The three largest food delivery services have filed a lawsuit in an attempt to overturn New York City’s cap on the fees they can charge restaurants.
The lawsuit, filed on Thursday in Federal District Court in Manhattan by Grubhub, DoorDash, and Uber Eats, was the latest in a long battle that began nearly two years ago, when the City Council first discussed a possible cap.
The Council held hearings during which restaurant owners complained about paying fees of up to 30%, claiming that fees were levied even on calls that did not result in orders.
No action was taken until the coronavirus hit New York, forcing many restaurants to close their dining rooms and forcing delivery to become the only option for survival. The City Council temporarily capped the fees that food delivery apps could charge, stating that it wanted to send restaurants a lifeline by capping them at 15% for online orders and 5% per order for other fees such as marketing.
The City Council voted in August to make the caps permanent, which sparked outrage from the app platforms and prompted the lawsuit, which also seeks an injunction to keep the caps in place until a trial can be held.
“This now-indefinite legislation bears no relation to any public-health emergency and qualifies as nothing more than unconstitutional, harmful, and unnecessary government overreach that should be struck down,” the companies wrote in their lawsuit.
The companies claim that the city’s law “interferes with freely negotiated contracts” between apps and restaurants by “changing and dictating the economic terms” of the industry, and that it is a “unconstitutional” action that will result in higher prices for consumers and less profit for restaurants.
“Price controls raise delivery fees for consumers, resulting in fewer orders for both restaurants and couriers,” said Katie Norris, director of corporate communications for Grubhub, in a statement. “While Grubhub remains willing to engage with the City Council, we are unfortunately forced to take legal action.”
In a statement, Mark Gjonaj, chairman of the Council’s small business committee and a bill sponsor, said the legislation aimed to “bring fairness to a system that all too often lacks it.”
The City Council’s spokeswoman, Kate Lucadamo, said the body would fight the lawsuit.
“Restaurants are not only an important part of New York City’s economy; they are also a part of our culture and way of life,” Ms. Lucadamo said. “The Council could not allow predatory practises by third-party delivery apps to continue unabated.”
The lawsuit comes as third-party delivery-app usage has skyrocketed during the pandemic, despite increased efforts to regulate the apps.
San Francisco residents voted to make a 15 percent fee cap permanent, but Mayor London Breed refused to sign it, claiming that a permanent cap “exceeds what is necessary for the public good.” Chicago recently sued food delivery apps for charging exorbitant fees to restaurants and customers and engaging in deceptive practises.
The argument from food delivery apps is that restaurants are not required to enter into agreements with them. Fees from other marketers that restaurants may use, such as Google, Yelp, or online reservation apps, are not regulated by the City Council. According to the lawsuit, the City Council’s fee caps are also arbitrary and unsupported by economic impact studies.
Third-party delivery apps such as Grubhub, DoorDash, and Uber Eats have argued that they allow restaurants to tap into a massive customer base that the apps have spent millions of dollars cultivating.
The three companies’ arguments, according to Andrew Rigie, executive director of the New York City Hospitality Alliance, are deceptive. Many restaurant owners believe they have no choice but to join one of the third-party delivery app platforms or risk being left behind in a competitive marketplace where customers now rely on the apps for food deliveries.
Some third-party delivery companies have also engaged in practises such as including menus from restaurants with which they have not contracted or purchasing internet domain names for restaurants on their apps.
“This is all part of a very sophisticated approach used by multibillion-dollar corporations to redirect consumer purchases through their channels so they can control the marketplace,” Mr. Rigie explained. “Restaurants believe they cannot afford to be on the platform, but they cannot afford to be absent from it.”
Companies such as Grubhub faced investor scrutiny for some of these practises and have since revised them. However, those changes were insufficient for the City Council, which is set to vote later this month on a legislative package that would govern how food delivery services treat their employees.
The bills, which have bipartisan support in the Council, would require apps to allow their workers to set route options and distance limits; initiate a study of working conditions to establish per-trip minimum payments for workers; require restaurants and apps to disclose their gratuity policies; and require restaurants to provide delivery workers with access to a bathroom.
“During the pandemic, we learned that this is an essential labour force,” said Carlos Menchaca, a Brooklyn councilman and one of the bill’s sponsors. “We will not stop because they will not stop their incredible mining of money and profits.”