Delivery companies say it would 'set a dangerous precedent for government overreach.'

DoorDash and Grubhub filed a lawsuit against San Francisco, arguing the city’s permanent cap on delivery fees is unconstitutional and harmful to restaurants.

San Francisco was one of many markets—New York City, Los Angeles, Seattle, and Washington, D.C. to name a few—to institute temporary caps on fees to assist restaurants under heavy restrictions and unable to serve dine-in guests. Operators nationwide have repeatedly complained about fees reaching 30 percent or higher, which hurt more during the pandemic when delivery accounted for a larger piece of sales.

In late June, San Francisco’s Board of Supervisors unanimously voted to make the fee cap permanent, becoming the first city nationwide to do so. The temporary delivery fee cap was scheduled to be in place until 60 days after restaurants returned to 100 percent capacity, which would have been August.

The complaint from DoorDash and Grubhub describes the 15 percent cap as unnecessary since restaurants have multiple contractual options, including ones below the permanent cap. The third-party delivery companies believe the restriction on fees will lead to reduced choice for restaurants, higher prices for consumers, and fewer delivery opportunities for drivers.

“It is unconstitutional because it disrupts contracts between platforms and restaurants, and permanently dictates the economic terms on which a dynamic industry operates,” the lawsuit states. “Plaintiffs are committed to help bring renewed vibrancy to the City’s local restaurants now that restrictions imposed during the COVID-19 pandemic have been lifted. But the legislation adopted by the Board of Supervisors will do the opposite.”

“Left unchecked, the Ordinance’s interference with voluntary, private contracts between businesses would set a dangerous precedent for government overreach. It should be struck down,” the court documents add.

READ MORE: Tensions Run High Between Restaurants, Delivery Apps in Pandemic

Supervisor Aaron Peskin said his office worked on commission cap legislation prior to COVID because “emergency or not, we really have an imperative to protect independent restaurants from the exploitive and predatory practices of third-party food delivery apps that seek to extract wealth from our local economy.”

Supervisor Ahsha Safai said he met with every representative from delivery companies and implored them to do the right thing instead of San Francisco having to pass legislation. 

“We are in a once-in-a-generation pandemic,” he said. “These businesses have no other option. The right thing to do would be to negotiate with us to the right number and do it voluntarily. Don’t make us legislate this. Be the leader for the rest of the country. Show the rest of the country what the right thing to do is in this situation. They chose not to.”

The third parties listed several ways in which the cap will cause them irreparable harm: renegotiating contracts with restaurants that can’t afford marketing and other services with only a 15 percent fee, scaling back marketing and promotional services in the city, terminating contracts with existing restaurants or declining to enter new ones, and being forced to recoup lost revenue, causing harm to reputation and goodwill in the city.

“The Ordinance is intended to favor one subset of the public—local restaurant owners—rather than the public at large,” the complaint states. “The reality is that restaurants and the public will likely be harmed if third-party platforms modify their operations in San Francisco, or if those platforms seek additional revenue from consumers to counteract the permanent decrease in commissions as a result of the Ordinance.”

“The Ordinance does not advance a significant or legitimate public purpose,” the document continues. “It does not further the public health or safety. It does not respond to an ongoing public-health threat. And far from promoting the general welfare, it engages in ill-conceived economic protectionism.”

It’s unclear how many other municipalities will follow San Francisco’s lead. In June, it was revealed that the New York City Council was considering legislative action to permanently limit fees. Currently, third parties can’t charge more than 15 percent per delivery order and more than 5 percent for marketing and other fees. Prior to that discussion, a Manhattan bakery filed a lawsuit accusing third-party delivery aggregators of violating the city’s cap on delivery fees.

Matt Maloney, former CEO of Grubhub and board member of Just Eat Takeaway, said during a conference call earlier in July that “I would predict you do not see another permanent fee cap being voted on till the San Francisco situation gets resolved in court.”

Delivery, Feature, Legal