Report of the By-law Sub Committee


on


Taxicab Leasing and Related Matters


8 October 1996

Introduction

In 1992, the Grant Report recommended a comprehensive review of the philosophy and purposes underlying By-law 20-85, and the extent to which the Commission's activities are meeting those objectives. This report is an integral part of that review.

On November 4, 1993, the Commission set up a By-law Review Subcommittee, and after consultation with the taxicab industry, determined that taxicab leasing was a priority issue to be addressed by the Subcommittee.

When considering leasing and other matters, the Subcommittee has endeavoured to maintain an open dialogue with members of the taxicab industry at all times. After several open-ended public meetings earlier in the year, industry representatives suggested that it would be helpful if the Subcommittee put out a position paper in order to focus discussion.

On July 8, 1996, the Subcommittee released A Discussion Paper On Taxicab Leasing and Related Matters, which proposed a number of changes. At public meetings on July 22, August 19 and August 26, 1996, nearly 100 people, including representatives of the Toronto Taxicab Alliance and the Ontario Taxicab Union Local 1688, gave their views on the proposals put forward.

People addressing the Subcommittee were almost equally divided between taxicab drivers and owners of a Metro Taxicab Licence ("plate owners"), and a wide diversity of opinion was expressed. In general, the owners tended to be against the proposed changes, and the drivers tended to be in favour. Copies of written submissions are available upon request.

This report contains recommendations based on the discussion paper, information gathered at the public meetings and the Commission's own experience at tribunal hearings. In making these recommendations, the Subcommittee is mindful of the Commission's objectives:

Background

The Commission first sanctioned the practice of leasing taxicabs in 1974 because:

In 1974, when the By-law was amended, the owner provided an insured taxicab and all necessary equipment. Concerns were raised at that time that the responsibility for the taxicab and for the quality and safety of service should not be passed from the owner to the driver. When the By-law was amended to allow leasing, these concerns were taken into account.

Since then, there have been fundamental changes in the way the taxicab industry operates. These changes have been rapid, and recent.

In 1982, 33 per cent of taxicabs were leased; in 1996, about 76 per cent are leased.

There are about 3400 licensed taxicabs in Metro. Of these, only about 800 (23 per cent) are owner-operated cabs. In 1973, 44 per cent were owner operated.

Of the 2400 taxicabs that are not owner-operated, the effective ownership is in the hands of either a lessee or a designated agent, or both. The owner can be two levels removed from service delivery and often has minimal involvement with the taxicab industry.

The designated agent may control between one and 242 taxicabs, with 5 being the average.

The lessee may lease one or more taxicabs, and may drive a regular shift, but not necessarily.

Current practices in the taxicab industry generally follow three formats:

Lease fees received by the owner are net income, as there are minimal or no operating costs attached to leasing a plate. Lessees bear the brunt of risk in the industry: they provide the car, pay for all equipment, brokerage and other fees, insurance, gas, and all repairs and maintenance costs.

In many cases, the lessee is also required to purchase the vehicle from the agent at an overvalued price. The lessee has no choice; if he wants to lease the plate, he has to buy the car from the agent.

Increasingly, before the agent will lease a plate, the lessee has to pay a lump sum up front, cash under the table, ranging from $2,000 to $5,000. This is similar to key money.

The agent may also work for a taxicab brokerage. In this case, the lessee is required to use this brokerage and have his car painted to the brokerage's specifications.

The lease offers the lessee no protection, since it can be cancelled without cause on seven days notice. The agent will cancel the lease if he can strike a more lucrative deal with someone else.

Discussion

The taxicab industry is highly regulated and any resemblance to a "free market" is purely coincidental. For instance, the Commission intervenes directly by limiting the number of taxicab plates. At present there are hundreds of drivers on the waiting list who want and are eligible for taxicab plates but for some time, no new plates have been issued.

Entry restrictions on taxicabs were originally introduced because it was believed that low driver income was caused by excessive competition. However, a lack of reliable factual data makes it difficult to substantiate this claim.

Taxicab plates are the only business licences that the Commission limits in this way. And only in the taxicab industry do existing licence holders demand (successfully) that no new licences be issued.

A comment at one of the public meetings says it all:

"Everyone wants the list to be open until they get a licence, and then they want the list to be closed."

When the supply of a commodity is artificially limited, its value increases. When the Commission freezes the number of taxicab plates, the value of existing plates goes up. From 1993 to 1995, taxicab plate prices rose by 45%:($70,632 in 1995; $48,614 in 1993).

The introduction of leasing has led to a further increase in plate values because leasing gives the plate owner a guaranteed financial1 return of about 13% a year. There is no risk to the plate owner, who only has to provide the Metro taxicab licence.

The increase in taxicab leasing has had a dramatic effect on the economics of the taxicab industry. A taxicab plate has become primarily an investment opportunity. The increased price puts the ownership of a plate beyond the reach of an average driver and leads to an increase in the number of speculative or absentee owners/buyers.

