It’s Illegal for Uber Drivers to Accept Tips in Some States

Uber’s ban on tipping through its app leaves the ride-hailing company at odds with states that bar cash gratuity.

How Uber and Airbnb Bent Laws and Made Billions

Uber Technologies Inc. has been squabbling with its drivers over the issue of tipping since the company's inception. Drivers argue tips have always been a part of their trade and should continue to be. Uber thinks that tipping is a relic of the past and wants the idea to wither away. After some back and forth, Uber grudgingly settled on a policy in 2016 that lets drivers take cash tips, but the company still hasn't integrated tipping into the app. This irks drivers. By telling them to take cash instead, Uber risks running afoul of laws governing the ride-hailing industry in more than a dozen states.

Over the last three years, 13 states have passed laws restricting cash payments in some form. While none of the laws explicitly mention gratuity, there's widespread agreement that most -- if not all-- of these rules apply to cash tips. Supporters of these rules have said they're inspired by driver safety concerns. Each state's restrictions are a little different, with some only banning the solicitation of payments and others banning any cash changing hands. Several of these measures explicitly require companies like Uber and Lyft Inc. to tell their drivers that they aren’t allowed to take cash from customers. In the others, the companies’ exact responsibilities are unclear.  

Uber does not tell its drivers in these states to refuse tips, as some of these governments require. The company said it has consistently opposed state laws banning cash, mostly because they impact tipping. “Riders are free to offer tips and drivers are welcome to accept them, as has always been our policy,” Alix Anfang, a company spokeswoman, wrote in an e-mail. She stood by the decision not to add a tipping function to the app. “Riders tell us that one of the things they like most about Uber is that it’s hassle-free.” Chelsea Harrison, a spokeswoman for Lyft, says the company isn't worried about the laws. "Lyft already enables a cashless ride through our in-app tipping function," she said. 

To date, the biggest states with ride-hailing rules including anti-cash language of some kind are Michigan, Pennsylvania and Virginia. Despite the immense attention lavished on all things Uber, the bans on cash—and Uber's practices in those states—have attracted little public attention, said Tim Frisbie, communications and policy director at the Shared Use Mobility Center, an advocacy organization promoting alternative forms of transportation. "While these laws might affect tipping, they were not likely created with tipping in mind," he said. 

Lawmakers in New York and Texas are currently considering bills that include bans on cash. Uber's critics in both states would love a new cudgel to use against the company, and a public debate over Uber’s tipping policies could further poison relationships with drivers at a time when the company’s public image is already taking a major beating. It's a minor issue when measured against testimonials from former employees about a culture of sexual harassmentembarrassing dash-cam videos, ominously named anti-cop software and a parade of fleeing executives. But it’s also one with an easier fix.

Ride-hailing companies have become more similar over time, yet Uber has made it consistently clear that tipping is an exception. Lyft and smaller competitors tout their app's tipping options to drivers as a competitive advantage. Meanwhile, Uber has tried various ways to make the practice go away. Previously, it said tips were included in fares, a stance that led to lawsuits from drivers. Last year, it agreed to give tacit approval for drivers to seek tips as part of a legal settlement—while also distributing academic research arguing that customs surrounding tipping were arbitrary at best and discriminatory at worst. Jeff Jones, Uber's former president who resigned over the weekend, had advocated internally for in-app tipping.

Some of Uber's critics oppose the state cash bans, just like Uber. But they see the laws as another reason the company should alter its app to allow tipping. Shannon Liss-Riordan, a lawyer who represented drivers in the case that led to last year's settlement, said the state laws point to the untenability of Uber's position. “I’m not sure what the point of these provisions is,” she wrote in an email. “But they do show another problem with Uber refusing to include a tipping function on its app.”

The Independent Drivers Guild, a quasi-union representing drivers in New York City, describes the anti-cash rules as bad policy. It's also pressing the city's Taxi and Limousine Commission to require ride-hailing companies to offer tips within the app. The proposal will be discussed at a hearing early next month. Uber is opposed.

According to lawmakers involved in the Texas and New York bills, anti-cash language is a part of model legislation on ride-hailing that have circulated nationally. “It’s a safety issue, so you don’t have someone driving around with several hundred dollars on them,” said John Buxie, the chief of staff for Texas Representative Chris Paddie, the sponsor of one of four bills to regulate ride-hailing companies in the state.

New York's law exempts New York City, which would continue to be regulated by the TLC. The agency's rules include a $50 fine for drivers who solicit tips. It doesn't prevent them from taking a few bucks when passengers decide to offer them on their own. 

    Before it's here, it's on the Bloomberg Terminal.
    LEARN MORE