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How the Taxicab Industry Was Junked
(reprinted by permission)
A Newspaper For A New Progressive Majority
Presented as a public service by A.J. Ward for your consideration.

My preamblen (or is 'pre-mumble'):

Why make issue when, pragmatically, the 'independent contractor' status, as effectively used today in Los Angeles (and elsewhere), provides an opportunity for earning money?

Well, in my initial view, the contractual terms often used by taxi associations and companies in their driver contracts are at odds with "public service".

When considering that a taxi 'seal' and/or drivers permit issued by a government agency ( e.g the Los Angeles Department of Transportation ) is intended to insure that a 'public' need is met, the provision in driver contracts stating, essentially, that no driver is 'required' to accept any order does not 'serve the public'. It is, plainly and simply, logical non-sense and no more than a design to preserve the illusion of an ' independent contractor' status. This, further, is really designed to absolve 'lessors' (companies and associations) from any real degree of culpability or responsibility to the 'public' - They collect the lease from the 'lessee' (driver) and generally provide a minimum of what it takes to operate.

What else can they do? - Foster and support driver associations that tend to keep things on the positive side of the social ledger.

Though I don't find information on the internet to refer to except the ' yellow pages , there is a courier company (at 4725 Arminta Street, Panorama City, CA 91402, ph: (818) 780-0808 ) called L.A. Express which will only hire drivers who join the National Independent Contractors Association. (409 Pond Street, Braintree, MA 02184, ph: (781) 356-9000 - again from the 'yellow pages') NICA seems to have been organized by employers but offers the opportunity to manage taxes, get health insurance and so on for a modest cost.

How and why a once beneficial public service has been turned into a private garbage dump operation at the cost of billions in evaded taxes and the loss of half a century's progressive labor legislation
By Burton H. Wolfe

September 1982- Taxicab driver Dan Wong (real person, fictitious name) has just dropped off a passenger near 26th and Castro Streets in San Francisco. Over the radio system he hears a dispatcher announce: "DeSoto cab for Miraloma Park."

Being the experienced, professional driver he is, Wong knows the most sensible option for him is to take that radio order. The location is a short ride into the hills above Castro Street, the fare most likely will be a lucrative one to downtown, and Wong will be in a position to get another fare immediately.

So it is that Wong takes the radio order, and the regular DeSoto Cab Company customer in the remote area of Miraloma Park has obtained a taxicab at the door within 10 minutes of calling for one by telephone.

March 1998- Taxicab driver Jason Babar (real person, fictitious name) has just dropped off a passenger near 26th and Castro Streets in San Francisco. Over the radio system he hears a dispatcher announce: "DeSoto cab for Miraloma Park."

Babar is not the experienced driver that Wong was. He is part of a stunning statistic: a 40 percent annual turnover of drivers in a taxicab industry, wherein the personnel (more often than not) were formerly experienced long-termers, especially at a once- efficient company such as DeSoto.

Now the turnover at DeSoto is so fast and frequent that the majority of cabbies are inexperienced like Babar, one of several dozen know-nothing drivers who, with disastrous results, have been hired to replace people like Wong.

Wong knew the city, avoided accidents, kept his cab clean and in good mechanical condition, serviced the natives, opened the door for passengers, and otherwise behaved himself like the professional driver he was. Drivers whom DeSoto has hired in a futile effort to replace Wong are the opposite. They do not know their way around the city, they get into a horrifying number of accidents that has driven up insurance rates, they try to avoid local runs in favor of playing the hotels and the airport, they do not care if the cabs they drive are junkwagons, and they have little if any consideration for their passengers. A typical sight is a driver slouched in his seat, smoking a cigarette, while an elderly woman struggles with trembling hand to get the back door open.

Inexperienced and unprofessional, Babar does not respond to the radio request for a cab in Miraloma Park. Why? In this particular case, it is because he does not even know where Miraloma Park is. Neither do a number of other DeSoto drivers who might be near enough to take a radio order for that area of the city. It will take the dispatcher a while to find a driver who does.

