Lyft

A California regulatory agency has approved the first statewide guidelines in the US for ride-sharing services, setting up safety regulations for the tech companies disrupting the transportation industry.

Ride-sharing companies like Lyft, Sidecar, and UberX will have a year to bring their drivers up to the standards (PDF) set Thursday by the California Public Utilities Commission, which include things like background checks on drivers, driver training, and minimum insurance coverage.

The companies see this as a win because it could allow them to expand to other cities in the state with fewer regulatory roadblocks.

Arun Sundararajan, a professor at New York University's Stern School of Business who has been studying the sharing economy, said the new guidelines do lend legitimacy to ride-sharing services, but many of the companies already self-regulate on safety since it's in their best interest to keep drivers and customers safe.

"I honestly think that a lot of what the government is dictating here should be something the market takes care of on its own...If there's even one bad incident, it's going to damage their business. The incentives are well-aligned," he said.

The arrival of on-demand ride-sharing services in California cities caused friction between the burgeoning industry and the existing commercial drivers from the established taxi industry. Taxi drivers said these services were undercutting taxi fares, were unsafe, and were improperly insured.

In response, the state commission created a new category for ride-sharing services and developed a set of standards for safety, many of which companies already adhere to.

Taxi drivers at the meeting were clearly distraught over the commission's decision and many expressed concern over the dismantling of the taxi industry and a lack of enforcement resources for these new rules.

Tech company Flywheel, a taxi-hailing app and one of the taxi industry's partners, said there's more work ahead. Flywheel CEO Steve Humphreys, who has been particularly vocal about the gray area that ride-sharing services operate in, said in a statement that he is "pleased" with the CPUC decision to hold ride-sharing services to commercial standards.

"This is a huge step towards safer, fair, more accessible hired rides," he said. "The key will be enforcement at the local level, so unsafe, uninspected cars, and untrained, unlicensed, and uninsured drivers aren't risking people for no benefit. The overcrowding of our streets, economic impact of inefficient/overpolluting vehicle types, and casual drivers trying to navigate to unfamiliar destinations still remain as issues to be resolved, but we welcome this step."

The new guidelines include requirements like a criminal-background check for drivers, driver training, a minimum $1 million of insurance coverage, and a no-tolerance drug and alcohol policy. It also requires drivers to display signage on their cars to identify them as a ride-share service.

While most of the companies already require their drivers to do many of these things, the policy also instructs companies to submit information they may normally keep private for competitive reasons. This includes the number of rides given, the service area, how often ride-share drivers pick up a customer when summoned, and the number of drivers who have violated guidelines or were suspended.

Though many individual cities across the country have been considering laws around ride sharing, this is the first time a state has set statewide regulations for ride-sharing companies.

Sidecar CEO and founder Sunil Paul said his service, like many of the other services, already has these rules in place but that the commission's decision shows the state's commitment to consumer choice.

"The public utilities commission has focused mostly on safety issues, but it also sends a signal to the rest of the country -- and really the rest of the world -- that there is a new way to think about transportation," he said. "Consumers deserve to have that opportunity to try it."

Lyft counted more than 300 community members who showed up at Thursday's meeting to show support for the proposal. The company thanked its members in a blog post:

"New innovations in transportation have always played a large role in our country's economic development, from the construction of our railroad system in the 1800s that powered the industrial revolution to the Interstate Highway System of the 1900s that ushered in a new era of growth. And thanks to your involvement, we'll now be able to look back in 10 years knowing that today was a milestone that paved the way for our generation's peer economy."

Update, 1:44 pm PT: Added more information and Lyft's comment.