Taxi hire agreements: an introduction
Taxi hire agreements are of central importance to the chauffeur and taxi industry. But with so many variations, and legal cases revolving around them, it is important to begin with an insight into what such an agreement is, or should be. This is difficult because, on occasions (probably the more publicised cases) there is a presumption as to what the taxi hire agreement is when in fact it is not. A taxi hire agreement can be defined as an agreement whereby the taxi driver is hired by the taxi owner to drive his car for a period of time to the exclusion of all others, and the car in question will be carrying passengers for reward. We will refer to these as taxi owner hires taxi drivers (or taxi owner hires employees), which disguises nothing. Taxi owners, or fleet owners, will often have several cars and wish to hire drivers on a per annum basis. Not surprisingly, these drivers can also be referred to as taxi drivers, or drivers of taxis or vehicles that carry passengers for reward . These drivers will in turn have their own vehicles but on occasion may use the vehicle supplied by the fleet owner. It is common for the taxi owner/fleet owner to make an advance to the driver or employee concerned. That advance will be subject to a deduction from receipts for passengers that are taken. Sometimes the deductions are made under the auspice of cost deductions. These costs can include fees for colour schemes, insurance, fuel, repairs, maintenance, fares set by government etc. Often the amounts deducted can be reduced to reflect the fact that the driver has used his own vehicle, and on occasions he/she will not be required to use the taxi to which they are assigned. The legal consequences of the relationships between the driver, the fleet owner, the members of the public who use the taxi and the taxi service itself, are governed by statute and common law. The Australian Taxation Office makes the final determination for the purposes of the goods and services tax (GST) as they apply to an employee or independent contractor.
What to include in a taxi hire agreement
In all taxi hire agreements, the obligations of the parties for the duration of the agreement must be set out, these obligations commonly include;
1. Rental Amount/Payment Schedule
The rental amount must be specified within the agreement, along with the method and timing of payment. The agreement may allow for the rental amount to increase from time to time for example, annually or at specified periods (say 6 or 12 months). The agreement may also set-up a schedule for payment of the rental amount which is usually on a weekly basis, and the method of payment (say via email or bank deposit).
2. Obligations of the parties
(i) Lessor
Commonly the agreement will state that the Lessor must ensure that the vehicle is roadworthy and current with all registrations, insurances, authority permits, certificates, inspections, record keeping, fees, charges and any applicable laws in the State in which the vehicle is registered. The lessor will also likely be required to immediately inform the Higway Patrol/Traffic Authority or other licensing authorities of any sentences or convictions that may disqualify the lessor from holding their taxidriver accreditation.
(ii) Lessee
Similarly, the agreement will likely state that the lessee must keep all registration, insurances, authority permits, certificates, inspections, record keeping, fees, charges and any applicable laws in the State in which the vehicle is registered. The lessee will be required to bear the costs of maintenance and repair and is unable to sell the vehicle without first obtaining the Lessor’s written consent.
The lessee is also likely required to keep the vehicle in their care taking all steps to ensure its security and protection from theft, unwanted or illegal activity and damage. The lessee is also required to allow the Lessor entry upon the premises where the vehicle is situated to inspect the vehicle and observe that the lessee is complying with their obligations under the hire agreement.
3. Liability Issues
The agreement will likely require the lessee to promptly report any damage, theft and vandalism to the Lessor so that the Lessor can take steps to claim under insurance policies. The agreement may impose restrictions on the use of the vehicle for personal uses, allowing only the use of the vehicle by the taxidrivers, subject to them holding the appropriate license.
Ever since the introduction of the Federal Franchise Code, there is a legal requirement that any taxi hire agreements must be governed by the Code (Code compliant). The Code compliance of the agreement must be complete prior to the execution of the agreement (i.e. prior to payment of the rental amount).
Legislation governing taxi hire agreements
As with all commercial agreements, taxi hire agreements should be carefully drafted so that they comply with the relevant legal and regulatory requirements. In particular, taxis are commercial vehicles and as such, licensing and insurance regulations applicable to these vehicles should be properly taken into account and reflected in any relevant contract. Furthermore, certain terms are implied into taxi hire agreements by virtue of legislative requirements (for example, there is a statutory duty on drivers to keep their customers’ property safe during the hire period). These statutory provisions may not apply to other types of hire agreement and it is important these are carefully checked prior to entry into any agreement.
The Road Traffic Act 1988 regulates the activity of hiring cars and other vehicles, both mechanically propelled and unmotorised, without drivers. This is in addition to any local legislation that may be in place governing taxi employment companies using drivers. If a driver is hired by a taxi hire company under a hire and reward agreement, this would not fall under the arrangements provided for under the Road Traffic Act 1988 and so, in these circumstances, claims can be brought directly against the hire company for its breach of those agreements. Alternatively, if the driver is considered to be acting as an employee of the taxi hire company, the taxi hire company may remain liable for the actions of its drivers in certain circumstances.
In 2009, the DfT published guidance, which although not legally binding, provides useful information on taxi hire and therefore is a good starting point in understanding how taxi hire agreements should operate in practice.
