taxi yellowSan Francisco is a town where people need rides. Between the population density on the island, the somewhat low per capita car ownership and the ubiquitous hills, hailing cabs has been a part of the San Francisco way of getting around for a long time, complementing the cable cars, buses and BART (Bay Area Rapid Transit) lines .

Yet, the old reliable Yellow Taxi is calling it quits in San Francisco, and will be declaring Chapter 11. Yellow Taxi was the oldest taxicab service in the city.

The woes of this stalwart business contain some elements of modern bankruptcy: a changing business landscape, coupled with a crippling lawsuit and a disagreement with the California judiciary  on a critical sector of employment law.

Drivers: Employees or Contractors

Just as with Uber and Lyft, Yellow Taxi maintains that its drivers are contractors and not employers. Various California jurisdictions have maintained that for all services (Uber, Lyft and traditional cab services) that in many cases, the drivers are indeed employees. The relevant California courts have cited issues such as exclusivity as well as the dependence of the drivers on the larger company for connecting with fares, as well as receiving payment.

Yellow Taxi has experienced a significant setback as a result of these determinations, due to a large lawsuit.

Civil Litigation

In 2011, a passenger was seriously injured while in a Yellow Taxi vehicle. The case, known as Fua v. Yellow Cab hinged on the employment nature of the driver. Yellow Taxi maintained that the driver was a contractor and that Yellow Taxi provided the vehicles and the brand. Ultimately, the jury disagreed with Yellow Taxi and determined that the driver was an employee. As a result, Yellow Taxi was compelled to pay the $8 million award. This award, combined with other pending litigation and arbitration fees as well as other debts, became part of the $20 million indebtedness of the company. There are reportedly 150 other claims against the company that are pending.

Yellow Taxi in the World of Uber and Lyft

Perhaps Yellow Taxi could have handled the large debt load, but their profits are down significantly, too. Both Uber and Lyft have made huge inroads in California and in San Francisco, particularly, where they are headquartered. The availability of vehicles through the Uber and Lyft apps makes them appealing to younger riders, who also appreciate the cashlessness of the transaction.

A National Trend:

Yellow Cab has also filed for bankruptcy in Chicago and other cities’ traditional cab services may be in trouble, too. As evidence of the trouble, New York City’s yellow cab medallions have dropped in price to $700,000. As recently as 2013, the medallions went for $1.3 million each.