SR 09-27-2011 7C- City of City Council Report
Santa Monica'
City Council Meeting: September 27, 2011
Agenda Item: 77—
To: Mayor and City Council
From: Carol Swindell, Director of Finance
Subject: Introduction and First Reading of Ordinance Regarding Compensation for
Access to Taxicabs or other Vehicles for Hire
Recommended Action
Staff recommends that the City Council introduce for first reading an ordinance
amending Chapters 6.48 and 6.49 of the Santa Monica Municipal Code, prohibiting
businesses and their agents from demanding or accepting compensation in exchange
for access to vehicle- for -hire customers, and prohibiting businesses and their agents
from denying franchised taxicabs access to the premises of a business establishment
(Attachment A).
Executive Summary
When patrons of a hotel, restaurant, nightclub, or other business establishment need a
taxicab or other vehicle- for -hire, they frequently will request the service through a
doorman, bellhop, bartender or other employee of the establishment. What the
customers do not know is that in some instances the employee of the business is, in
effect, selling their trip to the taxicab or other vehicle- for -hire driver in return for
monetary compensation. Such practices cause business to go to the companies and
drivers that are willing to pay for access to customers, instead of to those that deliver
the best service.
Current Santa Monica ordinances do not address the problem of employees of
businesses, hotels in particular, demanding payments from taxicab drivers or other
types of vehicles- for -hire, such as limousines, for privileged access to their patrons. Nor
do existing laws address the related issue of businesses or their employees and agents
banning specific taxicab companies or taxicab drivers from picking up passengers at a
taxicab stand or hack stand on the premises of the business establishment when the
driver or company refuses to pay the business or its employee or agent in order to pick
up customers.
Staff recommends an ordinance that: (1) prohibits both drivers and persons who own or
work for a business from exchanging any compensation to gain access to customers;
(2) prohibits businesses and their employees or agents from excluding any Santa
Monica licensed taxicab from picking up passengers at any taxicab stand, hack stand,
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or other location where taxicabs are regularly allowed to pick up passengers on the
premises of the business; and (3) prohibits drivers and companies or their agents from
receiving compensation from hotels and other venues for recommending or directing
customers to particular business establishments, to help ensure that such a practice
does not develop into an alternative form of payments or kickbacks for privileged access
to customers.
The Ordinance includes minor changes to Chapter 6.48 to modify the definition of a
Vehicle for Hire, and to accurately reflect that insurance verification is filed with the
Finance Department and the rules and regulations are adopted by the Police
Department.
Background
In Santa Monica, prior to the establishment of taxicab franchises, it was a common and
legal practice for owners and operators of hotels, motels, and other business
establishments to have exclusive arrangements with specific taxicab or other vehicle -
for -hire companies. These arrangements often included monetary or other forms of
compensation to ensure privileged access to customers. In addition, employees and
agents of these companies also demanded the payment of "gratuities" from taxicab and
other vehicle- for -hire drivers for this access. This type of practice in a regulated
environment fosters an unfair competitive and working environment for companies and
drivers. It imposes financial hardships on drivers and causes drivers to seek methods
for recouping payments from their customers, sometimes leading to negative taxicab
experiences.
On November 9, 2010, the Santa Monica Taxicab Rules ( "Rules ") were adopted. These
Rules prohibit a Santa Monica taxicab franchisee from entering into any taxicab service
arrangements or agreements for monetary compensation or any other consideration
that results in exclusive access to any business establishment or any public or private
organization in the City. Franchise companies are also required to ensure that none of
its drivers, employees or members enters into any taxicab service arrangements or
agreements for compensation or other considerations with any business. The Rules
further prohibit any driver from offering to pay or receiving payment from any employee
or agent of a business for access to its customers. These types of payments are
commonly referred to as "gratuities ", "kickbacks" or "cookies ".
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The Rules were adopted to ensure equal competition to all businesses, to prevent
negative impacts on taxicab drivers' income, to facilitate more efficient taxicab services,
to improve customer service, and to guarantee customer choice. Under the franchise
system, all taxicab companies are contractually and legally held to the same higher
standards. However, even with the Rules in place, it is still common for business agents
or representatives to seek compensation or consideration from drivers of taxicab or
other vehicles- for -hire. Staff has received complaints regarding the ongoing practice of
demanding compensation or other consideration from taxicab drivers who are being
passed over for other vehicles- for -hire that are not subject to taxicab franchise
regulations.