Common issues regarding taxi hire agreements
In practice, taxi hire agreements can give rise to a multitude of disputes, some of which I will now set out. The suggested ways in which these disputes may be resolved is not intended to be an exhaustive list, but rather just some of the common ways in which these types of disputes are often dealt with. In addition, it should be noted that many of these disputes may be avoided by including appropriate provisions in the hire agreement. For example:
1. Hire Fees It is not uncommon for a dispute to arise regarding the payment of hire fees and how they are calculated/what they include. Typically the dispute would centre around what the hire fees actually include (in some instances they may include a provision for a commission to the operator). In other circumstances it could be whether the hire fee includes fuel costs; these disputes are often more common where a fuel rebate is provided by the taxi network. In most instances the operator is required to use the fuel supplied at the nominated service station and their account will be debited accordingly. The hire fee usually will not include the cost of petrol, so the dispute can arise if the operator’s account is not debited for the petrol used on the appropriate shifts. Other potential disputes regarding hire fees include when and where they are due, for example if the hire fee is calculated on a daily basis and a dispute arises if the operator fails to pay the full amount because they only worked on part of the day, etc.
2 . Tax Payments A dispute could arise (in the Taxation Office’s favour) where an operator does not make their payments such as GST on time, or fails to pay all deductions that are due. The operator can be reported to the Australian Taxation Office (ATO), which not only increases the debt incurred by the operator, but also creates potential tax problems for the owner/lessor. It is also worth noting that although a dispute can be resolved, if the ATO has been contacted by the owner/lessor it is likely to be viewed unfavourably by the ATO (even if the dispute is resolved in favour of the operator).
3. Termination of Hire Agreement It is a common condition of the hire agreement that either party can terminate the hire at any time, for any reason, upon 7 days’ notice. However, on occasion, it seems that some hire agreements allow termination without notice, which will typically breach the minimum contractual conditions (e.g. the days hire). There can be disputes if an operator tries to leave without notice. It is suggested that a process be set out in the hire agreement to enforce the notice period. As stated above, disputes can be avoided by having appropriate provisions included in the taxi hire agreement. For example, in order to avoid a dispute regarding hire fees, it might be useful to have a detailed schedule showing the formula for determining the amount payable, along with a clause setting out the owner/lessor’s rights for damages should there be a default in payment of fees.
Negotiating a taxi hire agreement
Negotiating the terms of a taxi hire or rental agreement can be beneficial for both the hirer and owner/operator. A negotiated taxi hire agreement can provide both parties with security, certainty and cost-effective outcomes. So, how do you arrive at a favourable agreement? Here are some tips on negotiating a taxi hire agreement that we have learnt over the past 30 years. Be up-front about what your interests are when discussing the hiring or renting of the taxi. This generally includes a discussion on the hire charge, insurance, contract obligations, obligations under the Transport (Compliance and Enforcement) Act 2003 and damages. Whilst there are often issues that come up in negotiations that may seem like "roadblocks" be sure to address them so that they can be dealt with. It is also important to consider other matters that may not be as "black and white". For example, are you (or the owner/operator) a member of any industry associations? Being a member of industry organisations can help if a problem arises. Have you (or the owner/operator) previously been involved in a dispute? What were the outcomes of that dispute and did the operator or hirer take steps to prevent the same problem occurring again? Perhaps you (or the owner/operator) have a history of making long term arrangements for hiring or renting taxis with other operators. If so, what negotiations have occurred in the past? Perhaps they could be used to assist if issues arise in the current negotiations. Keep in mind that regardless of the outcome of the negotiations, the page you start on may not be the one you finish on. It is important to remain flexible in your discussions and allow the other party to leave the negotiations with something they want. You may find it useful to engage the services of a lawyer or consultant who is familiar with the industry to assist with the negotiation process. We can assist with the negotiation and drafting of taxi hire agreements (amongst other things).
Summary and best practice
In this article, we have explored taxi hire agreements in depth, touching upon their types, legal restrictions, requirements for taxi hire licensing as well as conditions and conditions of hire. We have also identified the importance of taxi hire agreements in safeguarding the interests of both owners and operators or drivers. It is abundantly clear that proportionate, precise and legally compliant taxi hire agreements are essential as part of best practices tailored to the taxi industry. Taxi hire agreements, when drawn up in accordance with the requirements of the taxi regime in your jurisdiction, create enforceable contractual rights and obligations which protect the parties against encroachment and/or misrepresentation from one party or the other. Taxi hire agreements assist in clarifying the parties’ respective expectations in terms of the operating relationship and provide clarity as to the scope of the hire arrangement. Taxi hire agreements also identify the points in the hire process at which certain operating controls can be implemented to protect both parties from exposure to risk and/or indemnifying losses from third parties . By establishing the parties’ respective contractual rights and obligations, taxi hire agreements can significantly lower reputational and financial risks. Importantly, taxi hire agreements help to address the relevant insurance requirements for the parties under contractual indemnity clauses. Insurers are often reluctant to honour claims arising from hire arrangements which can be deemed to fall outside the agreed risk (in terms of scope, territory, duration, etc.). Therefore, an insurer could refuse to honour a claim against the hirer’s policy if the relevant taxi hire agreement is not in place and it is found that the hirer did not go through the relevant processes in terms of the hire arrangement. Given the unique contractual nature of taxi hire agreements, it is strongly recommended that you seek professional assistance in drafting and/or reviewing an agreement to ensure that it appropriately reflects the parties’ intentions and is in line with the relevant taxi regime’s requirements.
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