Legal Considerations in Relationships Between Transit Agencies and Ridesourcing Service Providers (2018)

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111 compliance,766 particularly as to disability accessi- bility and nondiscrimination. • Including a termination for convenience clause, as the federal government can terminate grant funding if it determines a third-party contract vio- lates the transit agency’s Master Agreement.767 • Taking steps to thoroughly understand the program’s marketing requirements and ensuring that they are covered under the contract (and if possible procurement document). • Including cost-control provisions, for example, tying the program end date to a dollar limitation as well as a date and requiring the RSP to provide notice when transit agency subsidies hit certain dollar thresholds. It may also be advisable to ad- dress surge pricing. VIII. CONCLUSIONS The first transit agencies to enter into relation- ships with RSPs have to some extent been legal pioneers: Claims that might be brought against transit agencies for the noncompliance of RSP service with federal, state, and local requirements— for FTA grants, accessibility for persons with disabil- ities, and for nondiscrimination—have yet to arise. The same can be said for claims seeking redress for alleged tortious activity of RSP drivers providing service to transit agency customers. Assessing the legal risks inherent in RSP relationships is chal- lenging not merely because the regulatory parame- ters are less clear than are those for more traditional third-party contracts, but because the lack of litiga- tion makes it uncertain to what extent transit agen- cies could ultimately be held liable for noncompliant RSP service and torts committed by RSP drivers. Another significant factor possibly differentiating the legal risk of RSP relationships from those posed by more traditional third-party contracts is the effectiveness of the indemnifications provided by the contractors. It is unclear to what extent unresolved questions concerning the employment classification of RSP drivers will affect indemnifications offered by RSPs under their agreements with transit agen- cies. In addition, the fact that TNC drivers, if not RSP drivers overall, are less trained than profes- sional drivers may well increase the risk of noncom- pliance with legal requirements, for example, for providing ADA services. The fact that TNC drivers are subject to less thorough background checks than professional drivers may increase tort liability in the event the TNC drivers engage in allegedly tortious behavior. payment, the procurement should address these issues. The procurement could include: 1. Concierge Service Allowing customers to order the RSP service via telephone may increase access for low-income and senior populations who may not have, or be comfort- able using, smartphones. It may also be useful to require online access as well. Such concierge service should meet LEP requirements for the jurisdiction. 2. Integrated Payment Integrating RSP payments into the transit agency payment system will allow customers without credit/ debit cards to pay for RSP service. This was the planned system for LA Metro’s MOD Sandbox pilot.765 3. Compliance Monitoring It may be advisable to monitor response time to majority-minority neighborhoods to ensure Title VI compliance. This could be facilitated by including in procurement documents a requirement that the respondents describe efforts they undertake to ensure that drivers do not discriminate in service delivery, including training, monitoring, and measures to deal with noncompliance, and by requir- ing RSPs to provide data sufficient to monitor for discriminatory patterns. H. Other Contract Requirements There are several other provisions that may be advisable. The negotiating team should consider addressing the following in the RFP (either as a minimum or as a subject of descriptions of the respondents’ capabilities to be scored as evaluation criteria) and in the contract: • Establishing requirements for driver screening. • Addressing other driver safety issues, such as fatigued driving. • Requiring some degree of driver training con- cerning service requirements, particularly as to service animals. • Minimum response times. • Maintaining the transit agency’s right to monitor provision of service to ensure contract 765 Nolan Borgman, OEI wins $1.3 Million to expand the definition of transit access, the SourCe, Jan. 6, 2017, http://thesource.metro.net/2017/01/06/oei-wins-1-3- million-to-expand-the-definition-of-transit-access/ (accessed Mar. 7, 2017). Columbus, Ohio’s Smart City plan has a similar element: “develop kiosks where locals [with- out credit cards] can turn cash into electronic currency, making ride share accessible.” Adam Stone, How Smart Transportation Projects Can Help Solve Social Issues, GoV’t teCh., Feb. 1, 2017, http://www.govtech.com/dc/ articles/How-Smart-Transportation-Projects-Can-Help- Solve-Social-Issues.html (accessed Feb. 21, 2017). 766 See ellIS, supra note 16, at 62. 767 duFF et al., supra note 208, at 17.

