Regulator-Innovator Tug-of-War: California Warns Uber, Lyft and Sidecar on Carpooling

The ride-hailing apps have been told that they are in violation of state law by offering carpooling services for money.

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By Catherine Clifford

Opinions expressed by Entrepreneur contributors are their own.

The ride-sharing industry must virtually expect it at this point. Every time they add a new feature to their service, regulators claim they are in violation of the law. Then they stop or continue what they're doing, waiting for laws to be updated.

It's a requisite song and dance.

The latest performance: California says carpooling services offered by companies like Uber, Lyft and Sidecar are against the law. The warning came this week from the California Public Utilities Commission. The shared ride model -- where multiple passengers going the same way can be carried by one driver and split the fare -- apparently violates Public Utilities Code Section 5401.

Related: Uber Faces Lawsuit Over Drivers Allegedly Discriminating Against Blind Passengers

Sidecar, one of the companies to be scolded, says it will continue to offer the shared rides option while it works with the California regulating body to update the law.

"This is another example of dated laws that don't make room for innovation," said Margaret Ryan, head of communications at Sidecar. "Shared rides are good for our cities because they reduce congestion and pollution and they offer a safe and very affordable way to get around the city."

The option to share a ride -- and the fare -- has been popular in California already. "San Francisco was quick to embrace shared rides because they are so convenient and well-priced you can get across town for a just a little more than you would pay for the bus," Ryan said.

Related: Look Out, Uber: A Ride-Sharing Service in NYC Is Peddling $10 Flat Rates

Lyft also said it will work with California regulators moving forward to make carpooling options legal. Uber did not immediately respond to an email seeking comment.

Two summers ago, the same California Public Utilities Commission ordered that ride-hailing companies such as Sidecar, Lyft and Uber flat out needed to stop operating. Then, as the story goes, the California regulating body proposed changing the law the following summer to allow ride-hailing technology.

"We knew coming out of the gate that the idea of bringing people together to solve a problem like transportation was so big it would meet resistance," Sidecar CEO Sunil Paul wrote in a blog post. "Innovation and new technologies often require government regulators to evolve their policies."

Related: Uber Says It Will Continue Service in Germany Despite Ban

Catherine Clifford

Senior Entrepreneurship Writer at CNBC

Catherine Clifford is senior entrepreneurship writer at CNBC. She was formerly a senior writer at, the small business reporter at CNNMoney and an assistant in the New York bureau for CNN. Clifford attended Columbia University where she earned a bachelor's degree. She lives in Brooklyn, N.Y. You can follow her on Twitter at @CatClifford.

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