PUBLIC SERVICE COMMISSION
OF WEST VIRGINIA
CHARLESTON

Issued: June 23. 1998

M.C. CASE NO. 30091-97-GI

Investigation into the matter
of continuing taxicab lease
arrangement.

PROCEDURAL ORDER

On June 13, 1997, the Staff of the Commission's Transportation Division filed a petition with the Public Service Commission requesting that a general investigation be instituted to determine whether the continuation of taxicab leases between owners and employees/independent contractors is consistent with the public interest. According to the petition, several complaints involving inadequate taxicab service and safety concerns had recently been filed with the Public Service Commission. Many taxicab companies throughout the State lease taxicabs to their employees/independent contractors. Staff had received information that, as lease expenses rise, taxicab drivers may decide to abandon certain routes and customers in favor of more lucrative trips to meet the lease cost. Commission Staff believed that an issue exists as to whether further continuation of taxicab leases is consistent with the public interest.

By Order entered on July 30, 1997, the Commission initiated the requested general investigation. In the Order, the Commission directed the Executive Secretary to publish a specified public notice in nineteen cities throughout the State and provided that any party wishing to file comments relating to the general investigation could do so on or before September 5, 1997, with reply comments to be filed on or before September 19, 1997. Additionally, the matter was referred to the Division of Administrative Law judges for further proceedings, with no decision due date being established.

On August 4, 6, 7, 8, 11, 12, 13, 14, 15, 18, 19, and 20, 1997, the Commission received affidavits of publication verifying that the required public notice was published as specified in various newspapers throughout the State, with the last date of publication being August 1, 1997. (It should be noted that several of the affidavits were sent to the Commission's Administrative Division without being included in the case file until March and April of this year). There still is no affidavit of publication for the Huntington newspaper. The Administrative Law Judge has been informed that no publication occurred in Huntington.

On August 13, 1997, Leeber Transportation Company, Inc., and Robert Leeber, doing business as Checker Cab Company, by counsel, filed a letter with the Commission requesting that they be served with copies of all petitions, Staff Memoranda, etc., in this proceeding. However, the companies did not request a hearing in the matter.

On September 5, 1997, C&H Company (C&H) filed a petition to intervene in this matter, along with its comments and a request for hearing. Also on September 5, 1997, the West Virginia Taxi Association filed a letter indicating that it would not be filing initial comments, but reserved the right to file reply comments. Commission Staff additionally filed initial comments and a Technical Staff Memorandum on September 5, 1997.

On September 19, 1997, C&H filed reply comments in response to the Staff Initial Comments.

It should be noted that the Commission received one individual letter from a "concerned citizen", which came to the Commission without a return address or any other identification, complaining about the use of taxicab leases by taxicab companies. However, the Commission cannot respond to, or require action on the basis of, anonymous filings,

In the C&H petition to intervene and its initial comments, C&H noted that the modification or elimination of P.S.C. M.C, Rule 5.8 and/or P.S.C. Form 55, the Motor Carrier Rule and form relevant to taxicab leasing, would have a direct effect on the operations and finances of C&H. As noted by C&H, the taxicab leasing rule and associated form were originally adopted in 1981 in response to severe economic problems in the taxicab industry in West Virginia, when many taxicab companies, including the taxi company in Charleston, West Virginia, had gone out of business due, in large part, to the use of employee/drivers. A strike by the employee/drivers for the Charleston company had resulted in the company going out of business. According to C&H, none of the economic factors have changed in the intervening years, and it argued that a system that works well should not be changed.