112 concurrent TNC service, such as UberPool or Lyft Line, as well as microtransit, should be eligible as contracted-out service to the extent that the project is otherwise eligible for operating assistance or qual- ifies under programs such as the MOD Sandbox. 2. Applicability of FTA Program Requirements Threshold for Applicability.—In determining whether the transit agency may have any responsibil- ity for the RSP’s compliance with federal require- ments, a threshold question is whether the RSP is considered to be providing service on behalf of the transit agency. If the RSP relationship is limited to integrating information about the RSP into the tran- sit agency app, the RSP will not be considered to be providing service on behalf of the transit agency for purposes of applicability of federal requirements (other than those, such as Title III of the ADA, that apply to the RSP service regardless of transit agency involvement). If the transit agency subsidizes or otherwise discounts the RSP fares to passengers, then arguably the RSP is providing such service. In that case, Title II of the ADA and Title VI requirements will apply to the service as they would to the transit agency. While FTA cannot waive any requirements for RSP projects, the agency may—at least until RSP- specific regulatory requirements are more defined— provide some flexibility for projects conducted under FTA research programs and as pilots. ADA in General.—The extent of Title II require- ments will depend on the type of service provided. A demand response project that includes RSP service must still provide equivalent service to persons with disabilities. A key point for RSP projects in this regard is that passengers requiring WAVs should not be charged more than other passengers nor be required to wait longer for service. If the transit agency hires an additional provider to ensure the availability of WAV service, then the transit agency must absorb any cost differential between passen- ger charges for the WAV service and regular service. Complementary Paratransit.—RSP-provided ADA paratransit service must comply with the transit agency’s FTA-approved paratransit plan. Noncompli- ance, for example, by providing curb-to-curb service where the plans calls for door-to-door service, could result in the transit agency being held liable for a Title II violation, even if federal funding is not used for the RSP service. In addition, a high percentage of successful ride provision may not preclude a finding of noncompliance where there is nonetheless a large number of ride denials.768 The general rule that Part VII reviews major legal issues of concern in evaluating the RSP alternatives that may be avail- able to meet a transit agency’s MOD needs and in subsequently negotiating contracts for such services. The discussion then raises some additional points for transit agency counsel to consider in evaluating the legal risks of various RSP alternatives, high- lighting some areas where problems may arise in such evaluation and negotiations and identifying potential pitfalls. A. Summary of Key Legal Issues This section highlights key legal issues that— despite the uncertainty—are relevant to evaluating the legal risks of various RSP relationships. These include legal issues that directly relate to potential legal risk to the transit agency—for example, risk of noncompliance with the federal grant agreements— and those that affect important factors that enter into transit agency decisions about RSP relation- ships—for example, legal liability that may affect the cost competitiveness of TNC contracts. Employment classification, because of its effect on the indemnifi- cation provided by RSPs and its potential effect on the economics of TNC service, fits in both categories. The focus of the discussion is on legal require- ments that are particular to RSPs and general requirements whose applicability to RSPs has been unclear. The specifics of at least some of these requirements can be expected to change as the RSP industry matures. In conducting their own analyses, transit agency counsel are advised to be cognizant in particular of additional FTA regulatory activity, further developments in employment classification law, and changes to state TNC statutes and any rele- vant local regulations. 1. Eligibility for Federal Assistance Certain capital projects, such as construction of waiting areas at a transit facility to accommodate RSP service, may be eligible for federal funding. However, 49 U.S.C. § 5309 recipients will have to use local funds to support RSP service itself. Other recipients may be able to use federal funding to provide shared ride service, ADA paratransit, job access and reverse commute service, or alternatives to public transportation under 49 U.S.C. § 5310. If FTA funds are used to fund the grant in which RSP activities are included, the RSP will be a third-party participant under the grantee’s master agreement. The typical TNC (single rider) service is not eligi- ble for any FTA funding that supports public trans- portation service, but may be eligible as an alternative to public transportation under § 5310 or as a job access and reverse commute project, or if it qualifies under programs such as the MOD Sandbox. However, 768 Anderson v. Rochester-Genesee Regional Transp. Auth., 337 F.3d 201 (2d Cir. 2003); O’Connor v. Metro Ride, Inc. 87 F. Supp. 2d 894 (D. Minn. 2000); Liberty Resources, Inc. v. Southeastern Penn. Transp. Auth., 155 F. Supp. 2d 242 (E.D. Pa. 2001).

