Legal requirements you need to know to launch a ride sharing service

When ride sharing—or ride hailing— emerged in the early 2010s, it spurred a revolution in mobility. Suddenly, almost anyone could offer and operate a taxi-like service supported by on-demand technology.  This new mode of shared transportation also ushered in a new era of user-friendliness. Riders could book, follow and pay for their rides straight from their phones.

When ride sharing—or ride hailing— emerged in the early 2010s, it spurred a revolution in mobility. Suddenly, almost anyone could offer and operate a taxi-like service supported by on-demand technology.  This new mode of shared transportation also ushered in a new era of user-friendliness. Riders could book, follow and pay for their rides straight from their phones.

But as their popularity increased, ride sharing providers faced resistance from traditional taxi companies and the taxi lobby concerned with their market share. Taxi drivers argued that they were at an unfair advantage and their taxi licenses, which depending on the market could cost hundreds of thousands of dollars, were suddenly worthless. In response and in an effort to protect both riders and drivers, legislators created laws to regulate ride sharing. While the established players had the infrastructure to address these new regulations, upstarts needed to navigate these legal hurdles largely on their own.

Yet, the effort is worth it. Worldwide, taxi and ride sharing is expected to grow 11% annually, resulting in a projected market volume of roughly US$400 million by 2025. Plug-and-play software as a service platforms are also making it easier and more accessible for any entrepreneur to start a ride sharing business, removing the do-it-yourself approach adopted by the early players.

The first step towards reaping the rewards of this immense opportunity is understanding the legal context around ride sharing. Here we break down the different requirements that these kinds of start-ups in the United States and Canada need to consider to get their business off the ground.

Licenses

Every jurisdiction in Canada and the United States has some form of licensing requirement for ride sharing services. These requirements however are not universal and companies may need to apply for multiple licenses depending on the scale of their operations.

For instance, in Arkansas, ride sharing providers simply need to pay a $15,000 annual fee and vet potential drivers. North Carolina, Kansas, Louisiana and Hawaii all have similarly relaxed rules.

By comparison, in California, Massachusetts, British Columbia, Washington, and Wisconsin drivers are required to submit to fingerprint and criminal background checks, have liability insurance and their labor rights are codified. In Toronto, drivers must complete a city-approved driver training program and have a minimum of three years driving experience.

Additionally, it goes without saying that drivers need a valid driver’s license for the relevant class of vehicle.

Insurance

In most states and provinces, personal car insurance doesn’t cover vehicles for hire. Ride sharing companies are therefore responsible for insuring their drivers through an approved policy.

Large, app-based companies such as Uber and Lyft are leading by example, offering drivers a basic insurance package with different levels of coverage depending on activity. For example, Uber’s auto insurance offers no coverage when the app is off, limited coverage when the app is on but the driver has no ride, and the highest level of coverage when the driver has a rider in the car.

Drivers are also encouraged to get additional commercial auto insurance to cover the areas that the company’s insurance policy does not.

Safety regulations

Safety regulations for ride sharing companies are generally directed at the safety of the rider. In the United States, Sami’s Law, or Bill H. R. 4686, which passed the House of Representatives in 2020 requires that providers implement a digital way for passengers to verify that their vehicle is indeed the one they ordered. This could be a scannable QR code for instance. Failing to comply could result in a hefty fine — $20,000 a day.

Fleet and vehicle requirements

The legal requirements and restrictions related to vehicle fleets change depending on whether a company’s drivers are staff members using company vehicles or independent contractors using their own vehicles.

Currently, Uber and Lyft represent two of the largest ‘fleets’ in North America, with an estimated 2 million drivers in the United States. However, because they are considered independent contractors, the companies themselves are not liable for vehicle upkeep — that falls to the driver.

Vehicle registration is also a critical consideration, with certain states and provinces requiring ride sharing drivers register their cars in a similar manner to traditional taxis.

Evolving legal aspects

Even though ride sharing has become ubiquitous in many parts of North America, legislation governing this service is still evolving.

Whether you are a new start-up or an established giant like Uber and Lyft, you need to constantly monitor changes in local and federal laws around ride sharing or ride hailing to ensure your business is credible and can offer the best user experience.

For more information about how Spare powers ride-hailing companies of all sizes, check out our ride sharing page or drop us a line at hello@sparelabs.com.