DoorDash, Caviar Grubhub Grubhub Seamless, Seamless and Uber Eats are suing the City of New York to challenge a law that would limit the commissions apps can charge restaurants for using their services.
The Wall Street Journal reported that the companies had filed suit in federal court Thursday evening. They are seeking an injunction to stop the city from enforcing their legislation, unspecified damages monetary and a trial by jury.
In an attempt to ease the pressure on an industry that is struggling with pandemic lockdowns, the city council passed temporary legislation last year. It would ban third-party food delivery companies from charging restaurants more then 15% per delivery order. According to the lawsuits, the city's fee limit, which was made permanent by Francisco Moya, Queens Councilman, last month, has already caused companies to lose hundreds of millions of dollars.
Third-party platforms such as Plaintiffs were instrumental in keeping restaurants afloat during the COVID-19 pandemic. They also invested millions of dollars in COVID relief efforts for local restaurants. The City of New York took the unusual step of placing permanent price controls on a highly competitive private sector. This allows food ordering and delivery to be made through third-party platforms. These permanent price controls will not only harm Plaintiffs but also hurt the revitalization and growth of very local restaurants the City claims it serves.
Similar caps were also implemented in other cities during the pandemic. However, most of these have fallen apart as the pandemic eases and restaurants are able to open new dining rooms. San Francisco is one of a few cities to have enacted a permanent 15% cap. The app-based companies are also suing. They claim that the fees are not related to any public-health emergency and that they are unconstitutional as they interfere with negotiated contracts.
Like the temporary law, violators would be subject to a $1,000 per-day fine per restaurant. According to the companies, the new law would force them to rewrite contracts with restaurants and increase fees for customers. It also could affect delivery workers' ability to make money.
They also suggested that the city could offer tax breaks or grants to local restaurants to increase their profitability, rather than affecting the commissions from delivery services.
Instead of exercising one of these legal options, however, the City decided to adopt an irrational bill, driven by animosity towards third party platforms. Moya tweeted that a 10 per cent commission cap bill was needed. It stated that NYC's local restaurants required a 10 per cent cap on third-party services like GrubHub's delivery fees long before #COVID19. They absolutely need it.
The legislation comes as app-based delivery services are under increasing scrutiny. These companies have a reputation of harming both restaurant workers and gig workers, in an effort keep costs down for consumers. California's superior court recently ruled that Proposition 22 would allow these companies continue to classify their workers as independent contractors rather than employees. DoorDash workers protested outside Tony Xu's home last week demanding more transparency and better pay. In Massachusetts, a similar law has been approved to be on the November 2022 ballot.
Restaurants pay delivery companies that use apps for a range of services via commissions. One example of this being delivery services, according to an unnamed courier who was named in the suit against the city. These commissions can be capped, which could result in lower earnings for people like myself. Delivery services could become more costly for customers I deliver to if there is a commission cap. This would ultimately result in me receiving fewer orders.
