes in the light of the output of the political process and with all of the respect for the differing opinions of the actors that our constitutional order demands (City of Toronto, para 13).
Law-makers take note: the City of Toronto litigation stands as a cautionary tale of the limited scope of the Court’s power to deal with novel legal issues within rigid and narrowly worded regulatory schemes—particularly in light of rapidly advancing technological innovation. Although the precedential value of the City of Toronto decision remains to be seen going forward, it is nonetheless symbolic of the unique socio–legal challenges resulting from the rise of novel, albeit disruptive P2P technologies, and their relation to established, regulated industries.