Uber Eats, Grubhub, DoorDash Sue NYC Over Restaurant Fee Caps

Food Delivery Platforms Sue New York City Over Commission Caps

Several prominent food ordering and delivery services – including DoorDash, Caviar, Grubhub, Seamless, Postmates, and Uber Eats – have jointly filed a lawsuit against the City of New York. The legal action challenges a recently enacted law that establishes permanent limitations on the commissions these apps are permitted to charge restaurants for utilizing their platforms.

Lawsuit Details and Claims

The Wall Street Journal initially reported on Thursday evening that the companies initiated the suit in federal court. They are requesting a preliminary injunction to halt the enforcement of the legislation, as well as unspecified financial compensation and a trial by jury.

Last year, the New York City Council introduced temporary measures designed to cap third-party delivery fees at 15% per order, with an additional 5% allowed for marketing and ancillary charges. This was intended to alleviate financial pressures on restaurants impacted by pandemic-related restrictions. The companies contesting the law assert that these fee limitations, now made permanent through a bill sponsored by Councilman Francisco Moya of Queens last month, have already resulted in losses amounting to hundreds of millions of dollars.

The lawsuit emphasizes the role these platforms played during the COVID-19 pandemic. Third-party platforms were crucial in sustaining restaurants and maintaining employment within the food industry, investing significantly in relief efforts for local establishments.

Arguments Against the Fee Caps

The companies argue that the city’s imposition of permanent price controls on a competitive industry is detrimental. They contend that these controls will not only harm the delivery services themselves but also impede the recovery of the restaurants the city aims to support.

Similar commission caps were implemented in other cities during the pandemic, but most have been rescinded as conditions improved. San Francisco is among the few cities pursuing a permanent 15% cap, and the app-based companies are also challenging this decision legally.

They maintain that extending these limits, which can reach as high as 30% per order, is unjustified in the absence of a public health emergency and represents an unconstitutional interference with contractual agreements. The law dictates the economic conditions under which this industry functions.

Potential Consequences of the Law

Violators of the permanent cap could face penalties of up to $1,000 per day, per restaurant. The companies express concern that the new law will necessitate revisions to their existing contracts with restaurants.

Furthermore, they predict that the law could lead to increased fees for consumers and reduced earnings for delivery workers. The companies suggest that the city could alternatively support restaurant profitability through tax incentives or direct grants.

Criticism of the City’s Motivation

The lawsuit alleges that the city’s actions are motivated by animosity towards third-party platforms. The companies cite a tweet from Councilman Moya, made during the introduction of a 10% commission cap bill, as evidence of this sentiment.

Broader Context of Scrutiny

This legal challenge occurs amidst growing scrutiny of app-based delivery companies, which have been criticized for potentially harming both restaurants and gig workers in their pursuit of low consumer costs.

Recently, a California court deemed Proposition 22, which allowed these companies to classify workers as independent contractors, unconstitutional. This ruling sparked protests by DoorDash workers demanding improved pay and greater transparency regarding tips.

In Massachusetts, a similar ballot initiative to Prop 22 has been approved for the November 2022 election.

Impact on Delivery Workers

A courier involved in the lawsuit stated that capping commissions will reduce earnings for delivery personnel. Commission caps could also lead to higher delivery costs for customers, potentially resulting in fewer orders.

The courier explained that restaurants compensate delivery companies for various services, including the delivery itself, and limiting commissions directly impacts the income of those providing these services.