Thus, while a caller in Miraloma Park got a cab in 10 minutes in 1982, it takes an hour before one finally appears in 1998.

So long as Babar has failed to take advantage of the Miraloma Park call, the next best move he can make is to cruise along Castro Street, where an occasional pickup is available at 24th Street, or perhaps more frequently at 18th. If Babar is one of the discriminatory drivers who does not like to pick up homosexuals (the most frequent hailers in the Castro area) Babar can cruise down 26th to Mission Street - the main thoroughfare and bus line in the Mission district - where there is a possibility of being hailed.

But Babar either does not understand that, or he has his mind bent on only one mode of operation: getting back to a downtown hotel stand as rapidly as possible and hoping for a run to the airport, which he will obtain perhaps one out of 20 times - making it the stupidest of all possible methods of cab driving. So, he races his cab down 26th to either Dolores or Guerrero, the widest streets on which to travel fast, zinging along at a speed 15 to 20 miles an hour over the limit, and then roaring down Market, not even looking for a pickup, fiercely intent on reaching a hotel stand as rapidly as possible.

The 'Lease' Racket

In that comparison between 1982 and 1998, you have a description of why taxicab service in big American cities like San Francisco has deteriorated so gruesomely, causing exasperating difficulties for customers. Newspaper reporters, magazine writers, and radio and television commentators have all discussed the rotten service, but have not been able to explain to a puzzled public WHY it has become so bad and WHY, overall, the taxicab industry has become so unprofessional: a veritable garbage dump operation.

The answer lies in a nationwide scam unknown to the great majority of the public, but known to a few as "the lease racket." In the major part of the taxicab industry of 1998, especially in the big cities, a taxicab company is no longer that: instead, it is a "leasing company" in business not to service the public, but rather to "lease" vehicles to drivers. A hired driver is no longer an employee working for the cab company, but is instead a "self-employed lessee" of one or more of the company's vehicles for hire. A work contract is now a "lease agreement." When a driver is terminated from work, he or she is not fired; rather, his or her "lease is canceled."

One day in October 1982, DeSoto's drivers, including Dan Wong, were converted at the stroke of a pen from unionized employees into "self-employed lessees" not entitled to unionize or obtain any statutory employee benefits such as contributions by employer into the Social Security Fund, and payments of unemployment, disability, and workers' compensation. DeSoto management unilaterally changed the classification of Wong and other non-owner drivers by forcing them, as a condition of employment, to sign a purported "contract" called a "Taxicab Lease Agreement."

The Weirdest 'Lease' Of All Time

Legal dictionaries define "lease" as a rental of a property for an agreed-upon period at a fixed price. But in the taxicab industry you are Through the Looking Glass into a Lewis Carrollian world dominated by Humpty Dumpty management that makes a word mean whatever the bosses choose it to mean.

In an ordinary agreement to lease a vehicle, the terms deal essentially with rental period and price. In the "Taxicab Lease Agreement," paragraphs in artificial legal language are devoted to a denial that an employer-employee relationship exists, accompanied by a declaration that the person signing the "agreement" is not entitled to any statutory employee benefits and will not ask for them.

Furthermore, in the "Taxicab Lease Agreement," the driver is assigned to a work shift, ordered to follow certain rules and regulations of the "leasing company," and committed to follow a variety of company policies. If you ask why work relationships and conditions are contained in a contract that is supposed to be nothing more than a lease, the answer is that the "lease agreement" is an unmitigated fraud, a subterfuge to disguise the true status of the employed driver forced to sign it as a condition of work. And so it has been adjudicated in ignored and undermined decisions by appellate courts and administrative law judges.

By means of that change under similar titles and schemes, hundreds of taxicab companies across the country have managed to send 50 to 60 years of progressive labor legislation down the drain.