Discussion
When customers of a hotel, restaurant, nightclub, or other business establishment need
a taxicab or other vehicle- for -hire, they frequently will request the service through a
doorman, valet, host(ess) or other employee or agent of the business. What the
customers generally do not know is that in some instances the employee or agent of the
business is, in effect, selling their trip to a taxicab driver or driver of other vehicle- for -hire
services in return for monetary compensation. Such practices cause businesses to
refer customers to only companies and /or drivers that are willing to pay for access. The
City has received complaints directly from taxicab company representatives, taxicab
drivers, and customers regarding these types of payments. City staff has also
witnessed such payments being made by taxicab drivers to hotel staff.
Workinq Conditions
This issue has created an antagonistic environment where drivers compete for access
to customers in a manner that has resulted in verbal exchanges between drivers of
taxicabs and drivers of other vehicle- for -hire services in front of customers at hotels.
Staff has received complaints from hotel management because of altercations between
drivers, especially in situations where a pre- arranged trip was made, or when a taxicab
is pulled out by of line by hotel staff to accept a fare. Staff has received complaints from
drivers who are given less desirable fares or are turned away by an employee of a
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business for failing to meet businesses staffs' demands for payment
Staff has received complaints from passengers and taxicab drivers regarding the
practice of demanding compensation or other consideration for access to passengers;
drivers being denied access to preferred longer- distance trips; and of the increased use
of town car service by certain businesses. These demands have led to some
confrontations and have resulted in fines for taxicab drivers and taxicab companies.
Equal Access
Taxicab drivers, when deprived of equal access to provide service to hotels and other
business establishments for the purpose of providing taxicab services to patrons of
those hotels or business establishments, face financial hardship resulting from this
unfair competition. The loss of income can encourage drivers to engage in practices
that ultimately adversely affect the consumer. Taxicab drivers often feel they have been
the victims of extortion after having been forced by employees of businesses generating
trips, particularly hotel doormen, to pay cash amounts ranging from $5 to $10 for what
are considered "good" trips. An example of a "good" trip is one where the customer
requests transportation to LAX.
One reason why all five taxicab companies supported lowering the LAX flat rate was
because of the incentive that the rates gave to drivers to pay hotel doormen for access
to customers requesting transportation to LAX. Because the average taximeter rate to
LAX is approximately $30, when a taxicab driver was able to collect a $45 fee, the
additional revenue provided a strong incentive for drivers to pay $5 or even $10 for
these fares, since the driver was able to easily compensate for the "kickback" to access
the customer.
Sometimes doormen call the cell phones of taxicab drivers or town car drivers who are
willing to make payments to bypass taxicab queues and avoid directing the customer to
a driver who, in compliance with the Taxicab Rules, refuses to pay a "kickback."
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Charter -Party Carries
In most cases the transportation of passengers for compensation requires operating
authority from the California Public Utilities Commission (CPUC). The law provides
some exceptions, however. One is taxicab service, which is subject to local regulation
by cities and counties. The exceptions are set forth in Public Utilities Code Sections
226 and 5353.
In addition to taxicabs, which are currently regulated by the City of Santa Monica, the
public also has the option to use Transportation Charter Permit (TCP) vehicles which
are officially known as Charter -Party Carriers and commonly known as "town cars ".
Although these vehicles are referred to as town cars, a variety of vehicles are used in
this capacity, including hybrid vehicles such as Toyota Priuses. Some taxicab
companies that were not awarded Santa Monica franchises in 2010 have converted
their business operations to vehicle- for -hire services, maintaining their existing fleets
and obtaining California state licenses to operate. Under this CPUC- issued permit, a
vehicle- for -hire service may only pick up passengers on a pre- arranged basis.
California Public Utilities Code Section 5360.5 defines "prearranged basis" to mean that
"the transportation of the prospective passenger was arranged with the carrier by the
passenger, or a representative of the passenger, either by written contract or
telephone." Neither the California Public Utilities Code, nor the CPUC General Orders
place any time frame on making such arrangements, making enforcement difficult. This
point was acknowledged by the CPUC in 2002 when it stated in its Rule Making Order
filed August 8, 2002, concerning CPUC General Order 157 -C (which is now superseded
by CPUC General Order 157 -D) the following:
To the extent that some charter -party carriers are in fact misusing their
charter -party authority, insufficient Commission and local enforcement
resources may be partly to blame. However, complaining parties
frequently point to gaps in Commission regulations as a hindrance to
meaningful enforcement. In particular, Part 3.01 is viewed as in need of
clarification and strengthening if it is to be effective in preventing abuses.
