In August, the New York City Council made the decision to permanently implement a pandemic-chartered rule to limit the fees charged by third-party delivery services to 15% for delivery services and 5% for all other services, such as marketing, credit card processing or other fees.
Third-party companies DoorDash, Grubhub, and Uber Eats are now suing the city in response to its decision, calling it “nothing more than unconstitutional, harmful, and unnecessary government overreach.”
According to court documents, the lawsuit, which was filed Thursday states that NYC’s permanent installation of the “arbitrary” cap could shift consumer behavior, lower order volume, and create mutual losses for drivers, companies and the city by decreasing earnings for drivers, and cut the city’s tax revenue.
“The United States and New York Constitutions prohibit such government overreach by safeguarding the terms of freely negotiated contracts, protecting property rights and the right to pursue legitimate business enterprises, and providing for due process and equal protection under the law,” the court document states. “Left unchecked, the Ordinance sets a dangerous precedent.”
The lawsuit argues that costs of delivery and marketing will shift to consumers. The companies allege that NYC elected officials did not solicit or review any data to understand the long-term impact of the cap and its potential consequences.
Third-party delivery services state that in lieu of the delivery caps — which went into effect in September 2020 and was originally meant as a temporary 90-day measure — New York City could’ve used its $3.4 billion budget surplus as another way to provide aid to local restaurants.
“But rather than exercise one of those lawful options, the City chose instead to adopt an irrational law, driven by naked animosity towards third-party platforms and unlawful economic protectionism, in violation of the United States and New York Constitutions and beyond the scope of New York City’s limited police power,” the lawsuit states.
During the pandemic, the New York City Council placed a temporary 20% cap on delivery and non-delivery fees as well as the commissions that can be charged by third-party platforms from phone order fees for calls that did not result in a completed order.
Those temporary measures were set to expire on Aug. 17 — covering the first three months of then-Democratic Gov. Andrew Cuomo’s statewide decision to lift all COVID-related restrictions to allow for full capacity indoor restaurant dining on May 19.
The legislation was a part of a series of legislative items co-sponsored by councilmen Mark Gjonaj, a Democrat representing the Bronx’s 13th District, and Democrat Francisco Moya, who represents Queens’ 21st District.
In a statement to the Bronx Times, Gjonaj stood by his legislation and championed the cap as a way to level the playing field for NYC restaurants and establishments, and the third-party delivery service giants.
“It has come to my attention that DoorDash, Uber and Grubhub have recently filed a lawsuit against the permanent commission cap law instituted by New York City in a misguided effort to protect what they feel is their right to fleece local mom-and-pop eateries out of every dime that they can squeeze from them,” he said. “It’s unfortunate but not surprising.”
Gjonaj added that despite the legal threats from third-party delivery companies, the New York City Council will continue to explore additional reforms to the third-party service that act in the interest of the city’s mom-and-pop eateries.
“The strategy [from third-party delivery companies] seemed to mistakenly believe that threats would be enough to stop my colleagues and I from doing what was right. They miscalculated,” Gjonaj said. “Not only did the Council move forward with reforms to permanently cap commissions … but additional reforms are likely to move forward in the very near future.
Gjonaj’s press office told the Bronx Times that they would withhold comment on the merits of the lawsuit, leaving it to the city’s Law Department to comment on the merits of the lawsuit.
Andrew Rigie, executive director of the NYC Hospitality Alliance, who has been highly critical of the third parties throughout the pandemic, said the lawsuit is a “last-ditch effort” to overturn widely supported legislation and to continue “preying on New York City restaurants.”
“These big third-party delivery companies use their money and market domination to increase fees on small businesses,” Rigie said in a statement. “The Court should reject their abhorrent attempts to overturn this law so they can keep delivery fees outrageously high with ploy tactics that have been recognized by the City Council and the Mayor as harmful to local businesses.”
Reach Robbie Sequeira at firstname.lastname@example.org or (718) 260-4599. For more coverage, follow us on Twitter @bronxtimes and Facebook @bronxtimes.