Seattle Caps Third-Party Delivery Fees at 15 Percent

    New York City, Chicago, L.A., move forward on potential caps.

    Finance | April 2020 | Ben Coley
    A McDonald's employee puts two bags of food on a counter.

    McDonald's

    Seattle’s order also requires that 100 percent of tips go to delivery drivers, and makes it illegal for a third-party platform to reduce compensation due to the emergency order. 

    On Friday, Seattle announced an emergency order that capped third-party delivery provider commission fees at 15 percent. 

    The cap will remain in place until restaurants are allowed to reopen dining rooms. Seattle joins San Francisco, which announced a 15 percent cap on April 10. 

    Seattle’s order also requires that 100 percent of tips go to delivery drivers, and makes it illegal for a third-party platform to reduce compensation due to the emergency order. 

    Officials in the city said commissions sometimes reach 30 percent or more. 

    “We know that so many of our small businesses are hurting because of the COVID-19 pandemic, and that delivery services have been a lifeline for our restaurants during this unprecedented time. Unfortunately, some third-party delivery services are charging exorbitant commission fees, which exacerbates the financial hardship many restaurants are already experiencing,” said Seattle Mayor Jenny Durkan in a statement. “This commission cap will be critical to ensuring that delivery and takeout remain viable options and don’t cause increased financial hardship.

    Meanwhile, Chicago, New York City, and Los Angeles are considering instituting their own caps. 

    On Wednesday, the New York City Council will take up a set of bills that would cap delivery fees at 10 percent. In addition, the third-party platforms would be required to disclose how much workers make in tips and the amount that goes toward their wage. Violating the rule would result in fines of up to $10,000 per infraction. 

    Andrew Rigie, executive director of the New York Hospitality Alliance, has been particularly unhappy with Grubhub, which controls two-thirds of the market in New York City. 

    “Grubhub is fear mongering liars,” Rigie told QSR earlier in April. “It goes back even before this when they were charging restaurants bogus fees for orders that never occurred and they tried to lie their way and misdirect their way out of that and they’re trying to do the same here. The company cannot be trusted. Restaurateurs tell me when they think about Grubhub and Seamless, they think about evil. That’s how they describe it.”

    In March, Grubhub announced that it was suspending collection of up to $100 million in commission payments from independent restaurants. The company later clarified that these are deferred payments and will have to be repaid.

    In Chicago, the proposed legislation would cap fees at 5 percent. After more than five offenses in a year, a third-party company could face fines between $15,000 to $30,000. 

    A representative from DoorDash called Chicago’s proposal unconstitutional and said the company has cut fees in half for small restaurants through May. He also noted the 5 percent cap would make it untenable for third-party providers to cover costs of doing business. 

    "It is, therefore, profoundly disappointing that, in the midst of this crisis when food delivery is more essential than ever, some members of the City Council are trying to score political points by imposing extreme government mandates that will force food delivery in Chicago to a standstill,” said David London, senior lead of U.S. East and federal government relations, in a statement. 

    On April 22, a member of the Los Angeles City Council introduced a motion that would cap fees at 15 percent. The motion would require the city attorney to draft an ordinance for the council.

    “We want to do all we can to help improve their [restaurants’] chances of survival, and the worst thing we could do is not lean in when we see these cases that look a lot like price gouging,” L.A. Councilman Mike O’Farrell told the Los Angeles Times. “We hear from our restaurants in the district a lot, and when we hear about this price gouging, it’s just unconscionable.”