Food Delivery Apps Push Back on Fee Caps

Grubhub, Uber, and DoorDash Sue New York City

Grubhub (GRUB), Uber (UBER), and DoorDash (DASH), are suing New York City, arguing that caps placed on the fees they charge restaurants for delivery are unconstitutional. The lawsuit is in response to a law put on the books in New York which permanently limits the commissions delivery apps can receive. Grubhub, Uber, and DoorDash say the law has cost them hundreds of millions of dollars.

The lawsuit comes amid more scrutiny of food delivery companies, which gained in prominence during the pandemic. With restaurants shut down, many turned to delivery to survive. Now, some cities want to ensure that Grubhub, DoorDash, UberEats, and other servicers aren’t harming restaurants by charging too much for their services. This is why caps have been put in place.

New York Makes Fee Cap Permanent

During the pandemic, New York City capped the amount the apps could charge restaurants for delivery at 15% in an attempt to help restaurants stay afloat. In July the city made the cap permanent. Prior to that, the food delivery companies could charge restaurants as much as 30% of orders. The law also limits the fees for listing on the app to 5% and caps payment processing on apps at 3%.

Grubhub, Uber, and DoorDash are seeking an injunction to stop New York from enforcing the caps. The companies are also seeking monetary damages and a jury trial. The food delivery companies argue that the law also interferes with contracts already negotiated with restaurants.

Consumers Could Stand to Lose

With restaurants reopened, app companies also contend that caps are no longer necessary. Many cities lifted the caps as restaurants reopened for business, while others, including New York and San Francisco, made them permanent. In June San Francisco became the first city to limit commissions on food delivery to 15%. In response GrubHub, Uber, and DoorDash sued.

The app companies are not the only ones that stand to lose if caps stay in place. Grubhub, Uber, and DoorDash said in the lawsuit they have been forced to pass on the cost to consumers when commissions are capped. That trend, the companies warned, will continue in New York and elsewhere where limits are in place. The outcome of the lawsuit will have big implications on Grubhub, Uber, and DoorDash’s bottom lines. It will be interesting to see what the court decides.

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