NYC approves permanent cap on delivery commissions

Delivery providers will also have to get a license to operate in the city. Grubhub said it would "vigorously fight" the fee cap.

UPDATE: This story has been updated with comments from DoorDash and the New York City Hospitality Alliance.

The New York City Council on Thursday approved a permanent cap on the commissions charged to restaurants by third-party delivery companies, becoming the second place in the U.S. to do so.

It also passed a measure that will require delivery providers to get a license from the city in order to operate there.

Pending the signature of Mayor Bill de Blasio, New York will join San Francisco as the only cities in the U.S. to make the temporary, pandemic-era fee caps permanent. Delivery providers DoorDash and Grubhub are suing San Francisco over its cap, calling it unconstitutional.

In New York, the companies will not be allowed to charge commissions greater than 15% for delivery and 5% for any other services. The bill also caps transaction fees at 3% of the order total unless the delivery company can prove that a higher charge was imposed by a credit card company or another payment provider.

Under normal conditions, third-party delivery commissions can be as high as 30% of the order total. The fee cap is intended to help restaurants that have increasingly come to depend on delivery services as more business shifts to off-premise.

"We are not here to enable billion-dollar companies and their investors to get rich at the expense of restaurants," said the bill's sponsor, Councilmember Francisco Moya, during the Council's meeting Thursday afternoon.

Restaurants have generally supported the caps, while delivery companies argue that they drive up the costs of delivery and ultimately hurt restaurants.

In an attempt to give restaurants more flexibility in what they pay for delivery, DoorDash in April changed its pricing structure to allow restaurants to opt in to higher commissions in exchange for more expansive service. The lowest tier has a 15% commission rate followed by 25% and 30% options.

"New York’s restaurants need choice more than ever, and this dangerous government overreach will severely limit the options small businesses rely on everyday to succeed," a DoorDash spokesperson said in an email.

Grubhub, which considers New York to be its most important market, said it planned to fight the legislation.

"This permanent price control is flagrantly unconstitutional and will hurt local restaurants, delivery workers and diners across NYC," a company spokesperson said in an email. "We will vigorously fight this illegal action."

Grubhub said it was still reviewing the licensing bill.  

That measure would require delivery companies to get a license and sets up an enforcement process for four other delivery-related regulations enacted recently. Those include requiring delivery companies to share customer data with restaurants, prohibiting them from listing a restaurant without its permission and requiring them to display restaurants' direct phone numbers on their listings.

If the city determines that a delivery provider has violated two or more of those rules, its license could be suspended or revoked. The city will charge each company a $200 licensing fee every other year.

"These first-in-the nation bills are common sense and widely supported because they create a more equitable marketplace for local businesses and rein in certain billion-dollar corporations that have hurt New York City’s restaurants and workers for too long," said Andrew Rigie, executive director of the New York City Hospitality Alliance, in a statement. "We urge Mayor de Blasio to sign them into law immediately."    

Both bills passed by a margin of 39-3. 

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