Gravel2Gavel Construction & Real Estate Law Blog
Let’s say you run a business, but public transit doesn’t serve your location very well. You want to offer transportation to your customers or your employees. Maybe you want to offer an airport shuttle to customers or pick up employees for their daily commute in vans or buses. Maybe you want to build an aerial gondola to a baseball stadium and charge riders to use it. Or maybe you’re an entrepreneur who wants to sell transportation to other businesses or to the public. You need to know how different kinds of transportation services are regulated, and who regulates them.
California law uses several different legal frameworks to regulate transportation services. Though not a substitute for legal advice tailored to your situation, this article broadly summarizes the different ways in which transportation services are regulated in California.
Private Carriers vs. Common Carriers
The first question that the law asks is whether the transportation services are open to the public for pay, or only open to a limited group for some purpose other than transportation. If you allow anyone to board your vehicles in exchange for money, you will most likely be deemed a “common carrier” for purposes of California law (Cal. Pub. Util. Code § 211). However, if you only provide transportation to a specific group of people, such as your employees, and you are transporting them for a business purpose unrelated to the transportation itself, then you will probably be deemed a “private carrier” (Cal. Pub. Util. Code § 212).
Private carriers are regulated less stringently than common carriers, but they still need to register with the California Public Utilities Commission (Cal. Pub. Util. Code § 4005). Common carriers require more complex permits as either a “charter carrier” or a “passenger stage corporation,” as described below. As a result, it’s easier to provide services to a limited group of people as a private carrier, but potentially more lucrative to operate as a common carrier for the public at large. However, even providing transportation services to your employees can be complex in some areas—for example, San Francisco carefully regulates the use of its streets and curbs for employee shuttles.
Charter Carriers vs. Passenger Stage Corporations
California law uses the term “passenger stage corporation” to describe companies that provide transportation as a common carrier along a fixed route for individual fares. While the California legislature has not retired this archaic phrase (which probably dates to the days of stagecoaches), fortunately the laws that regulate this type of service were changed in 2006 to reflect some of the realities of the modern transportation industry.
In contrast, if you provide transportation that is arranged in advance over the phone or in writing, and do not charge individual fares to the riders, California law will probably regulate you as a “charter carrier.” So-called “ridesharing” companies such as Uber and Lyft have been regulated as a type of charter carrier by the California Public Utilities Commission (Cal. Pub. Util. Code §§ 5430–45.2). There is arguably some gray area between charter carriers and passenger stage corporations, especially in the age of smartphones. For example, what if you provide service along a particular route, like a passenger stage corporation, but require passengers to reserve seats in advance on a smartphone app, like a charter carrier? Ultimately, the California Public Utilities Commission has the power to determine which type of service you are operating, and no judge can overrule their decision (Cal. Pub. Util. Code § 1035).
Local vs. State Regulation
Whether you’re a charter carrier or a passenger stage corporation, you will be regulated either by a city government or by the California Public Utilities Commission depending on the geographic scope of your services.
By default, the California Public Utilities Commission regulates passenger stage corporations unless 98% or more of its route mileage is within the limits of a single city (Cal. Pub. Util. Code § 226(a)). If 98% or more of your route mileage is within a city, that city has the power to regulate you but not the obligation to do so. For example, San Francisco regulates the “microtransit” company Chariot as a passenger stage corporation, controlling Chariot’s ability to add new routes and requiring some data-sharing with the government (S.F., Cal. Transp. Code §§ 1201–13). (For more information, see “Regulating Microtransit in San Francisco: Greener Transportation or the End of Public Transit for All?”)
If you operate as a charter carrier in California, the city government can regulate you if your services are entirely within the city’s boundaries (Cal. Pub. Util. Code § 5353(a)). However, if the city doesn’t regulate you, or if your services extend beyond the borders of one city, then you must seek permission to operate from the California Public Utilities Commission (Cal. Pub. Util. Code § 5352 et seq.).
What Kind of Regulation Should You Choose?
When you have a choice between regulation as a passenger stage corporation or charter carrier, or between regulation at the state or city level, you should carefully consider your business goals and how the different regulatory frameworks can help or hinder you. For instance, if you’re going to be regulated at by the California Public Utilities Commission as either a charter carrier or passenger stage corporation, it’s important to know that the California Public Utilities Commission regulates the fares of passenger stage corporations (Cal. Const. art. XII §§ 3, 4) but not charter carriers (49 U.S.C. § 14501(a)), while charter carriers have to follow certain protocols to prevent underage drinking on their trips (Cal. Pub. Util. Code § 5384.1) which do not apply to passenger stage corporations. As a result, good legal advice is crucial to designing the type of transportation service that you want to provide.