The three largest food delivery platforms have filed a lawsuit to lift New York City’s cap on the amount they can charge in restaurant fees.
The lawsuit, filed Thursday by Grubhub, DoorDash and Uber Eats in Manhattan Federal District Court, was the latest face-off in a long battle that began nearly two years ago, when city council first discussed times of a cap possible.
The council held hearings in which restaurant owners complained about paying charges of up to 30%, saying charges were levied even on calls that did not result in orders.
No action was taken until the coronavirus hit New York City, forcing many restaurants across the city to close their dining rooms and making delivery the only option for survival. Saying it wanted to give restaurants a lifeline, the city council temporarily capped the fees food delivery apps could charge, setting them at 15% for online orders and 5% per order for d ‘other costs such as marketing.
In August, city council voted to make the caps permanent, sparking opposition from app platforms that led to the lawsuit, which is also seeking an injunction to remove the caps until a lawsuit can have place.
“This now undefined legislation bears no relation to a public health emergency and is seen as nothing more than unconstitutional, harmful and unnecessary government overreach that should be overturned,” the companies said in their action in justice.
The companies accuse the city law of “interfering with freely negotiated contracts” between apps and restaurants by “changing and dictating the economics” of the industry, calling it an “unconstitutional” action that will ultimately lead to at higher prices for consumers and less profit for restaurants.
“Price controls increase delivery costs for consumers and therefore result in reduced orders for restaurants and couriers,” Katie Norris, director of corporate communications for Grubhub, said in a statement. “Although Grubhub remains open to engage with city council, unfortunately we have no choice but to take legal action.”
Mark Gjonaj, chairman of the council’s small business committee and sponsor of the legislation, said in a statement that the law sought to “bring fairness to a system that is too often lacking.”
Kate Lucadamo, a city council spokesperson, said the body will fight the lawsuit.
“Restaurants are not only a vital part of New York City’s economy, they are part of our culture and way of life,” said Ms. Lucadamo. “The Council couldn’t allow third-party delivery apps to continue their predatory practices unchecked. “
Business and Economy
The lawsuit comes as the use of third-party delivery apps has skyrocketed during the pandemic, although efforts to regulate the apps have also increased.
San Francisco voted to make a 15% cap on fees permanent, but the Mayor of London Breed refused to sign it, saying a permanent cap “exceeds what is necessary for the public good.” Chicago recently sued food delivery apps for charging high fees to restaurants and customers and engaging in deceptive practices.
The argument for food delivery apps is the idea that restaurants don’t have to make deals with them. The city council does not regulate the fees of other merchants that restaurants might use, such as Google, Yelp, or online reservation apps. The tariff ceilings chosen by the City Council are also arbitrary and not supported by economic impact studies, the costs of prosecution.
Grubhub, DoorDash, and Uber Eats have argued that third-party delivery apps allow restaurants to tap into a huge customer base that the apps have spent millions of dollars to cultivate.
Andrew Rigie, executive director of the New York City Hospitality Alliance, called the arguments of the three companies spurious. Many restaurateurs feel they have no choice but to subscribe to one of the third-party delivery application platforms or be left behind in a competitive market where customers now rely on applications for food deliveries.
Some of the third-party delivery companies have also participated in practices such as placing restaurant menus on their apps with which they have not contracted or purchasing Internet domain names for restaurants.
“This is all part of a very sophisticated approach that billion dollar companies are using to redirect consumer purchases through their channels so that they can control the market,” said Rigie. “Restaurants think they can’t afford to be on the platform, but they can’t afford not to be on the platform.”
Companies like Grubhub have started to come under scrutiny from investors for some of these practices and have revised them. But those changes weren’t enough for city council, which is expected to vote later this month on a legislative package that would regulate how food delivery services treat their workers.
The bills, which have strong support from council members, would require apps to allow their workers to set route options and distance limits; launch a study on working conditions which would establish minimum payments per trip for workers; require restaurants and apps to disclose their tip policies; and require restaurants to provide delivery people with access to a bathroom.
“During the pandemic, we learned that this was an essential workforce,” said Carlos Menchaca, Brooklyn city councilor and one of the sponsors of legislation that would set pay standards for delivery people. “We are not going to stop because they do not stop in their incredible exploitation of money and profits.”