With respect to its own situation, C&H noted that it began using independent contractor/drivers in approximately 1985. At that time, P.S.C. M.C. Form 55 classified leased drivers as full independent contractors and C&H was not required to withhold state or federal income taxes or pay social security, federal or state unemployment tax, or Workers' Compensation premiums on those drivers. Under that system, C&H never requested a rate increase from the Commission and the only time its rates were altered was when the Commission granted all motor carriers a generic insurance surcharge. However, in 1990, at the insistence of the Workers' Compensation Fund, the Commission instituted a proceeding which resulted in a modification of the language of P.S.C. M.C. Form 55. After the Commission modified its Rule and Form, the Workers' Compensation Fund instituted proceedings against C&H to require it to pay Workers' Compensation premiums for its drivers, regardless of their degree of independence in its operation. The West Virginia Supreme Court of Appeals ultimately determined that, for the purposes of workers' Compensation, C&H's drivers were not independent contractors. See, C&H Taxi v. Richardson, 194 W.Va. 696, 461 S.E.2d 442 (1995). According to C&H, that decision alone led to a severe financial burden upon it, which generated the necessity to pay over $200,000 in initial premiums and account deposits. This payment deprived C&H of funds to replace its vehicle fleet in the ordinary course of business and led to certain problems, not yet remedied, in C&H's ability to serve the public.

C&H argued that the quality of taxicab service now provided to the public will deteriorate if taxi companies are forced to operate with only employee/drivers. Under a true taxi leasing system, a driver leases a cab from a company for a fixed period of time for a fixed lease fee. The driver must earn enough money to pay the lease fee and gasoline used during the shift. If he does not transport a sufficient number of passengers, the driver loses money as a result of the taxicab lease. Any amount of money earned over the lease expense and gasoline cost is profit to the driver. Therefore, drivers have a strong economic incentive to transport as many passengers as efficiently as they can during their shift. Drivers also have an incentive to avoid excessive deadhead miles and an incentive to avoid either declining or dodging calls. Drivers also have an incentive to be courteous and to provide assistance to passengers, in order to increase any tips they might receive. On the other hand, an employee/driver is paid regardless of the number of passengers transported. Therefore, the driver has no economic incentive to guickly respond to calls and, since the driver does not pay for the gasoline consumed, he has no incentive to avoid deadhead miles.

C&H went on to state that it is also in the interest of C&H to put as many taxicabs on the street as it can, since C&H's only income comes from the drivers' lease payments. C&H will put as many cabs on the street as it can find drivers for and drivers will drive as long as they can make a decent living by having enough calls to make a profit. It has also been C&H's experience that leasing cabs attracts a different type of person to he a taxi driver. Those willing to lease a cab and bear the risk of loss themselves are self-motivated, eager to serve the public, reliable and safe. On the other hand, C&H argued that employee drivers are usually looking for a safe income and, when assured of a regular wage, have little or no incentive to provide efficient and timely public service. C&H attached to its comments, as C&H Exhibit 1, a projection of the increased expenses it would incur if it is forced to operate with employee drivers. The primary expenses are the driver wages, associated federal and state taxes and the need for at least four additional management employees, Also attached to its initial comments, as C&H Exhibit 2, are the increased rates it believes it would need to charge in order to break even. C&H projects that mileage rates would have to increase by at least $0.29 per mile, or 19.3%, simply to allow C&H to break even. The calculations are based on paying drivers $5.50 per hour for a 12-hour shift. In its conclusion, C&H argued that modern economic realities compelled the taxicab industry into using taxicab leases and this system has worked well. Absent a showing of a compelling need for revision, C&H argued that the Commission should not alter the taxi leasing system.

In its initial comments, Commission Staff indicated that it has received information, through complaints, formal cases or monitoring of the taxicab industry, that certain taxicab companies have taken the position that the company, as lessor, must maintain little or no control over the lessees/drivers. Staff believes that such a policy is in direct conflict with the taxicab company's duty to serve the public. Staff believes that, if the lessee pays the lease amount to the company and retains all other fares, then it may be in the driver's best interest to accept more lucrative trips and abandon certain routes, such as short grocery store trips. Commission Staff is also concerned that dirty vehicles may result from the taxicab company's assertion that it cannot control the lessee and require him or her to maintain the vehicle in a sanitary condition. Staff further believes that another issue in taxicab leasing is the possible lack of bargaining power of the drivers/lessees in relation to the taxicab companies.

Staff requested that the Administrative Law Judge set a hearing in this matter and order all taxicab companies utilizing a leasing system to file copies of their leases and rate structures with the Commission's Executive Secretary prior to the hearing date. Staff also requested that the Administrative Law Judge join as Respondent to this proceeding all those taxicab companies that utilize a taxicab leasing system. Staff indicated that it. may recommend either the continuation of leasing, the amendment of P.S.C. M.C, Form 55 or the discontinuation of leasing.

