App-based food delivery companies DoorDash and Grubhub filed a lawsuit against the city of San Francisco during the weekend, claiming that a permanent fee cap recently introduced by the city is unconstitutional.
Last month, the San Francisco Board of Supervisors passed a law capping additional fees on app-based delivery orders at 15%. This was largely due to restaurants complaining that the delivery companies were gouging them and customers alike with fees as high as 30%, especially during the pandemic months. While the law will need a second vote to decide if companies can charge additional fees for other optional service aspects, the per-order fee will still be capped at 15%.
While many cities across the U.S. passed temporary laws last year and earlier this year to institute a fee cap with the large number of orders being placed during the pandemic and concerns over price gouging, San Francisco became the first with a permanent cap last month.
DoorDash and Grubhub, the largest such delivery apps, immediately sprung into action, with lawsuit against the city. In the lawsuit filed this weekend at the U.S. District Court for the Northern District of California in San Francisco, the app companies called the permanent price controls unconstitutional, saying that without the fees, many restaurants would actually be hurt due to lower order volume and lower revenues, with added costs going directly to consumers.
“The cap is an irrational law, driven by naked animosity and ill-conceived economic protectionism,” the lawsuit says. “Imposing permanent price controls is unnecessary, harmful, and unconstitutional. Costs to facilitate food delivery that are not covered by restaurants will likely shift to consumers — irrespective of whether those restaurants would prefer to bear those costs to increase their own sales — thereby reducing order volume, lowering restaurant revenues, and decreasing earning opportunities for couriers.”
DoorDash also noted that the permanent cap would also severely limit the ways that small businesses could stay competitive.
“The City of San Francisco passed hasty, detrimental, and unconstitutional price controls which leave us no choice but to resolve this matter in court,” said a DoorDash spokesman in a statement. “Not only do permanent price controls violate the US and California Constitutions, but they will likely harm the very restaurants the city purports to support. Imposing permanent price controls is an unprecedented and dangerous overreach by the government and will limit the options small businesses rely on to compete in an increasingly competitive market.”
A lawsuit over a permanent 15% delivery fee cap
However, many lawmakers and some restaurant groups have said that the permanent cap is necessary and would actually help small businesses, allowing them the option to choose to pay for other services other than delivery service fees.
“We are happy to have worked with Supervisor Peskin and his staff on this important legislation to set a permanent cap on the delivery commission fees that third party delivery companies place on restaurants in San Francisco,” said Laurie Thomas of the Golden Gate Restaurant Association last month. “This legislation is well thought out, allowing the ability for restaurant operators to sign a completely separate marketing agreement for additional services, while ensuring that a clear 15% cap will remain on the delivery service. This legislation will help ensure our San Francisco restaurants can continue to operate in a financially sustainable way as they recover from the past year plus with limited capacity and lost revenue.”
However, among restaurant owners in San Francisco, the consensus is that they largely don’t know what to think of the lawsuit.
“A lot of us don’t like these delivery companies,” Taj Ramirez, a restaurant co-owner in the city, told the Globe Monday. “Those fees can put us in the red. I mean, charging us 30% for the order? That’s criminal. We lose money. A lot of restaurants have even banned their restaurants from appearing on there and either started their own delivery crew or focused on pick-up orders.”
“But a lot of us also don’t offer delivery, only pick-up. During the pandemic, with stripped down staff and no service, only food, these places also kept us open. It was only because we got rid of waitstaff and other similar positions, but it made it work.”
“But in a world with both high fees and now COVID gone and people eating inside again, costs have reached that point that we need to cut costs severely again, and that’s where that cap comes in. It brings in more business, but it also costs us money. It’s our enemy and our savior. It’s all that.”
Hearings on the case are expected to be heard sometime later this year.