The sharing economy is no longer a new idea, but the constant development of novel business models centered on the sharing concept creates interesting challenges for local regulatory agencies. Each type of sharing economy business, from rideshares and micromobility to short-term rentals, brings its own complex challenges for local regulators. Addressing them requires careful deliberation.

Technology-driven innovation with unforeseen costs

Technology is at the core of the sharing economy. Businesses like Uber (cars for hire), Airbnb (short-term rentals), and Lime (electric scooters) all rely on the scale that can be achieved by linking people and businesses together using smartphone apps and websites. New business models, fed by eager venture capital funding, can pop up and deploy quickly.

The externalities of the sharing economy are difficult to measure. On the one hand, it offers flexible work for people who need some extra cash. Ridesharing services can create a form of transportation-for-hire in locations that historically have not had such services. Some argue that competition from short-term rental apps and ridesharing companies is good for the marketplace.

On the other hand, the sharing economy comes with a fair share of negative impacts. Many of those negatives stem from the chaotic nature of app-based sharing services. The vast majority of rideshare drivers have no training or qualification to be professional carriers, raising safety concerns. Uber and Lyft lose billions every year subsidizing their rides, making conventional taxis uncompetitive to the point of driving some into bankruptcy. Rental scooters and bikes can add unplanned-for vehicles to local roadways. Short-term rental businesses may contribute to rising housing costs, exacerbating affordable housing problems in some areas.

Avoiding regulation is a keystone of the sharing business model

Many of the negative externalities of the sharing economy highlight the complexity of imposing regulations on their activity. Quite often, skirting around existing regulatory regimes is a core feature of these businesses.

The ride-sharing industry is notorious for skirting around local laws governing taxi services. The Wikipedia page dedicated to regulation of ridesharing businesses illustrates the complex patchwork of rulemaking around the country and throughout the world. In California, state law preempts local control over ridesharing businesses. This prevents California cities from pursuing policies like those in New York, which caps the number of rideshare vehicles allowed within city limits.

Regulating the shared micromobility industry

Fortunately, other sharing economy businesses can be easier to regulate at the local level. The shared micromobility industry offers a clear example. Some cities have embraced the health and transportation benefits of widely available, shared e-bicycles and scooters. The National Association of City Transportation Officials (NACTO) offers a useful guide, which can be accessed here, to how cities throughout the country are regulating this industry. NACTO’s guidance cites three potential sources of legal authority for regulating micromobility businesses:

  • Regulation of commerce in the public right-of-way. Businesses that deploy automated bike or scooter rental kiosks typically want to deploy their hardware in public spaces. Provided that the public right-of-way is impacted, the businesses typically can be required to carry a license.
  • Public safety. Automated kiosks stacked with small vehicles raise health and safety concerns that bring them squarely within the jurisdiction of local government. Inexperienced riders zipping around town on a fleet of scooters increases injury risk on local streets, and the kiosks themselves can be hazards and targets for vandalism. Local governments can use their jurisdiction over public welfare to place rules around where vehicles are parked.
  • Contract. NACTO notes that some cities have entered into exclusivity contracts for certain vendors to operate without competition. Negotiating a contract can be more flexible than relying on permitting alone to regulate a sharing business. Among other things, a city can require financial assurances, such as adequate insurance for the company’s customers and contributions to offset city costs.

Of course, having jurisdiction to craft rules is only the beginning. Every city where a shared micromobility business intends to operate must balance a host of important considerations. How will the new vehicles impact traffic? What effect will they have on local law enforcement? Can adequate space be found to accommodate vehicles so they are not left in walkways? Can rulemaking be made sufficiently “futureproof” to account for the anticipated evolution of technology?

In some instances, cities may be able to pass along some of the cost of this analysis to permit applicants. Cities must weigh whether the potential benefits to the community justify the expense of due diligence.

Rely on Jones Mayer for sound counsel

Jones Mayer has been at the forefront of supporting local officials as they grapple with the complex challenges presented by the sharing economy. We are happy to work with your agency to conduct due diligence reviews, negotiate contracts, and explore regulatory frameworks to ensure that business innovation is balanced in the best interest of the public. If you have questions, please reach out to Jones Mayer by calling (714) 446-1400.