The Memorandum attached to the Staff initial Comments, prepared by Senior Utilities Analyst Donald P. Cook of the Motor Carrier Rates and Solid Waste Rates Section, indicated that a survey was conducted of taxicab operations within West Virginia. Sixty-five taxicab operations were listed in the Commission's records. Of those sixty-five operations, twenty-three companies could not be contacted because of no telephone number listed, a number no longer in service, a telephone disconnect or an incorrect number. Of the remaining forty-two operations, eighteen companies leased taxicabs to drivers and twenty-four did not use taxicab leases. Those companies using leases have a variety of rate structures and lease charges.

On September 19, 1997, C&H filed its reply comments to the Staff initial comments. With respect to the Staff argument that taxicab companies have taken the position that the company, as lessor, must maintain little or no control aver the drivers, C&H pointed out that many explicit provisions of P.S.C. M.C. Form 55 mandate that the company exercise no control over the drivers. With respect to the Staff's suggestion that drivers are entitled to earn minimum wage, C&H pointed out that an independent contractor is exempt from minimum wage law requirements. C&H also argued that the Administrative Law Judge should require Commission Staff to take a concrete position prior to hearing with respect to any changes it wants to see in the taxicab lease. C&H argued that it would be grossly unfair to taxicab companies to conduct a hearing without that necessary information. C&H pointed out that, while Staff initiated this proceeding, it seems to be unable to articulate what it is seeking. According to C&H, allowing Commission Staff to make its recommendations regarding the lease form or the leasing system in general either at hearing or in post-hearing briefs will deny taxicab companies due process in several ways, by limiting or eliminating any opportunity to present evidence on the Staff proposals and by depriving companies of the opportunity to question Staff witnesses as to the need for, and effect of, any of the Staff-proposed changes.

By Procedural Order issued on June 1, 1998, the Administrative Law Judge directed Commission Staff to file, within ten days of the date of said Order, a statement indicating when, or if, Staff would be able to delineate, with some specificity, the provisions of Motor Carrier Rule 5.8 and/or P.S.C. M.C. Form No. 55 with which it takes issue or which it believes require revision, or, in the alternative, if it is appropriate to now dismiss this proceeding. The Administrative Law Judge agreed with the comments of C&H to the effect that, at that time, there was nothing substantive to which the taxicab companies operating in the State of West Virginia could respond or upon which helpful testimony could be presented.

On June 11, 1998, Staff Attorney Lisa Wansley filed a one page letter with the Administrative Law Judge stating that Staff was presently of the opinion that the leasing of taxicabs should be discontinued for the reasons detailed in Staff's initial comments. Staff recommended that a rulemaking be instituted in order that P.S.C, M.C. Rule 5.8.1 and P.S.C. M.C. Form No. 55 be deleted from the Commission's Rules. Staff requested that the action not be dismissed and asserted that the Chief Administrative Law Judge possesses the authority to recommend that a rulemaking be instituted. Staff also noted that the Commission saw fit to institute the general investigation.

On June 15, 1998, counsel for C&H filed a response to Staff's statement. C&H pointed out that Commission Staff cited no facts to support its recommendation that taxicab leasing be discontinued and noted that Staff's initial comments also contained no facts supporting that recommendation. C&H argued that Staff's statement did not fairly respond to either C&H's previous comments or the June 1, 1998 Procedural Order and, therefore, this proceeding should be dismissed. C&H argued that, if Staff wishes to propose an amendment to the Commission's Motor Carrier Rules, it should do so in the traditional manner, by a petition to the Commission to institute such a rulemaking proceeding, which petition would include its proposed rule modifications. C&H argued that Staff's proposed procedure in this case is redundant and agreed with the Administrative Law Judge that she did not have the authority to institute a rulemaking proceeding. According to C&H, a rulemaking proceeding, itself, would be the appropriate forum for the taking of evidence for or against any proposed change in the Motor Carrier Rules. C&H also asserted that, if the Administrative Law Judge determined that hearing should be held in this proceeding, several hearings should be held given the statewide impact of Staff's position and that Staff should be required to prefile written direct testimony and exhibits in support of its recommendation to abolish taxicab leasing. C&H listed several issues which Staff should be required to address. C&H also noted that Commission Staff was provided with every piece of information it requested from the survey sent to taxicab companies throughout the State of west Virginia. C&H also argued that, if this proceeding goes forward in a manner which would allow Commission Staff to make post-hearing recommendations, Staff would then be allowed to avoid having to provide answers to questions regarding the impact of its recommendations on taxicab companies and the public.

