Delivery apps sue New York City over ‘irrational’ commission caps

Three major food delivery services are suing New York City over “an irrational law, driven by naked animosity” capping the commissions they can collect from restaurants.

DoorDash, Uber Eats, and Grubhub filed the suit in federal court in the Southern District of New York on Sept. 8 in response to the City Council’s decision to make permanent a price-capping ordinance meant to protect restaurants during the pandemic. The three companies seek “a declaration that the Ordinance violates provisions of the United States Constitution and the New York Constitution; just compensation, according to proof, for taking of property; an award of damages against the City according to proof; a permanent injunction enjoining the City from enforcing the Ordinance facially or as applied against Plaintiffs,” and attorneys’ fees.

“In pursuing this action, Plaintiffs seek to vindicate the deprivation of their federal constitutional rights under color of state statute, ordinance, regulation, custom, and/or usagee,” the companies wrote in the filing.

NEARLY 40% OF US SMALL BUSINESSES SHUTTER IN PANDEMIC

Under the ordinance, food-delivery apps cannot collect more than 23% commission on an order, according to the Wall Street Journal. Without such restrictions, the companies could charge restaurants up to 30% commission per order.

In May 2020, New York City enacted temporary price controls in an effort to keep the restaurant industry afloat after the city shut down in-person dining to prevent the spread of COVID-19. The law was supposed to expire after 90 days, but the city moved the end date multiple times. In August 2021, the City Council opted to make the price caps permanent, prompting the lawsuit from delivery service providers.

The plaintiffs claim that the ordinance is unconstitutional because it “interferes with freely negotiated contracts between platforms and restaurants by changing and dictating the economic terms on which a dynamic industry operates.”

They also assert in the filing that the ordinance “will likely have the perverse result of harming the businesses that it purportedly intends to help” because customers may be less likely to use delivery services if they raise prices to counteract the commission caps.

“Grubhub has worked hard during the pandemic to support restaurants in New York City and across the country. Despite our best efforts, the city council recently passed an unprecedented and unconstitutional price control targeting the food delivery industry,” said a Grubhub spokesperson. “Price controls increase delivery fees for consumers and therefore lead to a reduction of orders for both restaurants and couriers. While Grubhub remains willing to engage with the city council, we, unfortunately, are left with no choice but to take legal action.”

A DoorDash spokeswoman concurred, calling the ordinance “harmful, unnecessary, and unconstitutional,” and leaving them “no choice but to resolve this matter in court.”

Councilman Mark Gjonaj, who leads the Small Business Committee and supports oversight of the apps, said that the ordinance is necessary to protect New York’s restaurant industry from big businesses.

“My mandate is to ensure a fair and level playing field in the David versus Goliath relationship that many mom-and-pop eateries have with venture capital-backed food delivery platforms,” he said.

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The New York City lawsuit is the latest legal battle for the food delivery industry. Chicago filed a lawsuit last month demanding more transparency in how the apps charge restaurants, while San Francisco’s district attorney accused them of classifying drivers as contractors, which is illegal under California law. Delivery apps have also had legal trouble in Massachusetts for reportedly charging restaurants illegally high fees and in Washington, D.C., for allegedly misleading customers about how much of their tip went to the driver.

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Tags: News, New York City, lawsuit, small business, Restaurants

Original Author: Virginia Aabram

Original Location: Delivery apps sue New York City over ‘irrational’ commission caps