Complainants point out, for instance, that "prearrangement" is not limited
to a time period, and solicitation of passengers is not specifically
prohibited.
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These permits do not allow a driver to be "hailed" from a street corner and these drivers
may not queue up in front of a hotel, or utilize taxicab stands. Because the state has
delegated regulatory authority for taxicab services to local governments, within Santa
Monica, a taxicab company must have been awarded a franchise to operate and its
drivers and vehicles must obtain permits from the City of Santa Monica.
At some Santa Monica hotels, non - prearranged, walk -up customers are being solicited
and directed to Charter -Party Carriers. Accepting a walk -up customer is a direct
violation of Santa Monica Municipal Code (SMMC) Section 6.49.040 and Public Utilities
Code Section 5360.5 and CPUC General Order 157 -D, which mandates that Charter-
Party Carriers operate only on a prearranged basis. Additionally, as stated earlier,
because some companies that were not awarded a taxicab franchise still operate within
Santa Monica, these drivers have been known to pick up passengers without a
prearranged pick up appointment.
Although non - prearranged travel is a violation of state law and CPUC regulations, the
CPUC has consistently lacked the enforcement resources to effectively deal with the
violations, leaving enforcement to local governments. The City of Los Angeles recently
enacted an ordinance to address the issue of vehicle- for -hire operators, such as
Charter -Party Carriers acting as de facto taxicabs in the City.
The ordinance includes modification of the definition of a Vehicle for Hire in Section
6.48.010(a) to delete limousines and add "charter -party carriers of passengers other
than limousines as defined in the Public Utilities Code," in order to clarify that Charter
Party Carrier vehicles (i.e., Transportation Charter Permit (TCP) vehicles, not
limousines with livery plates) are subject to the requirements of Santa Monica Municipal
Code Chapter 6.48, as authorized by Public Utilities Code section 5371.4.
San Diego Ordinance
Discussions with the Taxicab Administrator in San Diego have indicated that an
amendment to the San Diego Municipal Code effectively addresses the situation in that
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city. If any hotel employee accepts compensation for calling a particular taxicab or
limousine service, the employee is in violation of the San Diego Metropolitan
Transportation Development Board Ordinance No. 11, Section 1.8(v), as follows:
It shall be unlawful for any person to solicit business for a for -hire vehicle
by making a contract or agreement with any owner of any hotel, apartment
house, motel, inn, rental units, restaurant, or bar, or with the agent or
employees of such owner, by which the owner, agent or employee
receives any type of payment or commission for recommending or
directing any passenger to a specific for -hire vehicle or company. It shall
be unlawful for any permit holder, association, or driver to have or make a
contract or agreement with any owner of any hotel, apartment house,
motel, inn, rental units, restaurant, or bar, or with the agents or employees
of such owner, by which the permit holder, association or driver receives
any type of payment or commission for recommending or directing any
passenger to an establishment operated by a specific owner.
Enforcement of the San Diego law is routinely accomplished through conversations or
correspondence with hotel managers at hotels where the problem occurs. The simple
fact that the law is in effect is a substantial deterrent to activities relating to kickbacks,
extortion and the selling of access to customers. At the same time, it has not appeared
to have a negative impact on legitimate town car and limousine operators working at
hotels who comply with CPUC rules. Additionally, the City of Los Angeles is currently
considering adding language to the Los Angeles Municipal Code that is based on the
San Diego law due to the law's success.
Proposed Ordinance
Current Santa Monica ordinances do not address the problem of employees of
businesses from demanding payments in exchange for exclusive access to customers.
Nor do existing laws address the practice of hotel doormen and others, in return for
"kickbacks" from town car and limousine operators, from providing exclusive access to
customers. Staff therefore believes that an ordinance prohibiting compensation to gain
access to customers should apply equally to taxicab and vehicle for hire companies,
drivers, and businesses, including their respective employees and agents. Extending
the prohibition on payments to businesses, such as hotels, and its agents, provides the
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City with additional tools to address and mitigate the issue. The proposed ordinance
includes language prohibiting businesses or its employees or agents from excluding any
Santa Monica - licensed taxicab from picking up passengers at any location where
taxicabs are regularly allowed to pick up passengers on the premises of the business.
The proposed ordinance also includes language that prohibits drivers and companies or
their agents from receiving compensation from hotels and other venues for
recommending or directing customers to particular business establishments. While staff
does not see this practice as a current problem in the City of Santa Monica, staff
recommends including this prohibitive language in the ordinance to help assure that
such a practice does not develop into an alternative form of payments or kickbacks for
privileged access to customers.
