Delivery Giant's Legal Battle Against New York City Fee Caps
In an attempt to help restaurants cope with epidemic restrictions last year, New York City set limits on delivery fees charged by third-party platforms like DoorDash, Grubhub, and Uber Eats. However, these companies are now challenging these caps, alleging they're unconstitutional and harm their businesses.
On Thursday, DoorDash's Caviar, Grubhub (owners of Seamless), and Uber Eats' Porter LLC (operated by Uber) filed a lawsuit against the city in the Southern District of New York. They're seeking damages and a temporary injunction to prevent the city from enforcing the fee caps.
According to the lawsuit, the fee caps violate the companies' constitutional rights by interfering with contracts with restaurants and changing the economic conditions in a dynamic industry. If the caps remain, the companies might need to renegotiate or terminate contracts, potentially leading to service reductions and higher fees for delivery customers.
The companies argue that a permanent cap could create a dangerous legal precedent. In the lawsuit, they echo this by stating, "If this regulation is not challenged, it will establish a dangerous precedent."
The city's legal department responded to CNN Business' request for comment, stating they would defend the lawsuit.
Supporters of the permanent fee cap claim it's crucial for securing the survival of city restaurants severely impacted by the pandemic. In their words, "We ensure that mom-and-pop restaurants have a real chance to recover and thrive."
Restaurants have complex relationships with these third-party platforms, with provision fees being a heavy burden even for restaurants with slim profit margins. Some restaurants shared with CNN Business last year that high fees led to losses on takeout orders, albeit they also noted that the costs for avoiding platform fees might still be higher.
Many areas, including New York, introduced fee caps during the early stages of the pandemic to reduce the financial burden on restaurants heavily dependent on delivery services to stay afloat.
New York is not the only city maintaining permanent fee caps. This summer, San Francisco took a similar step. DoorDash and Grubhub filed a lawsuit against San Francisco in July, with the city's legal department stating they'd review and defend the case in court.
Historical context and antitrust concerns
While this article focuses on the legal battle, it's worth mentioning a few additional contextual factors. In July 2021, a federal district court blocked New York City's "commission cap" law, which aimed to limit fees charged to restaurants by these delivery platforms.
The companies argued the law was discriminatory and used as a smokescreen to transfer wealth from them to local business interests. The court agreed, holding that the city council had singled them out to favor local constituents, exceeding the city's authority under its "police power."
Uber is also involved in a separate lawsuit against DoorDash, alleging antitrust violations. Uber claims DoorDash uses its large third-party ordering business to force restaurants into exclusive contracts with DoorDash Drive, its white-label delivery service.