113 4. Employment Classification This issue potentially affects tort liability and the value of TNC indemnification, as well as the costs of delivering RSP service. Employment classification questions arise under both federal and state law; an RSP driver could be held to be an employee under federal but not state law, or vice versa. In addition, a holding that a driver is an employee for purposes under a particular type of statute, for example, wage and hour, does not determine whether the driver will be held to be an employee under other statutes. Although employment classification cases are extremely fact-dependent, courts—whether apply- ing a right-to-control test or an economic realities test—may come to different conclusions in cases involving essentially similar facts overall, based on the factors that the individual court chooses to emphasize in its analysis. In general, the employment classification determi- nation under state law may be affected by the state TNC statute; state employment law, if any, specific to RSP or similar gig economy providers; and state employment law in general. Specific issues of impor- tance include whether the state TNC statute classi- fies drivers as independent contractors or otherwise addresses the employment status of drivers and whether state employment law includes a presump- tion of employment status. Future TNC—or other gig economy—litigation could also result in changes in employment classification under state law. The limited TNC actions to date in California—the juris- diction for much TNC litigation—as well as analo- gous California case law suggests the possibility of an eventual holding that TNC drivers or similarly situ- ated gig economy workers are employees. Factors supporting this conclusion include the emphasis both the Cotter and Grubhub courts placed on the right to terminate at will as evidence of control, the Grubhub court’s position that the party’s belief about indepen- dent contractor status is the least important factor in determining employment classification, and Grub- hub court’s reference to the service agreement as a contract of adhesion (a point also raised by the New York Unemployment Insurance Appeals Board and the UK employment tribunal). Such a determination could affect the economics of TNC service and could also affect TNC tort liabil- ity. Such a determination would also make standard TNC indemnifications more effective than under the major TNCs’ historical position of maintaining that the drivers are independent contractors. The expected 2018 Supreme Court decision on arbitration agreements will also affect employment classification litigation. premium service may be offered under different terms than regular complementary paratransit service—for example, premium service is not subject to the statutory cost limits of regular complementary paratransit service—applies to RSP-provided para- transit. However, premium service may not discrimi- nate between categories of patrons. If a transit agency contracts out ADA paratransit so as to provide same- day service to ambulatory customers, it must also provide such service to wheelchair users; moreover, any cost differential between service delivered by the WAVs and that delivered by non-accessible vehicles must be absorbed by the transit agency, not passed on to customers who require WAVs. Part 655.—Applicability of drug and alcohol test- ing requirements will depend upon the customer choice inherent in the service structure, funding source, and project length. The testing requirements will not apply if the transit agency contracts with two or more RSPs and one or more taxicab compa- nies, the project is funded with research dollars, or the project is a pilot (up to 1 year) that does not use FTA funds. An informal arrangement that reflects an ongoing relationship between the parties may constitute a contract for purposes of the applicabil- ity of part 655. Additionally, independent contractor status of the drivers does not preclude applicability of part 655 to the RSP contract. 3. State and Local Requirements for Accessibility As of 2017, very few state TNC statutes required that TNCs provide WAVs. However, this may be an area where new state requirements will be imple- mented over time. For example, several state TNC statutes required state bodies to undertake review of state policy that could result in changes to the state law regarding measures to ensure accessibility to persons with disabilities. TNC litigation may also result in changes in disability requirements under state law. In addition, local jurisdictions may impose requirements, for example, minimum availability of WAVs and disability training for drivers, to ensure that RSPs provide equivalent service to persons with disabilities. Although less common than disability require- ments, state and local law may require that TNCs provide access in underserved communities. However, a number of state TNC statutes require that TNCs both book and receive payments for rides solely through their apps, which could complicate efforts to require services that reach unbanked customers and those without smartphones, who may disproportionately be found among minority, low-income, and senior populations.

