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Poor Relations and Proportionality: The Flaws of TfL’s Uber Decision

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About The Author

James Mulligan (Guest Contributor)

James is a future trainee at a major US law firm. Prior to that he worked at a global asset manager on financial regulation. James graduated in law from the University of Manchester in 2014. Outside of law, he still harbours unrealistic ambitions of playing football for England and playing violin in any reputable orchestra that will have him, being particularly fond of Vienna around New Year's Day.

This article is part of the 'Uber London Licence Debate' series, edited by Keir Baker.

The decision by Transport for London (TfL) to not renew Uber’s licence to operate in London sent shockwaves across the Capital. A divisive issue on both traditional and social media, much of the discourse overlooked the legal aspects of TfL’s decision. In this series, two Keep Calm Talk Law writers set out competing viewpoints as to whether TfL’s decision can be justified.

Other articles from this series are listed at the end of this article.

On 22 September 2017, Transport for London (‘TfL’) announced that it would not renew the private hire vehicle (PHV) operator licence for Uber London Limited (‘Uber’) upon expiry of Uber’s existing licence on 30 September 2017. TfL has received both resolute support and strong condemnation for the divisive decision, which has been the subject of sustained national coverage.

This article argues that TfL acted disproportionately by quoting fault in Uber’s approach towards certain actions, but not in the substance of those actions. Yet it has sanctioned Uber as though fault existed in the latter, neglecting the more proportionate and appropriate option that was available.

TfL could have used a new, shorter licence with specified conditions to rectify its concerns, but it instead imposed a zero-sum punishment. The regulator also overlooked the bigger picture that greater proportionality would have taken into account, and potentially helped rectify, the breakdown of its relationship with a leading market participant, which certainly had faults of its own. That breakdown led to the problems in the first place.

TfL’s Decision

In its statement, TfL said it believed Uber’s conduct and approach demonstrated a lack of corporate responsibility which had potential public safety and security implications. Reasons given were:

  • Uber’s approach to reporting serious criminal offences;
  • Uber’s approach to how medical certificates were obtained;
  • Uber’s approach to how Enhanced Disclosure and Barring Service (DBS) checks were obtained; and
  • Uber’s approach to explaining the use of the Greyball software in London.

Ultimately, TfL concluded that Uber was not “fit and proper” to hold a PHV operator licence. Uber was given 21 days to directly appeal the decision to the Magistrates Court, and thereafter the Crown Court, though – given that TfL falls under definition of a public body for the purposes of a judicial review – it may have three months to bring a legal challenge.

Licencing Uber

London’s PHV market is primarily regulated by the granting, refusing to grant, revoking or suspending of licences. This is effective because Section 2(1) of the Private Hire Vehicles (London) Act 1998 (PHV(L)A 1998) prohibits a person inviting or accepting private hire bookings in London without either a PHV operator licence or a PHV driver licence. Uber is a PHV operator so this article focuses on the former, although each Uber driver must hold a PHV driver licence.

TfL is the authorised licensing authority of London’s PHV operator licences under Section 254(1) of the Greater London Authority Act 1999. It has the power to regulate Uber’s operations in London. For the rest of the country, local councils regulate PHVs under the Local Government (Miscellaneous Provisions) Act 1976.

The PHV(L)A 1998 sets criteria for granting PHV licences and ongoing obligations upon operators. Section 3(3) of the PHV(L)A 1998 requires TfL to be satisfied that a PHV operator is ‘fit and proper’ to hold a PHV operator licence and compliant with ‘any further requirements that may be prescribed’. Section 16(2)(a) of the PHV(L)A 1998  also provides for revoking or suspending an operator licence if TfL is ‘no longer satisfied that the licence holder is fit to hold such a licence’. These provisions chime with the “fit and proper” wording of TfL’s statement.

