Third-party giants DoorDash, Grubhub, Postmates, and Uber Eats have sued New York City over its permanent cap on delivery fees, arguing the move is “nothing more than unconstitutional, harmful, and unnecessary government overreach.”
NYC’s rule limits third parties to 15 percent for delivery services and 5 percent for all other services, such as marketing, credit card processing, or other fees. In September 2020, the rule was amended to allow “pass-through” costs like credit card fees to be charged above the 20 percent total cap.
At first, the cap was supposed to last until 90 days after restaurants returned to maximum indoor capacity. Then the expiration date changed to February 17. In late August, the New York City Council decided to permanently install the cap.
In the lawsuit, the third-party aggregators claim the legislation has no relationship to any public health emergency and that it interferes with freely negotiated contracts by “changing and dictating” the economic terms.
“The United States and New York Constitutions prohibit such government overreach by safeguarding the terms of freely negotiated contracts, protecting property rights and the right to pursue legitimate business enterprises, and providing for due process and equal protection under the law,” the court document states. “Left unchecked, the Ordinance sets a dangerous precedent.”
The group argues that costs of delivery and marketing will shift to consumers, which will in turn reduce order volume, lower restaurant revenues, decrease earnings for drivers, and cut the city's tax revenue. The companies also allege that NYC did not solicit or review any data to understand the long-term impact of the cap and its potential consequences.
The lawsuit points toward NYC’s $3.4 billion budget surplus as another way to provide aid to local restaurants as opposed to the cap on delivery fees.
“But rather than exercise one of those lawful options, the City chose instead to adopt an irrational law, driven by naked animosity towards third-party platforms and unlawful economic protectionism, in violation of the United States and New York Constitutions and beyond the scope of New York City’s limited police power,” the lawsuit states.
Andrew Rigie, executive director of the NYC Hospitality Alliance, has been highly critical of the third parties throughout the pandemic, even referring to Grubhub as “fear-mongering liars.”
He described the third parties’ latest efforts as a “last-ditch effort” to overturn widely supported legislation and to continue “preying on New York City restaurants.”
“These big third-party delivery companies use their money and market domination to increase fees on small businesses,” Rigie said in a statement. “The Court should reject their abhorrent attempts to overturn this law so they can keep delivery fees outrageously high with ploy tactics that have been recognized by the City Council and the Mayor as harmful to local businesses.”
San Francisco, which limits fees to 15 percent, was the first city to keep its caps in place, doing so in June. In July, DoorDash and Grubhub filed a lawsuit against the city, citing many of the same arguments as the complaint against NYC.