114 under its FMLM pilot.769 The enforceability of such disclaimers may vary by jurisdiction and the specific facts of the vicarious liability claim in question. It is unclear whether enforceable arbitration clauses in TNC customer agreements might work to also shield contracting transit agencies from liability. Negligent or fraudulent misrepresentation as to the safety of using the TNC service is another possi- ble theory of recovery against a transit agency. As in the case of gross negligence analysis, notice concern- ing TNC driver screening practices could be rele- vant. This theory does not require establishing that the allegedly offending driver is an employee of the transit agency. B. Additional Factors to Consider in Assessing Legal Risk The discussion of potential best practices and the summary of key legal issues are intended to provide transit agency counsel with a sound basis for conducting their own evaluations of the legal risks presented by RSP alternatives to providing MOD service. This section addresses additional factors to consider in assessing those risks. The discussion identifies several common problem areas, as well as some potential pitfalls. 1. Accessibility It is not unheard of for TNC assurances concerning WAVs to fail to come to fruition. Relying on those assurances without including alternative WAV provid- ers could result in Title II noncompliance. The practice of requiring a verification of the availability of WAVs and penalties for failing to provide the required numbers of WAVs could provide a hedge in this regard. 5. Tort Liability Causes of action related to RSP service are most likely to arise from accidents and assaults involving TNC drivers. Tort liability will vary by jurisdiction and the particular facts of the incident involved. However, several general principles should apply. Factors that may affect TNC tort liability include the employment status of the TNC drivers, whether TNCs are common carriers under state law, state law concerning the effect of public franchise on tort liability, and the risk involved in the inherent distracted driving element of app-based dispatching of drivers. TNCs are more likely to avoid liability for driver torts where state TNC statutes provide that TNCs are not common carriers, which could further insulate contracting transit agencies from liability. However, even absent common carrier status, TNCs will be subject to colorable causes of action under other theories of liability—including respondeat superior, apparent agency, negligent hiring, and negligent/fraudulent misrepresentation—in at least some jurisdictions. Moreover, if TNCs avoid liability, would-be plaintiffs may be more likely to plead other theories, such as dangerous condition or negligent/ fraudulent misrepresentation, to pursue claims against the contracting transit agency. Theories of liability as to the transit agency may include vicarious liability for the actions of the driver—such as nondelegable duty and appar- ent agency—as well as negligent hiring and negli- gent/fraudulent misrepresentation. Not all of these theories require establishing that the TNC driver is an employee of the TNC, let alone of the transit agency. Where sovereign immunity from suit against a transit agency applies, the decision to engage with a TNC is likely to be deemed a governmental func- tion not subject to liability. However, while the applicability of sovereign immunity could affect vicarious liability and negligent hiring claims, exceptions to that immunity—including gross negligence and negligent violation of statutory law—may apply. Known problems with TNC back- ground checks could be an issue in regard to allega- tions of (gross) negligence. A disclaimer of liability may also provide a defense to vicarious liability claims. For example, Pierce Transit has disclaimed liability for Uber’s service 769 The description of Pierce Transit’s Limited Access Connections pilot states: Though Limited Access Connections services are funded by Pierce Transit through a grant provided by the Federal Transit Administration, the rides are provided by Uber through Uber’s driver partners. Use of these ser- vices is the customer’s decision, and by utilizing these services, you, the customer, acknowledge that Pierce Transit holds no responsibility for Uber’s trips or Uber’s driver partners. PIERCE TRANSIT DISCLAIMS ANY AND ALL LIABILITY, INCLUDING ANY EXPRESS OR IMPLIED WARRANTIES, WHETHER ORAL OR WRITTEN, FOR UBER’S SERVICES. THE CUSTOMER ACKNOWL- EDGES THAT NO REPRESENTATION HAS BEEN MADE BY PIERCE TRANSIT AS TO THE FITNESS OF UBER’S SERVICES FOR THE CUSTOMER’S INTENDED PURPOSE. https:/ /www.piercetransit.org/limited-access- connections/.