TfL’s Operator Licencing Guidance Notes (the Guidance Notes) expands on its expectation of a fit and proper firm. Part 4 outlines criteria including applicants’ solvency, health and safety checks, directorship qualifications, audited accounts and insurance cover; largely that of a reasonably well-run business. But the introductory Part 1 gives another detail:

The purpose of regulation is to give Londoners confidence, when they use a licensed private hire operator, that they are dealing with an honest, professional organisation with safe drivers and vehicles (emphasis added).

Honesty appears in other regulatory fit and proper tests. The Councillors’ Handbook governing taxi and PHV licensing across most of the country imputes honesty into its test. This is reflected more widely: in financial services, HM Treasury incorporates “honesty and integrity” into its standard for regulating anti-money laundering controls within firms, while the Financial Conduct Authority incorporates “honesty, integrity and reputation” into its Fit and Proper test for Approved Persons handbook.

It follows that the regulator’s assessment of Uber’s suitability may be divided into two aspects: (i) did Uber act as a reasonably well-run, professional business (“fit”), and; (ii) was Uber honest in its conduct (“proper” or “propriety”)?  

Exploring TfL’s Four Factors

Approach to Reporting Serious Criminal Offences

TfL has not publicly expanded on this, so it is not clear what was expected of Uber. TfL may have reacted to a reported warning from the Metropolitan Police in April 2017 that Uber was reporting allegations of serious crimes to TfL as complaints, but not reporting them sufficiently promptly to the Police. Uber responded that it was hesitant to interfere with the right of the complainant to report allegations of crime to the Police.

Yet TfL has not found fault in Uber failing to report offences, but in Uber’s “approach to reporting” offences. While under Part 4b(4) and Part 14 of the Guidance Notes, the firm was bound to keep and process a record of complaints and make them available to TfL, there is no requirement for the company to contact the Police immediately on complaints of a potential criminal nature. Uber appeared to believe that the alleger possessed the right and the most accurate facts with which to contact the police immediately. If the firm reported allegations immediately without (or even against) the consent of the alleger, then that may have placed Uber, the Police and the alleger in a difficult situation.

Furthermore, if Uber was in fact reporting records of complaints to TfL – which was not disputed by TfL’s statement – then Uber would have had processes in place to systematically file complaints and make them available to TfL. That is something which would be expected of a reasonably well-run, professional business (“fit”).

Propriety then turns on whether Uber was honest in its approach to reporting serious criminal offences, which may explain what TfL expected of Uber. The firm’s statement to the press declared its concern on the rights of the alleger, but it appears that neither the Police nor TfL were fully aware of that, evidenced by how the Inspector’s letter of concern was framed. In this respect, Uber’s propriety may be in doubt not because it had been deceptive, but because it had been reactively, and not pro-actively, transparent to its regulator on this important issue.

Approach to Obtaining Medical Certificates

Section 15(4)(a) of the PHV(L)A 1998 holds that medical certificates are required of all drivers in order to verify their physical fitness for a London PHV driver licence.

However, it is questionable whether this is a legitimate ground for TfL’s refusal to renew Uber’s licence. For one thing, Uber has no direct obligation as an operator under the PHV(L)A 1998, nor an obligation under TfL’s Guidance Notes, to obtain or provide these on behalf of its drivers. In fact, it might give rise to a conflict of interest if Uber were subject to an obligation, given the two-pronged regulation of drivers and operators.

Therefore, Uber should justifiably be able to rely on a driver gaining a PHV driver licence from TfL as conclusive proof that a medical certificate has been obtained. Uber should neither be unfit nor improper for relying on the scrutiny of its regulator.

Approach to Obtaining Enhanced Disclosure and Barring Service Checks (DBSs)

A DBS is a background check of any criminal record which might bar an individual from a PHV licence, driving offences invariably being the most common. Individual drivers must obtain DBSs to apply for a PHV driver licence with TfL.

As above, Uber has no direct obligation as an operator under the PHV(L)A 1998, nor an obligation under TfL’s regulatory guidance to obtain or provide these on behalf of its drivers. There would be potential for another conflict of interest to arise if that were the case.