By and large, the Administrative Law Judge is in agreement with and sympathetic to the C&H position. However, scant as it was, the Staff filing of June 11, 1998, did state with specificity the provisions of the Motor Carrier Rule which Staff sought to revise, i.e., the entirety of the taxicab leasing rule and form should be eliminated. The Administrative Law Judge agrees with C&H that Staff is requesting a redundant procedure, since all evidence and testimony presented in the instant proceeding will have to be re-presented in any rulemaking which may be generated out of this proceeding. The Administrative Law Judge also agrees with C&H that the burden of proof in this proceeding must be placed on Commission Staff and, indeed, it is the opinion of the Administrative Law Judge that the burden of proof and persuasion are, in fact, upon Commission Staff both by State law promulgated Commission rules and regulations. The burden of proof is upon the party seeking to challenge any validly promulgated Commission rule or regulation and, in this case, that entity is Commission Staff (See, West Virginia Code 524A-5-2; Hope Gas, Inc., Case No, 80-0003-G-42T, Commission Order on Reconsideration, December 22, 1980, 68 ARPSCWV 2012 at 2013-2014),

Accordingly, the following procedural schedule will be adopted for the processing and resolution of this case:

  1. Commission Staff shall file prepared direct testimony, fully supporting its recommendation that the taxicab leasing rule and form be abolished, on or before July 24, 1998. That testimony shall address in detail and with specificity all of the issues enumerated on page 3 of the response of C&H Company to the Staff statement of June 10, 1998;

  2. Any taxicab company operating in the State or any bureau or industry group interested in this proceeding may file written rebuttal with petitions to intervene if they have date, on or before August 21, 1998;

  3. Any agreed-upon resolution or settlement of this proceeding shall be filed with the Administrative Law Judge on or before September 4, 1998;

  4. Hearing in this matter will be held on September 9, 1998, at 9:30 a.m., in the Howard M. Cunningham Hearing Room, Public Service Commission Building, 201 Brooks Street, Charleston, West Virginia, and shall continue each successive weekday thereafter until concluded;

  5. The transcript of each day of hearing shall be submitted no later than two (2) weeks from the date thereof; and

  6. All parties may file initial briefs or proposed findings of fact and conclusions of law on or before October 13, 1998, with reply briefs to be filed on or before October 23, 1998.

The Administrative Law Judge will not schedule several hearings across the State as requested by C&H. The notice published by the Public Service Commission on a statewide basis clearly placed taxicab companies operating in the State of West Virginia on notice that the continuation of taxicab lease arrangements was being questioned and investigated, yet only four (4) entities have communicated with the Commission regarding this matter. Accordingly, the Administrative Law Judge sees no reason to hold numerous hearings in this proceeding across the State of West Virginia. Anyone interested in participating in this proceeding has already indicated such interest to the Public Service Commission.

ORDER

IT IS, THEREFORE, ORDERED that the procedural schedule set forth above, including the hearing date of September 9, 1998, be, and it hereby is, adopted for the processing and resolution of this case.

IT IS FURTHER ORDERED that the Executive Secretary of the Commission serve a copy of this order upon counsel for C&H Company, counsel for the West Virginia Taxicab Association and counsel for Leeber Transportation Company, Inc., and Robert Leeber, doing business as Checker Cab Company, by United States Certified Mail, return receipt requested, and upon Commission Staff by hand delivery,

(Signed)

Melissa K. Marland
Chief Administrative Law Judge

MKM:dfs:mal


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