115 RSP that does require such background checks, using taxis instead of the TNC, or delivering service through a public RSP that deploys more stringently vetted drivers than do TNCs. If the decision is made to proceed with the TNC under the state- mandated background check process, requiring peri- odic background checks of TNC drivers who have already been accepted on the TNC platform may reduce the risk of deploying unsafe drivers. The TNC settlement agreements described in Part IV. D, Fraud/Misrepresentation/Unfair Competition/Privacy, may provide additional models for requirements to consider in this regard. Other safety-related issues to consider for a simi- lar evaluation include medical exams for drivers, driver training, drug and alcohol testing, and limita- tions on hours of service. Depending on state tort law, more substantial driver safety requirements may mitigate the risk to the transit agency from aggrieved passengers or others alleging injuries due to the TNC’s negligent hiring of drivers. 4. Employment Classification To the extent that the decision to contract with a TNC to provide transportation service (as opposed to the right to use the TNC platform but not TNC driv- ers) is based on cost, transit agencies should be aware that the Uber and Lyft business model is premised in no small part on saving up to 30% of operating expenses by not providing driver benefits, minimum wage, training, overtime, and unemployment compen- sation. If the legal status of drivers were to change, that cost advantage could largely disappear. In addi- tion, assuming a standard indemnification agree- ment, the effectiveness of the TNC indemnification against accident liability depends to a significant extent on the employment status of the TNC drivers. Until an actual body of case law develops, a possible predictor of the disposition of the employment classi- fication question in a given jurisdiction is whether the state tends to be more pro-employer (e.g., Florida) or pro-employee (e.g., California). 5. Indemnification Because TNCs maintain that the drivers are not employees or indeed agents of the TNC, standard indemnification language may not be sufficient to require the TNC to indemnify the public agency against claims arising out of torts allegedly commit- ted by the drivers in the course of providing rides under the TNC contract with the agency. For exam- ple, an indemnification limited to the TNC and its employees could be of questionable utility for protecting against accident and assault claims. 2. Data Data-related concerns include whether (a) the TNC will provide adequate data, (b) the TNC insists on overly broad characterization of the confidential- ity of data related to the project, and (c) the TNC adequately secures any transit agency and/or customer data to which it has access under the agreement. For example, acceding to TNC demands concerning confidentiality of data may prevent the transit agency from adequately assessing the effec- tiveness of the TNC service; agreeing to receive only anonymized data, as TNCs generally insist, may be inconsistent with obtaining the per-customer infor- mation necessary to ensure that ADA paratransit service is provided only to eligible patrons. In addi- tion, to the extent that the transit app collects customers’ data or exposes transit agency data, inte- grating a transit agency’s app with a TNC app may raise data security issues. Contractual remedies for unauthorized disclosure of transit agency data (including customer data) due to breaches of the TNC security system could include requiring imme- diate notice of such breach and indemnification against damages arising from such breach. 3. Driver Safety Transit agencies may want to consider whether the driver safety requirements mandated under state TNC statutes, for example, those governing background checks and minimum age requirements, are sufficient to ensure safe service. If the statutory requirements are deemed insufficient, the agency should then consider whether to address these driver safety issues in agreements with TNCs or to seek alternative delivery mechanisms for MOD service. For example, the possible weaknesses of state- mandated TNC background checks as a means to screen out unsafe drivers include: • Lack of a fingerprint requirement, facilitating driver use of aliases to hide disqualifying offenses; • Inadequate period of time covered by criminal and driving history checks; • Overly narrow scope of disqualifying conditions; • Lack of coverage of international criminal history, resulting in potential omission of serious offenses; and • Inadequate requirement to recheck TNC driv- ers’ backgrounds once they have been accepted for service on the TNC platform. In addition to negotiating a more stringent back- ground check requirement into the contract (a chal- lenge at best), alternatives for addressing the background check issue include contracting with an

