Food Delivery Apps Sue New York Over Fee Limits

The three largest food delivery platforms have filed a lawsuit seeking to overturn New York City’s cap on how much they can charge in fees from restaurants.

The lawsuit, filed by Grubhub, DoorDash and Uber Eats in Federal District Court in Manhattan on Thursday, was the latest confrontation in an extended battle that began nearly two years ago, when the City Council first discussed a possible cap.

The Council held hearings where restaurant owners complained of paying fees as high as 30 percent, saying that fees were levied even on calls that did not result in orders.

No action was taken until the coronavirus struck New York, forcing many restaurants across the city to close their dining rooms and making delivery the only option for survival. Saying that it wanted to send restaurants a lifeline, the City Council temporarily capped the fees that food delivery apps could charge, setting them at 15 percent for online orders and 5 percent per order for other fees such as marketing.

In August, the City Council voted to make the caps permanent, drawing opposition from the app platforms that has led to the lawsuit, which also seeks an injunction to remove the caps until a trial can be held.

“This now-indefinite legislation bears no relationship to any public-health emergency, and qualifies as nothing more than unconstitutional, harmful, and unnecessary government overreach that should be struck down,” the companies said in their lawsuit.

The companies charge that the city’s law “interferes with freely negotiated contracts” between the apps and restaurants by “changing and dictating the economic terms” of the industry, calling it an “unconstitutional” action that will ultimately lead to higher prices for consumers and less profit for restaurants.

“Price controls increase delivery fees for consumers, and therefore lead to a reduction of orders for both restaurants and couriers,” Katie Norris, director of corporate communications for Grubhub, said in a statement. “While Grubhub remains willing to engage with the City Council, we unfortunately are left with no choice but to take legal action.”

Mark Gjonaj, the chairman of the Council’s small business committee and a sponsor of the legislation, said in a statement that the law sought to “bring fairness to a system that all too often lacks it.”

Kate Lucadamo, a spokeswoman for the City Council, said the body would fight the lawsuit.

“Restaurants are not just a critical part of New York City’s economy, they are part of our culture and our way of living,” Ms. Lucadamo said. “The Council could not allow third-party delivery apps to continue their predatory practices unchecked.”

The lawsuit comes as third-party delivery-app usage has soared during the pandemic, even as efforts to regulate the apps have also increased.

San Francisco voted to make a 15 percent cap on fees permanent, but Mayor London Breed declined to sign it, saying that a permanent cap “oversteps what is necessary for the public good.” Chicago recently sued the food delivery apps for charging restaurants and customers high fees and engaging in deceptive practices.

Girding the argument from food delivery apps is the idea that restaurants do not have to enter into agreements with them. The City Council does not regulate fees from other marketers that restaurants might use, such as Google, Yelp or online reservation apps. The fee caps chosen by the City Council are also arbitrary and not supported by economic impact studies, the lawsuit charges.

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, the executive director of the New York City Hospitality Alliance, called the arguments from the three companies disingenuous. Many restaurant owners feel that they have no choice but to subscribe to one of the third-party delivery app platforms or be left behind in a competitive marketplace where customers now rely on the apps for food deliveries.

Some of the third-party delivery companies have also participated in practices such as placing on their apps the menus of restaurants they have not contracted with or purchasing internet domain names for restaurants.

“This is all part of a very sophisticated approach billon-dollar companies use to redirect consumer purchases through their channels so they can control the marketplace,” Mr. Rigie said. “Restaurants feel they can’t afford to be on the platform but they can’t afford to not be on the platform.”

Companies like Grubhub began facing scrutiny from investors for some of those practices and have revised them. But those changes were not enough for the City Council, which is expected to vote later this month on a legislative package that would regulate how the food delivery services treat their workers.

The bills, which have strong support from Council members, would require the apps to allow their workers to set route options and distance limits; initiate a study of working conditions that would establish per-trip minimum payments for workers; require restaurants and apps to disclose their gratuity policies; and require restaurants to provide delivery workers with access to a bathroom.

“During the pandemic, we learned this is a labor force that is essential,” said Carlos Menchaca, a councilman from Brooklyn and one of the sponsors of the legislation that would establish pay standards for delivery workers. “We are not going to stop because they are not stopping in their incredible mining of money and profits.”