Billions In Lost Taxes And Fund Contributions

The "lease agreement" is not only a fraud, but also a national disaster, since it has become the dominant means of operation in the taxicab industry. It has created such abominable work conditions for cab drivers that they either have quit in a hurry or have hung on by taking themselves out of the tax system. For Dan Wong, with a wife and children to support, operating without statutory and union benefits - no health plan, no pension, no protection from employer abuse - was out of the question. So he returned to his former occupation of baker, which he had left because he preferred driving a taxicab.

At major taxicab companies from coast to coast, the Dan Wong situation is paralleled. Either long-time drivers have quit in exasperation at being thrust into a modern form of peonage, or they have been fired at the whim of increasingly tyrannical management which calls the firing a "lease cancellation."

On the other hand, there is a smaller cadre of professional drivers who have stuck it out because they cannot find other employment, or because they know how to work deals with dispatchers to get special favors and survive the increasingly high cost of operations. Costs of operation include the daily "gate," or shared commission at DeSoto, which has risen from around $40 in 1982 to around $100 in 1998. Add to that the cost of gasoline which the driver must purchase, and the extortion money which must be paid to dispatchers in order to obtain a decent cab and a fair share of radio orders, and you find a driver faced with a daily $125 deficit before leaving the garage to begin a work shift.

No Taxes On Net Earnings Of $400,000

One member of the hard-core cadre remaining is Steve Smith (real driver, fictitious name). Since being converted by DeSoto from employee to "self-employed lessee" in October 1982, he has managed by skill and bribery to net - not gross, but net after all his expenses - an average of $25,000 a year. By the end of this year, Steve Smith will have netted around $400,000 since 1982. Though single with no one to support but himself, and no special exemptions, Steve Smith has not paid a dime in taxes on that $400,000.

Multiply Steve Smith by the thousands of other taxicab drivers, either singly or in multiple replacements, who have not paid taxes since the taxicab industry implemented the lease racket. The result is billions of dollars in income taxes lost to the city, state, and federal government since the taxicab companies stopped withholding taxes from the shared commissions - fares and tips - earned by their drivers.

Cities have also lost city payroll tax money. Prior to implementation of the lease racket, the major taxicab companies in San Francisco paid more than a million dollars a year in payroll taxes. Now they pay nothing.

Equally disastrous, billions of dollars formerly paid by the taxicab companies into Social Security, unemployment, and disability funds are no longer collected by the federal and state governments. Other companies and individuals have to make up the loss.

The Government Conspirators In The Lease Racket

The taxicab companies cannot implement the lease racket without co-conspirators at all levels of city, state, and federal government. With some exceptions in certain parts of the nation, the major taxicab companies no longer withhold taxes and statutory employee benefit fund contributions. Nor do they report the names of their "lessees." Thus have the cab companies removed themselves and their employees from the tax and contribution systems of the state and federal governments. Most of the major cab companies also have eliminated themselves from municipal government payroll tax structures and from union collective bargaining agreements.

All of that is accomplished not only by fraudulent classification of cab drivers as "self-employed lessees" or "independent contractors," but also by wholesale violations of labor laws and tax codes. How do they get away with it? The racket is not concealed. To the contrary, it is the most wide-open racket in the United States.

Every legislator, every judge, every tax collector, every taxicab regulatory agency, every government administrator of labor laws, every union official, every district attorney, every state attorney general, and the U.S. Attorney General, all know about the racket. They all know that labor and tax laws are being violated. They all know that taxicab drivers have been fraudulently classified. They all know that the nationwide lease racket has resulted in enormous damage to taxicab drivers, the public, and the city, state, and federal governments. Why are they cooperating with the racket?

The Illegal Use Of Permits By Non-Drivers

In a number of municipalities there are laws requiring the owner of a taxicab permit to use it for regular driving. Those laws are being undermined on a wholesale basis.

Again, San Francisco is the example. Here, not only by law but also under an appendix to the City Charter, anyone who has obtained a permit to operate a taxicab since 1977 is supposed to be using it to drive that specific cab around 75 percent of day or night work times. But more than half of the individuals who have obtained permits since 1977 have lied about their intention to use them for cab driving. Instead of driving, they have sold the permits to cab company operators who in turn "lease" them to drivers who, in further turn, "sub-lease" them to other drivers.