Furthermore, TfL citing this factor seems to overlook (or react to) The Times’ report in January 2017 that some drivers barred elsewhere in the country had gained PHV driver licences from TfL and became Uber drivers. TfL was labelled as ‘complicit’ by Southend-on-Sea Borough Council in that report, so it may be attempting to signal a change of heart. But a licensing decision is the wrong venue for that.

Approach to Explaining the Use of Greyball

Greyball software blocks individuals from viewing drivers’ locations by creating ‘false maps’ of drivers’ locations. Initially intended as a safety shield against dangerous app users targeting drivers, the New York Times uncovered Uber using Greyball in the US to hinder regulatory investigations. TfL has been justifiably concerned.

Firstly, the test of well-run, professional business is not really at issue here because any actual misuse of Greyball in the UK has not been uncovered.

Instead, this point turns on Uber’s transparency to TfL (the ‘proper’ test). That transparency criterion would be settled by reading private communications, which are unavailable for public analysis. But at the very least, Uber does not appear to have been pro-actively or even reactively transparent in explaining to its regulator how Greyball is used properly, given the allegations against its US operations. As such, Uber’s propriety on this issue may be in doubt not because of a specific action – there has been no act of deception (this is Uber UK, not Uber US) – but rather from a general lack of recognising the need for full transparency to its UK regulator.

TfL’s Sanction against Uber – Proportionality

Each of TfL’s factors focus on Uber’s “approach” towards issues rather than the substance of Uber’s actions. None represent a breach of a specific law or licensing condition, though two appear to be failings of corporate responsibility by virtue of Uber’s level of transparency (the honesty test of being ‘proper’). This is evident because if Uber were substantively unfit and improper and an immediate threat to public safety, TfL should have revoked Uber’s licence immediately under Section 17(2) of the PHV(L)A 1998.

Instead, Uber has been allowed to blaze a trail through London’s PHV market under its five-year licence without revocation. TfL’s decision has left the door open for an innovative rival to utilise the same business model, but instead:

  • Communicate its approach to reporting allegations of serious criminal offences from the beginning of its regulatory licence;
  • Double-down on drivers’ medical certificates in addition to TfL’s checks;
  • Double-down on drivers’ DBS checks; and
  • Explain clearly how Greyball is used legally or not used at all.

Sanctioning a firm that neglects to communicate effectively with its regulator is certainly justified, but TfL had a more proportionate option available that did not impose a zero-sum punishment. It could have granted a temporary PHV operator licence for less than five years under Section 3(5) of the PHV(L)A 1998, and used its power under Section 3(4) of the PHV(L)A 1998 to attach specific conditions to enforce TfL’s concerns as to how Uber communicated with it.

The availability of a more proportionate option could be central to any judicial review against TfL’s decision. Proportionality is an increasingly-used ground for judicial review (examined in more depth by Keir Baker for Keep Calm Talk Law). This EU principle was in fact central in the Supreme Court’s ruling in R (Uber London Ltd) v Transport for London [2017], concerning Uber’s appeal against TfL’s language requirements this year.

It is also a ground which may just succeed. TfL will likely state their public interest as the protection of public safety, but Uber may argue that TfL has instead used its licensing power to punish an established operator, which is not as it was intended to be used. Rather, licensing of operators is best used as a mechanism for achieving public safety through, if necessary, specific conditions imposed upon a repentant and willing operator. That would be a ‘less onerous’ method; the standard applied by the Supreme Court in R (Lumsdon) v Legal Services Board [2015].

