This is the Asian Law Caucus Position Paper on the shared ride van operator situation at SFO.
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Asian Law Caucus Position Paper
On the Shared Ride Van Operator Situation at SFO
Background:
The Airport Commission is considering an administrative plan to terminate the existing 11 existing door-to-door service permits and to authorize issuance of requests for proposals (RFPs) for 4 on-demand shared-ride service agreements for service between San Francisco International Airport and the Five Bay Area Counties. The proposal is to have 2 companies serving all of San Francisco and 2 companies servicing the South and East Bay.
The approval of this plan will result in the loss of over 300 mostly immigrant jobs. Small, locally-owned companies that do not fit within the requirements of the proposal (tailored to big business[a]) will have to shut down. Their drivers, mechanics, and administrative staff will be out of work.
Given that we are in the middle of a recession of historic proportion, this plan, if executed, will be devastating for these 300 workers and their families. In turn, this additional loss of jobs and small businesses will wreak havoc on the already faltering San Francisco economy. We at the Asian Law Caucus believe that this proposal is extremely problematic – from both a customer service and labor rights perspective, and urge the Airport Commissioners to vote against it.
In this report, we address the problems such a proposal raises and suggest solutions to boost service and labor conditions in this industry.
Customer Service
According to Airport Director, the Airport’s primary objective is to improve the level of service provided to customers. But historically, the creation of monopoly is not the result of a customer focus. Quite the opposite, it is industry focused, as it benefits the chosen business(es) at the cost of customer service and affordable prices.
Indeed, when government regulators have created monopoly in other industries, it has resulted in a dramatic rise in prices. For example, between 1940 and 1970, the Interstate Commerce Commission reduced the number of licensed trucking companies, giving each company greater monopoly power. When these monopolistic regulations were abolished, trucking rates dropped dramatically.
Similarly and perhaps more relevant here, competition among airlines was once discouraged through regulation by the government. When the airline industry was deregulated by the Airline Deregulation Act of 1978, airfares fell by 30% and the rate of airline accidents also fell (because with competition, airlines had more at risk with regard to safety reputations).[b]
History and economic laws demonstrate that if improved customer service is the bottom line, the creation of a monopoly through the allocation of limited permits is not the solution.
Competition
Congress has shown a strong inclination to support competition, precisely because of its effects on prices and customer service. For example, in passing the Wendell H. Ford Aviation Investment & Reform Act for the 21st Century, Congress found that “all major airports must be available on a reasonable basis to all air carriers wishing to serve those airports.”[c] The monopolistic inclination of regulators to cap the number of air carriers operating out of airports was specifically averted by this federal act. Congress clearly recognized the value of competition to lower prices and increase service in one form of airport carriers. We can apply the spirit of this Congressional intent to other carriers that leave the airport – including shuttle service vans.
In a June 3, 2008 letter from the Airport Director to an owner of the one of the smaller, family-owned shuttle companies, the Director indicated that this plan is about stimulating competition, not eliminating it. He wrote, “I assure you that the intent of this RFP is not to put small, family run companies out of business. However, given that the existing Airport on-demand van service program has been in place for more than 15 years and the Airport moratorium against any new entrants into this business has been in place since 1993, effectively eliminating any competition at the airport; the Airport has an obligation to open up the competitive process for participation opportunities in the door-to-door program at SFO again.”
While shutting down family-owned companies may not be the express intent of this RFP, it will certainly be the result. Limiting the number of new permits issued to 2-3 and wiping out the existing permits will do just that. This is not stimulating competition. By definition, competition requires that different businesses exist to compete against one another. Creating a monopoly through this RFP is not a way to open the competitive process for participation; it is a way to close it. Additionally, the RFP sets the bar so high in terms of fleet size that small businesses cannot compete. This comes to the surprise of many small business owners who have had their fleet size limited by the Airport for years.[d]
Labor Conditions
We at the Asian Law Caucus are particularly concerned about the bad labor practices allegedly practiced by the bigger businesses in the industry – businesses that, based on their capacities, are able to create proposals and win the coveted few permits proposed by the RFP.
