I assume the reason for this law is part of an attempt to distinguish call-a-ride services (that can't accept line-of-sight street hails) from taxis (which can).
The fear would then be that someone doing the former can do some of the nuisance stuff associated with the latter, but without passing the appropriate regulatory hurdles -- i.e., they might cruise around hoping to be near a ride, which medallion limits exist to prevent.
Even then, I would think regulators would adapt this kind of thing to a world where a call-a-ride car is very likely to be near a person who specifically asks for them. At the very least, they should change it to something like, "you have to be pulled over when looking for rides".
(Admittedly, that's all speculation.)