A U.S. appeals court on Tuesday said a fund created by the state of New York to compensate black car drivers who are injured on the job did not break the law by imposing a fee on noncash tips given to drivers, nixing an $8.5 million award for a class that could include hundreds of thousands of passengers.
A unanimous three-judge panel of the 2nd U.S. Circuit Court of Appeals said the state law that created the New York Black Car Operators’ Injury Compensation Fund more than 20 years ago clearly permits it to levy the surcharge and a federal judge was wrong to rule otherwise.
The named plaintiff in the 2018 class action had argued that the surcharge, which the fund used to cover its operating costs, amounted to an unlawful tax on tips and accused the fund of unjust enrichment. The fund required black car services to collect the surcharge, which could be passed on to customers, and send the money to the fund each month.
The fund, which is a nonprofit corporation, stopped imposing the 2.5% surcharge on noncash tips in February 2021 but currently levies a 2.75% fee on fares.
The fund’s largest members are Uber and Lyft, according to filings in the case. Lyft paid the surcharge on noncash tips directly to the fund while Uber collected it from customers. The companies are not involved in the lawsuit.
Lawyers for the plaintiffs did not immediately respond to requests for comment.
Ira Goldstein, the fund’s executive director, in a statement said the 2nd Circuit ruling makes clear that the fund acted in accordance with state law.
“The Black Car Fund’s nation-leading model provides workers’ compensation and other benefits at no cost to drivers, which gig workers in other states don’t have, by charging passengers a small amount on each trip,” he said.
State law allows the fund to collect a “uniform percentage surcharge” on black car services. At issue in Tuesday’s case was whether a noncash tip is a payment for services provided by drivers.
U.S. District Judge Philip Halpern in White Plains, New York, granted summary judgment to the plaintiffs in 2020. He said the services for which the fund could impose a surcharge were limited to the cost a passenger is charged for a ride.
Halpern last year certified his decision for appeal, noting that the case presented a novel issue. The judge said that if the 2nd Circuit upheld his ruling, he would order the fund to pay nearly $8.5 million to the class.
But the appeals court on Tuesday reversed, saying tips are ultimately part of a single payment that passengers make for black car services.
“The definition of ‘covered services’ in no way limits the specific types of charges or line items that are considered ‘covered’ under the statute,” Circuit Judge Richard Sullivan wrote.