delivery companies

Delivery companies sue New York City over permanent fee cap

It’s been an incendiary issue for months now amid the struggles of the pandemic, and the issue of third-party delivery companies in foodservice is threatening to come to a head south of the border.

Delivery platforms DoorDash, Uber Eats, and GrubHub are leading a lawsuit against New York City over the city’s implementation of a permanent 15 per cent delivery fee cap in August.

New York City Council approved in August legislation that limits the amount that food-delivery companies can charge restaurants to use their platforms and requires them to obtain operating licenses that are valid for two years, reports Reuters.

The lawsuit argues that the cap of 15 per cent on delivery fees and five per cent on fees not related to delivery is “arbitrary”.

“New York City Council passed harmful, unnecessary, and unconstitutional price controls which leave us no choice but to resolve this matter in court, as we did in San Francisco,” a DoorDash spokesperson said.

The lawsuit comes just a month and a half after DoorDash and Grubhub filed a lawsuit against the city and county of San Francisco over its permanent delivery fee cap of 15 per cent.

“Unprecedented and dangerous”

In each suit, the plaintiffs claim that the permanent fee cap is detrimental to restaurants, couriers, and customers. The NYC lawsuit claims the fee cap is unconstitutional because it interferes with freely negotiated contracts between delivery companies and restaurants.

“Price controls increase delivery fees for consumers, and therefore lead to a reduction of orders for both restaurants and couriers,” a Grubhub spokesperson said. “While Grubhub remains willing to engage with the City Council, we unfortunately are left with no choice but to take legal action.”

“Imposing permanent price controls is an unprecedented and dangerous overreach by the government and will limit the options small businesses rely on to compete in an increasingly competitive market,” the DoorDash spokesperson added.

The NYC suit also argues that permanent delivery fee caps don’t relate to a public health emergency and that there are other means of helping restaurant financing, including tax breaks or grants. It claims that council members have made statements that show the delivery fee cap is more about redirecting tax revenue and harming third-party platforms, and asserts that the cap unfairly targets large out-of-state third-party platforms.

RELATED: California may let restaurants set prices on delivery platforms

“Plaintiffs spend hundreds of millions of dollars annually in marketing their platforms, which enables restaurants on their platforms to reach new and existing consumers for incremental orders, because when restaurants survive and succeed, so do Plaintiffs,” the lawsuit said. “As a result, restaurants have had meaningful choice in whether and how they use delivery, order facilitation, and marketing services from Plaintiffs to grow their businesses.”

Accused of exploitation

NYC Council Member Francisco Moya, who introduced the fee cap legislation, responded in a statement via a spokesperson.

He said, via CNBC: “You can’t expect any better out of these greedy, out of touch, and unscrupulous billionaire companies. These companies exploited mom-and-pop shops long before the pandemic and want to continue to exploit the most vulnerable during and post COVID. From the onset, they had the opportunity to do what’s right and stand by small business owners like we do, and they still can. We need to stand by small business owners so these abuses don’t happen again.”

The lawsuits lodged by delivery companies against NYC and San Francisco aren’t the first in the battle.

Earlier this month, Chicago sued Grubhub and DoorDash, claiming their business practices are unfair and “harm restaurants and mislead consumers.”

A changing climate

This is the latest chapter in an evolving situation, as the pandemic continues to prompt a widespread review of the culture and operations of third-party delivery platforms, not least the fees they charge.

Earlier this year, Montreal restaurant Deli Boyz launched a class-action lawsuit against food delivery companies for continuing to charge allegedly “exorbitant and abusive” commissions during the pandemic.

In response, provinces including Ontario, B.C., and Quebec have also introduced temporary commission caps to help struggling restaurants, with some in the industry calling for those to be made permanent too.