Muddied Waters and Muddled Strategy – A Bigger Picture

TfL is governed by the Mayor of London, an intensely political post. On both sides of regulatory decisions, this compromises TfL’s independence. Political reasons both for revoking the licence (Uber’s negative impact on the iconic London taxi market) and for renewing the licence (to show London’s flexibility in regulating innovative business models) have since poisoned interpretations of it. But more importantly, TfL’s political oversight has obscured the ultimate decision-makers. Uber has reached out to the Mayor of London several times, believing him to be the ultimate decision-maker for the regulator, yet The FT has reported that its meetings since this decision have been with TfL commissioner Mike Brown, the signatory of TfL’s press release. This misconception has contributed to a breakdown in the relationship between the regulatory division of TfL and Uber, which seems to have played a significant role in the decision.

Concerns that political motives influenced TfL’s decision are not helped by the curious omission of a fifth factor from its press release. In November 2016, TfL introduced Notice 17/16. This required operators to notify it of any material changes to their business models, examples of which included ridesharing, the introduction of new payment methods and additional services offered through apps. Uber ticked those boxes.

The rule change was deeply problematic. Not only did the Competition & Markets Authority voice concern that such ex ante regulation could ‘reduce incentives for innovation…and by extension to restrict competition’, but it also bore a sense of political motives; motives which might explain its omission from the press release. As a new rule, any contravention of it should have been quoted in the press release as a substantive breach. But TfL’s enforcement division may have been aware of its perceived political overtones and the problems exposed if it had been cited.

On the other side, Uber bears its own faults for its deteriorated relationship with TfL. Uber has demonstrated a deeply muddled public policy strategy. Whilst warmly congratulating the Mayor of London on his election, within 12 months it had twice appeared opposite TfL in court to strike down rule changes. Yet in London’s regulated PHV market, positive and clear interaction with public bodies is essential; especially for innovative firms which challenge existing and dominant business models.

Further back in the picture, Companies House filings reveal recent high turnover of Uber’s UK senior leadership (which included ex-CEO Travis Kalanick until 2014) whilst accounts approved on 28 September 2017 are signed by two directors barely in their posts for two months. This may explain Uber’s lack of a clear, or even single, direction in its relationship with TfL. A public policy strategy requires consistency of personnel for consistency of message.

Conclusion

Transparency was TfL’s primary concern in its four reasons to not renew Uber’s licence. Rightly so; on the application of the fit and proper test used for PHV operator licencing, pro-active transparency on key issues of Uber’s corporate policies was lacking.

But it is debatable whether a failure of approach, rather than a substantive breach of licence conditions, mandated TfL to deny the firm a PHV operator licence. Given a more proportionate option was available, its refusal is unduly onerous on the firm and the rights of customers who rely on Uber. This is likely to be key to any future judicial review or appeal process.

Nonetheless, a look at the bigger picture around this decision shows that if it is to be avoided in the future, a disconnected relationship between a disruptive technology firm and its regulator must be repaired. Though attributable here to both TfL’s structural politics and Uber’s corporate governance struggles, the burden is arguably on the company to make the first move. With its business model under increasingly intense scrutiny, Uber must bring more clarity to its public policy strategy if it seeks to continue in London’s regulated PHV market.

Postscript

On 13 October 2017 - the morning this article was published - Uber filed an appeal with Westminster Magistrates Court against TfL's decision. This has enabled Uber to continue operations under Section 26 of the PHV(L)A 1998 whilst the appeal is (and talks with TfL are) ongoing. However, this could conflict with the availability of judicial review, since a statutory right of appeal is available and has now been utilised. 

As detailed above, proportionality is a fundamental legal principle which should guide public authorities' decisions. It should therefore be central to Uber's statutory appeal and, as this article argues, is likely to help secure the firm a new, though possibly conditional, licence. If, however, the statutory appeal process does not incorporate proportionality into its decision, then Uber may argue that such a statutory appeal process is not adequate: after all, proportionality is now too important a legal principle to overlook. In such circumstances, that inadequacy may be a gateway argument for enabling judicial review after all, which would take account of proportionality.

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Tagged: Administrative Law, Commercial Awareness, Commercial Law, Competition, Consumer Rights, Gig Economy, Judicial Review, Regulators, Technology, Uber

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