Corrections
The Ordinance includes minor changes to Chapter 6.48 to accurately reflect that
insurance is filed with the Finance Department, not the Police Department as the Code
currently states, and that the rules and regulations are adopted by the Police
Department, not the City Manager as the Code currently states.
Financial Impacts & Budget Actions
There is no immediate budget/financial impact associated with this recommended
action.
Prepared by: Salvador M. Valles, Taxi Franchise Program Coordinator
Approved:
Carol Swindell
Director of Finance
Attachments:
A. Ordinance
Forwarded to Council:
Rod Gould
City Manager
City Council Meeting 09 -27 -2011
Santa Monica, California
ORDINANCE NUMBER (CCS)
(City Council Series)
AN ORDINANCE OF THE CITY COUNCIL
OF THE CITY OF SANTA MONICA AMENDING
CHAPTERS 6.48 AND 6.49 OF ARTICLE VI OF THE SANTA MONICA
MUNICIPAL CODE REGARDING VEHICLES FOR HIRE
WHEREAS, for years, it has been a common practice in the City for owners and
operators of hotels, motels, and other business establishments to have arrangements for
compensation with taxicab or other vehicle for hire companies to ensure privileged access
to customers, and for employees and agents of such establishments to demand, solicit,
and accept, and for taxicab or other vehicle for hire drivers to offer and pay, compensation
in exchange for such privileged access; and
WHEREAS, this practice fosters unfair competition and an unfair working
environment for companies and drivers, and imposes financial hardships on drivers, which
results in less courteous and efficient service to the public because of a negative incentive
to recoup payments from the public by increasing overcharges, using circuitous routes, or
other discourteous behavior, and is thereby detrimental to the public health, safety, and
general welfare; and
WHEREAS, the taxicab rules and regulations adopted by the Santa Monica Police
Department pursuant to Santa Monica Municipal Code Section 6.49.020 prohibit taxicab
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franchisees from entering into any arrangements or agreements for compensation with any
hotel, motel, or other business establishment, public or private agency, or organization in
the City; and
WHEREAS, the taxicab rules and regulations also prohibit taxicab drivers from
offering or paying any bribe or gratuity to any employee or agent of a hotel, motel, or other
business establishment, public or private agency, or organization in the City, for privileged
access to passengers at the hotel, motel, or other business establishment, public or private
agency, or organization in the City; and
WHEREAS, the foregoing rules were adopted to combat discrimination by
businesses against taxicab companies and drivers, to ensure equal competition and equal
access to passengers, to prevent negative impacts on driver income, to facilitate more
efficient taxicab services, and to improve customer service; and
WHEREAS, notwithstanding the foregoing rules, the prevailing practice among
owners, operators, employees, and agents of a hotel, motel, or other business
establishment to solicit, demand, and accept payment from taxicab franchisees and drivers
in exchange for privileged access to passengers continues unabated; and
WHEREAS, taxicab franchisees and drivers who refuse to provide such
compensation (commonly referred to as "kickbacks" or "cookies "), in compliance with the
foregoing rules, are consistently refused access to passengers or even access to business
premises that provide a taxicab stand or hack stand; and
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WHEREAS, based on the foregoing, it is necessary to prohibit the practice of
kickbacks and discrimination against companies and drivers with respect to access to
passengers and to premises that provide a hack stand, in order to promote fair
competition, equal opportunities, and more efficient service to the public, which will in turn
promote the public health, safety, and general welfare; and
WHEREAS, since the implementation of the taxicab franchise program, there has
been an increase in the number of charter -party carriers registered with the Public Utilities
Commission that operate within the City, requiring modification to the definition of a
"vehicle for hire" under the Santa Monica Municipal Code in orderto apply reasonable local
regulations on charter -party carriers of passengers other than limousines operating within
the City, as authorized by Public Utilities Code Section 5371.4; and
WHEREAS, since the implementation of the taxicab franchise program, certain
responsibilities in the administration and management of vehicles for hire have shifted to
City departments different from those designated in Chapter 6.48 of Article VI of the Santa
Monica Municipal Code; and
WHEREAS, the City strives to establish a clear, fair, effective, and administratively
efficient system for regulating vehicles for hire.
NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF SANTA MONICA
DOES HEREBY ORDAIN AS FOLLOWS:
SECTION 1. Section 6.48.010 of Chapter 6.48 of Article VI of the Santa Monica
Municipal Code is hereby amended as follows:
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Fer the purposes of this Chapter Gertain werd6 and phrases are defined and certain
provisions shall be construed as herein set forth, unless it is apparent from the conteAthat
a different meanie is intended
(a) "ehiGle for Hire. As used in this Chapter, the phrase "Vehic-le vehicle for hire"
includes taxicabs, charter -party carriers of passengers other than limousines as defined in
the Public Utilities Code, and every automobile or motor - propelled vehicle used for
transportation of passengers within and without the boundaries of the City not over a
defined route, at rates per mile, per trip, per hour, per day, per week or per month. Vehicles
leased or rented for a period of time to be driven by the lessee or his or her designee are
not included.
SECTION 2. Section 6.48.040 of Chapter 6.48 of Article VI of the Santa Monica
Municipal Code is hereby amended as follows:
Before any license is issued or renewed, the owner of the vehicle for hire shall be
required to file proof of insurance with the Police Finance Department in the amount
specified in the rules and regulations adopted by the City Manager pursuant to Chapter
6.49. This policy must insure the public against any loss or damage that may result to any
person or property from the operation of such vehicle. No person shall operate any such
vehicle without having a policy as described in this Section in full force and effect at all
times during the operation of such vehicle.
SECTION 3. Section 6.48.050 of Chapter 6.48 of Article VI of the Santa Monica
Municipal Code is hereby amended as follows:
Vehicles for hire shall be operated by the owner or by an employee or authorized
agent of the owner.
SECTION 4. Section 6.48.065 is hereby added to Chapter 6.48 of Article VI of the
Santa Monica Municipal Code as follows:
6.48.065 Compensation to pain access to passengers.
(a) No person shall offer, pay or agree to pay any consideration either monetary
or non - monetary to any owner, operator, employee or agent of any hotel or any other
business establishment for recommending or directing any passenger, who does not have
a reservation made on a prearranged basis to ride in a specific vehicle for hire or to a
specific vehicle for hire company.
(b) No owner, operator, employee or agent of any hotel or any other business
establishment shall solicit demand accept or agree to accept any consideration, either
monetary or non - monetary or enter into any vehicle for hire service arrangement or
agreement for recommending or directing a passenger, who does not have a reservation
made on a prearranged basis to ride in a specific vehicle for hire or to a specific vehicle for
hire company.
(c) No owner, operator, employee or agent of any hotel or any other business
establishment shall offer, pay or agree to pay any vehicle for hire company or driver in
exchange for the company or driver recommending or directing a passenger, who does not
have a reservation made on a prearranged basis to a business establishment operated by
a specific owner or operator.
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Nothing in this Section prohibits the passenger of a vehicle for hire from tipping
or pavinq a gratuity to the driver of a vehicle for hire or to an employee or agent of a hotel
or other business establishment.
SECTION 5. Section 6.49.095 is hereby added to Chapter 6.49 of Article VI of the
Santa Monica Municipal Code as follows:
6.49.095 Access to passengers on business establishment premises.
No owner, operator, employee or agent of any hotel or any other business
establishment shall exclude any taxicab driver operating pursuant to a franchise awarded
by the City from standing or picking up passengers at any taxicab stand hack stand or
other location where taxicabs or other vehicles for hire are regularly allowed to stand and
pick up passengers on the premises of the hotel or other business establishment.
SECTION 6. Any provision of the Santa Monica Municipal Code or appendices
thereto inconsistent with the provisions of this Ordinance, to the extent of such
inconsistencies and no further, is hereby repealed or modified to that extent necessary to
effect the provisions of this Ordinance.
SECTION 7. If any section, subsection, sentence, clause, or phrase of this
Ordinance is for any reason held to be invalid or unconstitutional by a decision of any court
of competent jurisdiction, such decision shall not affect the validity of the remaining
portions of this Ordinance. The City Council hereby declares that it would have passed this
Ordinance and each and every section, subsection, sentence, clause, or phrase not
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declared invalid or unconstitutional without regard to whether any portion of the ordinance
would be subsequently declared invalid or unconstitutional.
SECTION 8. The Mayor shall sign and the City Clerk shall attest to the passage of
this Ordinance. The City Clerk shall cause the same to be published once in the official
newspaper within 15 days after its adoption. This Ordinance shall become effective 30
days from its adoption.
APPROVED AS TO FORM:
r
M k` HA ON MOUTRIE
City Attorn
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