Technology

Delivery apps' lawsuit against NYC fee cap is allowed to proceed

A judge ruled that DoorDash, Uber Eats and Grubhub have “adequately stated a claim” that the city's limit on what they charge restaurants is unconstitutional.
Delivery apps say New York's fee cap has cost them millions of dollars. | Photo: Shutterstock

DoorDash, Uber Eats and Grubhub can continue their lawsuit against New York City over its cap on the commissions they charge restaurants.

A federal judge Tuesday denied the city’s motion to dismiss the suit, ruling that the delivery apps have “adequately stated a claim” that the fee cap is unconstitutional. 

The cap, which was created early in the pandemic and later made permanent, limits restaurants’ third-party delivery commissions to 15% of the order total and all other charges to 5%. The city said it was intended to even the playing field for small businesses, which would normally pay delivery providers as much as 30% for delivery and other services like marketing.

The three providers sued the city in September 2021, arguing that the cap undermines their contracts with restaurants and will actually hurt the very businesses it is supposed to help. They also said they have lost hundreds of millions of dollars because of the caps and have been operating at a loss in the city as a result. 

The companies lodged six separate legal claims against the city, and U.S. District Judge Gregory Woods allowed all of them to move forward.

"We are encouraged by this promising decision and remain steadfast that these price controls are harmful to New Yorkers, unnecessary, and unconstitutional," a DoorDash spokesperson said in an emailed statement. "We stand with the New York City customers, merchants, and communities that we serve as we will continue to litigate this matter in court."

"Today’s ruling, allowing all six of our claims against the City to proceed, reinforces our legal position that it is unconstitutional for the City of New York to limit the amount restaurants can pay to promote their businesses to customers," a Grubhub spokesperson said in a statement. "Based on the strength of the industry’s case, we continue to urge the City Council to act now and resolve this issue. The proposed, common-sense amendment allows restaurants, delivery partners and diners to benefit from a fair marketplace, and all New Yorkers to benefit from the jobs and economic impact that comes from an industry that is allowed to thrive."

Andrew Rigie, executive director of the New York City Hospitality Alliance, an advocate for restaurants and nightclubs, said the group was still reviewing the decision. "In the meantime, the fee caps remain in place preventing the bad, old days of exorbitant fees and exploitation of restaurants and social and economic devastation," he wrote in an email. 

The fee cap is also under review by New York’s City Council, which is considering an amendment that would keep the 15% delivery limit in place but allow restaurants to pay up to an additional 15% for marketing. 

That amendment sparked a debate over the caps among Big Apple restaurants. Some said the ability to pay more for marketing will help them compete against big chains, while others said it creates a “pay to play” situation in which restaurants who choose not to pay more will get buried by the apps’ search algorithms.

As of Tuesday, 25 of the Council’s 51 members had co-signed the amendment, one short of the support it would need to pass.

The ruling is the latest chapter in the ongoing battle between New York City and third-party delivery providers. The city has also instituted a $17.98 minimum wage for couriers and a law that would force delivery apps to share more data with restaurants. Both are on hold pending lawsuits from the delivery companies.

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