Thus, there is an illegal triple tiering of "leasing" and "sub-leasing." The Police Chief, the Police Department Taxicab Detail, the Police Commissioners who are supposed to supervise taxicab operations, the Board of Permit Appeals, the members of the Board of Supervisors, the Mayor, the City Attorney, and the District Attorney, all know that the majority of post-1977 taxicab permits have been obtained illegally and sold to cab companies for payments to their owners of $2300 to $2700 a month. But they do nothing to enforce the law and the City Charter.

The Causes Of The Lease Racket

There was a time when there were only two types of taxicab drivers: owners and employees, the latter mostly unionized. As more and more cab companies switched from splitting meter fares with their drivers to fixed "gate" or shared commission arrangements, however, a variety of so-called "rental" or "lease" deals were effected. Drivers were placed on fake "self-employment" or "independent contractor" status, and unionism was banned (under the provisions of the National Labor Relations Act, only employees acknowledged as employees are allowed to unionize).

The National Labor Relations Board (NLRB), various state administrative agencies, and the courts, became ambivalent on the legality of the scheme. More often than not they found it was illegal and ordered the cab companies to desist, but in some instances the lease racket was upheld as bonafide.

In the late 1970's there was a series of federal court cases that turned the tide in favor of the cab companies. Judges were infuriated by the NLRB's contradictory rulings. In one area the NLRB district director would rule that the cab drivers are employees, and in another area the district director would rule the opposite.

Worse yet, in the eyes of federal judges, cab drivers clearly identifiable as independent contractors, and even taxicab owners, were unionized and drawing full union and statutory employee benefits. In the Midwest, for example, there were numerous taxicab companies, banded together under the blanket name "Ace Cab Company," and drivers of all descriptions were enrolled in the Seamen's International Union, of all things. Some of the union members were individual cab owners. Others were on long-term, bonafide lease arrangements with individual owners, but were drawing union-employee benefits even though they were entirely free of control by Ace Cab

Company management, (employer control) is the leading test for employee status. In the Ace Cab Company case and a few others like it, irate federal judges held that there was no excuse for claiming that drivers not under daily control of taxicab company management were employees, and that long-term lease arrangements presented legal justification for independent contractor classification.

On the basis of such narrow, limited court rulings, an organization now known as the International Taxicab and Livery Association ran wild. Within a few years the Association, consisting of almost all the major taxicab companies in the U.S. and some abroad, had arranged model "lease agreements" for their member firms to use. By the mid-1980's, unionism and employee status, with exceptions in some areas, had disappeared in the major part of the taxicab industry.

After more than a decade of the lease racket, the result is an industry that has been heavily de-professionalized, an accident rate that may be costing more money than the cab companies have saved on union and employee benefits they no longer have to pay, discourteous and dangerous drivers who do not know the city, a decline in the availability of taxicab service, loss of billions of tax dollars, and decimation of laws established for the benefit of workers.

That is the inevitable outcome of a bewildering situation in which all levels of government cooperate with corrupt entrepreneurs in a thoroughly destructive racket - for what reason no one seems able to explain. Alternatives are available. The question remains, can we force the politicians to implement them.

Editor's corner:

(I end this with a quote from A Short History Of American Labor)

(now '404' 3/2001)

'A statement by the founders of the AFL expressed their belief in the need for more effective union organization. "The various trades have been affected by the introduction of machinery, the subdivision of labor, the use of women's and children's labor and the lack of an apprentice system-so that the skilled trades were rapidly sinking to the level of pauper labor," the AFL declared. "To protect the skilled labor of America from being reduced to beggary and to sustain the standard of American workmanship and skill, the trades unions of America have been established." ' (circa 1886 - could this possibly apply to taxi drivers in L.A. and elsewhere?)

(And check out the "IRS Taxicab Auditing Guide

and a few eclectic taxi bookmarks)