The Subcommittee has concluded that over two-thirds of the taxicab plate owners in Metro are not in the taxicab business; they are in the leasing business. The quality of service provided has no direct financial impact on the plate owner and therefore is not of concern. At tribunal hearings, plate owners invariably deny any knowledge or responsibility for dangerous or unsafe taxicabs.

The Subcommittee has concluded that the high cost of leasing has contributed to a deterioration in the quality of taxicabs. Lessees at tribunal hearings, and at the public meetings, have reported that the cost of operating a taxicab can be up to $28,000 a year, not including fuel.

In order to meet these costs, drivers may work up to 17 or 18 hours a day. In many cases, drivers soon discover that they cannot make enough to pay their operating costs, and vehicle maintenance is compromised to cut expenses. Vehicle replacement is deferred to the extent allowed in the By-law.

The results are obvious on the street: the quality of taxicabs is deteriorating, except in the case of owner-operated taxicabs. Taxicabs are getting older and older. In 1982, 41% of cabs were over three years old. In 1996, 94% of cabs are over three years old. In 1996, 56% of cabs are over six years old.

The age of taxicabs is also a result of the age extension provision in the By-law. At the request of the taxicab industry, in 1988, the Commission allowed the age of a taxicab to be extended under certain conditions. The industry said that owners would put better quality cars (e.g. Mercedes) on the road if they could keep the vehicles for a longer period. This has not proven to be the case. What has happened is that older cabs are put on the road and kept there longer.

Ultimately, the public pays in poorer service.

Industry perspective: The Owners

At the public meetings, taxicab owners agreed that the structure of the industry has to change to ensure a higher quality service. However, a main objective of owners was to protect the asset value of a taxicab plate. The following is a brief summary of the points made by owners:

Too many plates have been issued for the volume of business that exists. The industry has lost market share to faxes, couriers, rickshaws, limousines and tour buses.

Industry perspective: The Drivers

Taxicab drivers are most directly affected by current leasing practices and cost. The following is a brief summary of the points made by drivers at the public meetings:

Some drivers on the waiting list identify to a certain extent with owners, in that they want a new plate issued to themselves, and then would be in favour of a freeze.

Both owners and drivers seemed to agree that the age extension on taxicabs should be removed. Owners proposed that the limit should be eight years and a new taxicab should be up to five model years old. All agreed that if agents are allowed, they should be licensed by the Commission as agents.

Conclusions

  1. Is taxicab leasing in the pubIic interest?

    The Subcommittee has concluded that leasing in the taxicab industry has some positive aspects, but there are many abuses which have led to poor quality taxicabs and service, unsafe taxicabs and driving practices, poor customer relations and unsound business management. These abuses are a product of:

    1. limiting the supply of taxicab plates, together with an unlimited supply of drivers;

    2. allowing taxicab plate owners to buy and sell plates as a form of investment;

    3. a lack of financial incentive for both owners and lessees to provide a high quality of service; and

    4. a lack of financial incentive for drivers to make a long term commitment to the industry;

    5. the age extension provision in the By-law.

    These abuses are serious and systemic, and the Subcommittee has concluded that the Commission should not allow them to continue.

  2. Should the Commission regulate taxicab leasing?

    The Subcommittee has concluded that current leasing arrangements, as measured by the quality of vehicle and service provided, diminish the quality of the taxicab industry. In addition, current leasing arrangements, in terms of costs and rewards, do not result in an equitable sharing of risks and benefits to all parties. This is contrary to the Commission's stated objectives.

    Past experience has demonstrated that leasing cannot be regulated out of the industry, given the existing market conditions for plates. The solution lies in modifying or eliminating the conditions that lead to high leasing prices.

    Commission staff have reviewed regulations in other jurisdictions which include: restricting the number of licences an individual can own or control; restricting the number of individuals controlling, managing or operating one vehicle; eliminating leasing; modifying entry restrictions to the taxicab industry; allowing the Commission to lease plates; and franchising.

  3. Does the Commission have jurisdiction over leasing arrangements?

    In Christie Taxi Ltd. vs Doran (1976), 10 O.R. (2nd) 313 C.A., the court held that:

    The section [of the licensing By-law] that regulates an owner's right to lease his taxicab includes conditions that the taxicab owner is responsible for maintenance of and insurance on the taxicab. In addition to a fair fee for the lease (approved by the Commission) no additional charges shall be made against the lessee, except charges for fuel, parking and traffic violations committed by the lessee.

    The Licensing Commission, by putting the above enumerated conditions on the leasing of taxicabs by owners was within the powers of governing and regulating the conduct of owners who were only "owners" capable of leasing because they held a licence to own and operate a taxicab from this same Commission.

    It is abundantly apparent from this subordinate legislation that the taxicab business is strictly controlled and supervised by the Municipality of Metropolitan Toronto. This is a business operated by private enterprise but providing a service directly to the public on a "one to one" basis. It is therefore not difficult to envisage that the practicalities thereof demand strong supervision (315).

