Uber Hit With Cap as New York City Takes Lead in Crackdown

Even as Uber has become one of Silicon Valley’s biggest success stories and changed the way people across the globe get around, the company has faced increased scrutiny from government regulators. It has also struggled to overcome its image as a company determined to grow at all costs with little regard for its impact on cities.

On Wednesday, the tech giant was dealt a major setback in its largest American market after the New York City Council voted to cap Uber vehicles and other ride-hail services, providing a model for other cities that are trying find ways to rein in the company.

The City Council approved a package of bills that will halt new licenses for Uber and other ride-hail vehicles for a year while the city studies the booming industry. The legislation also allows the city to set a minimum pay rate for drivers.

The new rules will make New York the first major American city to restrict the number of ride-hail vehicles and to establish pay rules for drivers. New York’s aggressive stance raises questions over Uber’s growth as the company, which has been valued at $62 billion, plans to move toward an initial public offering next year.

Mayor Bill de Blasio and Corey Johnson, the City Council speaker, say the bills will curtail worsening street congestion and improve low driver wages.

“We are pausing the issuance of new licenses in an industry that has been allowed to proliferate without any appropriate check or regulation,” Mr. Johnson said before the vote, adding that the rules would not diminish existing service for New Yorkers who rely on ride-hail apps.

Mr. de Blasio has supported the legislation and is expected to sign it. The cap on new for-hire vehicles would take effect immediately after the mayor signs the bill.

Still, Uber has warned its riders that the cap could produce higher prices and longer wait times for passengers if the company cannot keep up with growing demand. Ride-hail apps have become a crucial backup option for New Yorkers swept up in the constant delays on the city’s subway, as happened on Wednesday when signal problems again snarled train lines across a large swath of the city.

The battle over Uber’s future in New York has been prompted in part by growing concerns over financial turmoil among drivers — a problem underscored by six driver suicides in recent months. On Wednesday, a large group of drivers rallied outside City Hall before the vote and held signs displaying the names of the six drivers who took their lives.

New York is the latest city to grapple with questions over how to regulate the company. In London, Uber’s most lucrative European market, Uber recently regained its taxi license after the company agreed to stricter regulations, including providing the city with traffic data. Uber has also faced regulatory battles in American cities, like Austin, Tex., and in countries like Canada, Brazil and Italy.

[Read more about the potential impact of the Uber cap.]

The company’s new chief executive, Dara Khosrowshahi, has embarked on a global charm offensive to repair the company’s image after a series of controversies, including complaints over gender discrimination and harassment.

Uber criticized the Council’s decision to approve the cap, but said the company would work to keep up with growing demand despite the limit on new vehicles.

“The City’s 12-month pause on new vehicle licenses will threaten one of the few reliable transportation options while doing nothing to fix the subways or ease congestion,” Josh Gold, a spokesman for Uber, said in a statement.

Uber said the company would immediately reach out to tens of thousands of for-hire vehicle owners who are already licensed but work for other services and try to recruit them to work for Uber. The company said it would also continue to press for another solution, known as congestion pricing — a proposal to toll drivers entering Manhattan’s busiest neighborhoods and that would require approval from state lawmakers.

Many experts believe congestion pricing is the best way for New York City to fix congestion and secure the funds needed to fix the subway. Mr. Johnson supports the idea, but Mr. de Blasio has opposed it. Gov. Andrew M. Cuomo, who controls the subway, has said he will push for congestion pricing during the next state legislative session to help pay for an overhaul plan for the subway.

The City Council also moved recently to regulate Airbnb, another tech company that has upended the hotel industry. Mr. Johnson, a Democrat who became City Council speaker in January, has quickly taken bold steps to make a name for himself on high-profile issues, including convincing the mayor to pay for half-price MetroCards for poor New Yorkers.

[Read why some Taxi and Uber drivers are united in a cap on ride-sharing vehicles]

Many taxi and Uber drivers say they support the cap proposal. They hope it will halt the flood of new vehicles clogging city streets and allow them to make more trips and improve their earnings. Uber and other ride-hail services could add new vehicles only if they are wheelchair accessible.

Mr. de Blasio, a Democrat, tried unsuccessfully to cap Uber in 2015. Since then, the number of for-hire vehicles in the city has surged to more than 100,000 vehicles, from about 63,000 in 2015, according to the city.

If the city sets a minimum wage of $17.22 an hour after expenses, that would increase driver earnings by about 22.5 percent on average, according to a study by independent economists. About 40 percent of for-hire vehicle drivers have incomes so low that they qualify for Medicaid and about 18 percent qualify for food stamps, according to the study.

The taxi industry has also been decimated by Uber’s rise. The price of a taxi medallion, which is required to operate a taxi in New York, has plunged from more than $1 million to less than $200,000.

Elizabeth Cassarino, a yellow taxi driver, said she supports the cap and hopes it will improve business for taxis. As she drove a taxi through the clogged streets of Manhattan on Wednesday, she said her credit cards were maxed out and she had trouble making enough money to pay for food.

“Finally,” she said. “We’re starving to death.”

Follow Emma G. Fitzsimmons on Twitter: @emmagf