Technology

Delivery apps sue NYC over minimum wage hike for couriers

In a pair of lawsuits, DoorDash, Grubhub and Uber Eats warned that the $17.96 hourly wage could cripple the delivery market.
Delivery apps are once again on the offensive in New York City. | Photo: Shutterstock

DoorDash, Grubhub and Uber Eats are suing New York City over a new law that would force them to pay delivery workers nearly $18 an hour starting next week.

In two lawsuits filed Thursday in New York State Supreme Court—one by DoorDash and Grubhub and another by Uber Eats—the companies argued that the law is the result of a flawed rule-making process and that it could cripple the restaurant delivery market. They have asked a court to block the rule while their cases proceed.

Under the law finalized last month, the three third-party delivery services will have to pay couriers $17.96 an hour starting July 12. That rate will rise annually to at least $19.96 in April 2025. 

The companies can choose to pay couriers an approximate rate of 30 cents for each minute they're logged onto a delivery app or approximately 50 cents per minute a courier spends actively delivering an order. Or they can choose another method that adheres to the new minimum rate.

The new rate represents a significant raise for delivery workers, who currently earn an average of $7.09 an hour before tips, according to the city. And it poses a major challenge for delivery services, which operate on slim margins as it is. Litigation was on the table almost as soon as the law was approved last month.

Both lawsuits warn that New York’s rule will also have drastic consequences for restaurants, customers and couriers. They highlighted the city’s own estimates, for instance, that the rule would lead to a $5.18 average increase in third-party delivery charges and an 18% decrease in consumer demand.

The lawsuits’ legal arguments are largely focused on how New York City arrived at the $17.96 rate. That process began in September 2021, when the City Council ordered the Department of Consumer and Worker Protection (DCWP) to study third-party delivery workers’ earnings and recommend a new minimum wage. 

According to the lawsuits, the study was flawed for a number of reasons:

It excluded grocery delivery services. The 2021 law ordered DCWP to study and regulate pay for workers of all third-party delivery services. But the study did not include grocery delivery services like Instacart, claiming these apps were beyond its scope. 

Findings were based on biased surveys of delivery workers. These surveys disclosed at the start that they were intended to raise delivery workers’ pay and asked other leading and suggestive questions. 

It wrongly included couriers’ “on-call” time. DoorDash/Grubhub argued the rule requires couriers to be paid while running errands or watching a movie, as long as they’re logged onto a delivery app. It says DCWP erroneously believed it was legally required to compensate for on-call time. 

It added a flawed workers’ compensation charge. The rule calls for the companies to pay couriers $1.68 per hour to cover workers’ comp insurance. But couriers aren’t required to use it to pay for that insurance, creating a “windfall” for uninjured workers and undercompensating injured ones.

It used an inaccurate economic model. The department based the rule on the false assumption that restaurants make a 0% profit margin from third-party delivery services, which the companies said is false. 

The lawsuits also caution that the law will raise a number of problems for restaurants. For one thing, the delivery services will have to raise prices for consumers to cover the extra labor costs, which will decrease demand. Studies conducted by DoorDash and Grubhub found that “consumers are highly sensitive to fee changes, and a significant number will stop using Petitioners’ platforms once fees rise.”

Uber Eats said the law will force it to restrict the number of couriers who are able to log on to the app at certain times. This in turn will affect delivery service to restaurants. It also said the law encourages apps to shrink their delivery radiuses in order to increase the number of trips couriers can make per hour, giving restaurants access to fewer consumers. 

"The Department’s grand marketplace experiment risks crushing restaurants and the increasingly important food delivery market," Uber Eats' lawsuit states.

The lawsuits are the latest development in an ongoing battle between New York City and third-party delivery providers. The city is also considering a permanent cap on the fees delivery companies can charge restaurants. And in 2021, it passed a law that would force the companies to share more customer data with restaurants. That measure is currently on hold amid a lawsuit filed by DoorDash.

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