For example, in a recent decision out of the 11th Circuit that was issued on November 28, 2008, the federal appellate court found that Super Shuttle practiced wage theft and owed its employees overtime. Cases like this against Super Shuttle and like-sized carriers are popping up all of the country. Additionally, express testimony of Super Shuttle drivers indicate the drivers are often asked to pay fees as a part of what they fear may be an unfair revenue sharing practice. Anecdotally, we discovered that some Super Shuttle drivers make about $200 a week after working 10-16 hours a day.[e]
This means that as independent contractors, they make less than minimum wage and do not get any of the benefits that employees receive. Our initial research suggests that better labor practices exist at the smaller companies where a greater percentage of drivers are employees, and not independent owner operators. Drivers at Quake City Shuttle (where nearly 65% are considered employees), for example, indicated that they were treated with respect and echoed co-owner Samme Shiheiber’s statement that he does not require the same high percentage of revenue sharing fees from drivers as Super Shuttle.
In a recent letter to Mayor Newsom, Shiheiber wrote, “We take pride in our vans, we take pride in our work, and we know our way around the city. My business is my livelihood which puts food on the table for my family and pays for my mortgage. In fact, I believed so much in my small business that I took a second mortgage on my home to pay for the business. This would be a devastating blow to me and my family, and for the countless other families in similar situations that own small shuttle businesses.”
Existing Issues and Solutions:
During the August 19, 2008 Airport Commission Meeting, the Executive Director stated that this RFP proposal is “in part a response to the fact that current service providers are dissatisfied with the status quo.” We are not confident that terminating the permits of shuttle owners who have been dissatisfied with specific regulatory practices is the best response.
Perhaps a more productive solution would be to announce a policy of evenhandedness with regard to curb space by giving shuttle companies rotating spots at the much coveted curbside zones and allowing them to increase the size of their fleets without having to form a conglomerate with other companies.
This may also help to avoid the confusion that customers seem to face at the Airport. Instead of three separate zones for shuttle service drivers, making these zones contiguous would make it much clearer for outgoing customers to find the shuttle service area.
Additionally, and most importantly, we believe the Airport Commission may have the capability to improve labor practices through regulation. Since the Commission issues the permits to shuttle companies, they can also require, as a prerequisite to a permit, that the shuttle companies hire a certain percentage of drivers as employees and not independent contractors. Currently, many drivers are misclassified as independent contractors and are thus denied the many benefits that they deserve – including the right to collectively bargain, to get overtime, minimum wage, paid sick live, etc.
Having a greater percentage of drivers classified as employees would also increase the quality of regulation because companies and the Airport can better regulate the quality of each van’s service if those vans are not individually owned and operated. If 95% of drivers remain independent owner operators under the new RFP, regulation will certainly not be streamlined, as is the intent of this RFP.
Conclusion:
We at the Asian Law Caucus believe that at the heart of the Airport’s administrative plan to terminate old permits and issue a monopoly to a few shuttle companies are economic justice and civil rights issues.
There are undoubtedly improvements that can be made in the regulation of the shuttle service companies: improvements that would benefit customers, drivers, and business owners. But given our current recession, the termination of existing permits and the resulting loss of an estimated 300 jobs would be devastating for many.
There is no guarantee that the chosen service providers would hire drivers who lose their jobs and are displaced in this process. There is also ample evidence to suggest that dramatically decreasing the number of permits issued would be detrimental for customers.
We urge the Airport Commission to consider this paper and our recommendations when making a decision about the future of shared ride services at San Francisco International Airport.
[a] For example, companies that submit proposals have to have a minimum fleet that far surpasses the capabilities of the smaller companies.
[b] Walter J. Wessels. Microeconomics the Easy Way. Barron’s Educational Series, 1997. 195.
[c] Wendell H. Ford Aviation Investment & Reform Act, Section 155 Competition Plans.
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