    In addition, further in the decision it is stated:

    To be valid legislation under the authority conferred by s.377(1)[of the Municipal Act], a By-law must regulate and govern the manner in which the business is carried on. If it has that effect, it is valid even though it interferes with private contractual and civil rights ... If, however, a Bylaw is enacted for some purpose other than regulating and governing the mode of carrying on the business, it is ultra vires (320).

    The Subcommittee concludes that the Ontario Court of Appeal has ruled that the Commission has authority over leasing issues, as long as this authority is enacted for the purpose of regulating and governing the manner in which the business is carried on.

  4. What is the public interest purpose in regulating leasing?

    Any change in leasing regulations must ensure that:

  5. Should the Commission increase the number of taxicab plates available?

    The Subcommittee has concluded that restricting the number of plates available has been at least partially responsible for high leasing prices. Therefore the Subcommittee explored the option of increasing the number of plates available, but controlling the conditions under which these plates can be operated.

    An increase in the number of plates available will increase the number of owner-operated taxicabs on the road. It is undisputed that owner-operators provide better service and better cars. An increase in owner-operated taxicabs will raise the standard that all taxicabs must meet, and give drivers an incentive to plan a future in the taxicab industry. The only way to do this is to issue new plates. A graduated approach to conditional plate issuing should allow for an orderly adjustment in the market place.

  6. Is the plate a pension plan?

    The fear that has been expressed by plate holders is that an increase in taxicab plates will have a negative effect on plate value. Owners argue that they have put their time into the taxicab industry and are entitled to a reasonable rate of return on their investment. The taxicab plate is widely viewed as a kind of pension plan for taxicab owners.

    This view has contributed to the widespread absentee/speculative ownership that exists today, with the results that have been outlined above. The Subcommittee concludes that the Commission must re-establish an important basic principle in the By-law: that a Metro taxicab owner's licence is a licence for an owner to operate a taxicab in Metro Toronto.

    If changes in policy adversely affect existing plate holders, there should be a grace period during which time they could recoup some of the value of their investment.

Recommendations for By-law changes

  1. Age of taxicabs

    1.1 The vehicle age extension clause in the By-law shall be removed so that taxicabs over seven model years shall be replaced. In order to give the industry time to adjust, this provision shall be phased in over a three year period as follows:

    1.2 A taxicab can only be replaced by a vehicle that is not more than two model years old if it has never been used as a taxicab, or by a vehicle that has been used continuously as a cab that is less than eight model years old.

  2. Designated agents

    2.1 The Commission shall create a new category of licence for designated agents, setting out their duties and obligations in the By-law. The Commission shall require agents to be knowledgeable of the workings of the industry, and examine them in this area.

    2.2 A taxicab plate may be managed by a lessee or a designated agent, but not both.

  3. Regulation of taxicab leasing

    3.1 The Commission shall amend the By-law regulating leasing in the taxicab industry having regard for the following principles:

  4. New taxicab plates issued from the owners'/drivers' lists

    4.1 That all new plates issued from the owners'/drivers' lists shall be subject to the following conditions:

    1. The plate owner must drive the cab for five shifts every seven days for a minimum of forty-eight weeks a year.

    2. The plate owner must provide a car of the current model year at the time when the plate is issued.

    3. The plate owner shall be subject to all the provisions of the By-law.

    4. The plate owner must provide a high quality of service.

    5. The plate is non-transferable, that is, if the plate owner ceases to drive the taxicab, the plate shall be returned to the Commission to be re-issued.

    4.2 That the By-law be amended so that new taxicab plates shall be issued on a 90:10 basis to drivers and owners on the waiting lists.

    4.3 That 100 taxicab plates shall be made available for issuing; of these 20 shall be reserved for accessible taxicabs. The Commission shall issue additional taxicab plates according to the Plate Issue Model.

  5. Transfer of taxicab plates

    5.1 Under the By-law, when any taxicab plate is sold or otherwise transferred, the transfer must be approved by the Commission, and a new taxicab plate is issued. At present, no conditions are placed on these new plates. The By-law shall be amended so that all sales and transfers shall be subject to the same conditions as taxicab plates issued from the owner/driver lists as set out above, excluding 4.1, E.

  6. Further areas for investigation

    6.1 Metro Legal Department is requested to report on the possibility of amending the Bylaw so as to require that a taxicab plate may be leased for five continuous years; after five years, the plate owner must operate the taxicab, or sell or return the plate to the Commission to be re-issued.

    6.2 Commission staff shall report on methods whereby the provision in the By-law that owners are:

    1. required to provide a vehicle and equipment, and

    2. responsible for the operation of the taxicab

    can be more vigorously enforced.

Respectfully submitted,

Dorothy Thomas

Dan Shimski

October 8, 1996


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