116 9. Torts Numerous incidents have been reported involv- ing TNC drivers alleged to have caused accidents or committed assaults. In many instances these inci- dents have given rise to publicized legal action. It is unclear whether courts could consider the news about TNC incidents to constitute notice of a possi- bly dangerous condition772—analogous to problem bus stop locations constituting a dangerous condi- tion—for which the contracting transit agency could be liable. In addition, where a TNC driver working under the TNC’s arrangement with a transit agency causes an accident or commits an assault, the TNC reputation for inadequate screening could enter into the victim’s potential allegations concerning the transit agency’s breach of its duty to ensure the safety of its passengers, under negligent hiring (as to the TNC) and/or misrepresentation claims. 10. Type and Structure of RSP Service to Be Provided The type of service provided, and the manner in which it is structured, should affect the risks of a transit agency being in noncompliance with statu- tory and regulatory requirements, and of being subject to tort liability due to RSP activity (or lack thereof). The greater the extent of service integration and transit agency control, the more likely that the transit agency will be affected by RSP failure to comply with federal and state requirements, as well as by the actions of RSP drivers. Too many factors are at issue to provide a precise ranking of risk of relationships, but the outer contours are discernible. App integration should pose the least amount of legal risk in terms of compliance with FTA grant requirements, as the TNC should not be considered providing service on behalf of the transit agency. Moreover, of the potential RSP service options, mere app integration is probably also the least risky option in terms of tort liability arising from acci- dents and assaults. However, app integration could pose some data security risks. Replacing existing service, in whole or in part, with contracted TNC service poses greater legal risk than other possible TNC service options, at least in terms of civil rights issues and of placing the TNC in the shoes of the transit agency for purposes of compliance with FTA grant requirements. Theoreti- cally, under that replacement scenario, there also could be a stronger case to be made that the TNC is 6. Insurance Transit agencies should consider the adequacy of coverage levels and coverage periods for transit service. As to coverage levels, state—and, if applica- ble, local—law will provide a floor that may or may not be sufficient under transit agency policy; the transit agency standard insurance requirements may or may not be adequate to cover the added risk of deploying nonprofessional drivers. As to coverage periods, state TNC statutes are commonly struc- tured to ensure coverage from the time the driver turns the app on until the time the driver completes the ride or turns the app off, whichever is later. However, alleged torts have occurred when the driver had turned off the app, but interacted with a passenger immediately following previous interac- tions that arose when the app was on. Accordingly, as commonly structured, TNC insurance would likely not cover the periods during which such alleged torts may occur, as coverage would be miss- ing for time periods when the app is off but the driver still interacts with passengers. This gap could be significant, as TNCs have routinely disclaimed liability for such torts. 7. Limitation of Liability It is possible to require the TNC app to include a notification that the transit agency has no relation- ship with the TNC drivers.770 The effectiveness of this method of limiting liability will depend at least in part on whether courts determine that the waiver of liability in the terms of the TNC app are enforce- able against customers of the TNC. Moreover, some state TNC statutes specifically nullify such waivers of liability. Thus the success of attempting to limit liability through such notice may vary considerably depending on the transit agency’s jurisdiction. 8. Nondisclosure Agreements TNCs, if not RSPs in general, commonly attempt to require expansive NDAs. Aside from raising public policy concerns about rendering details about the use of public money confidential,771 overly-broad NDAs may conflict with state public records law and make it more difficult for transit agencies to share information as required for project development, implementation, and evaluation. 770 See Centennial Innovation Team, Fehr & Peers, goCentennial Final Report, June 2017, at 50, http://www. centennialco.gov/uploads/files/Government/Iteam/Go%20 Centennial%20Final%20Report_for%20web.pdf. 771 Janelle Irwin, Uber releases ridership data from local transit partnership, tamPa bay buS. J., Jan. 26, 2017, http://www.bizjournals.com/tampabay/news/2017/01/26/ uber-releases-ridership-data-from-local-transit.html (accessed Jan. 27, 2017). 772 Alene Tchekmedyian, Girl struck by car as she walked to ‘unsafe’ school bus stop awarded $36.1 million by San Bernardino jury, L.A. tImeS, Sept. 22, 2017, http:// www.latimes.com/local/lanow/la-me-ln-durham-settle- ment-20170921-story.html (accessed Sept. 30, 2017); Bonanno v. Central Costa Transp. Auth., 65 P.3d 807, 813 (Cal. 2003).

117 an apparent agent of the transit agency for purposes of tort liability. 11. Vehicle Safety Under State Law Transit agencies may also want to consider whether vehicle safety requirements under state law are sufficient to ensure patron safety. Vehicle-related state requirements to evaluate include the frequency and thoroughness of vehicle inspection require- ments, the entity authorized to conduct the inspec- tions, and parameters for acceptable TNC vehicles (e.g., vehicle age, seating requirements).