City Council Doubles Delivery Fee Cap to 20 Percent for Some Restaurants

City Council has modified a proposed emergency bill capping third-party food delivery fees for restaurants — raising the maximum fee from 10 percent to 20 percent, depending on how the restaurant uses the services.

The bill, which intended to help restaurateurs weather financial struggles during the COVID-19 shutdown, now stipulates a 5 percent baseline fee cap on all orders placed through the delivery platforms, preventing the third-party services from charging additional large fees for marketing services. But for restaurants that use Grubhub, DoorDash, and its ilk to complete deliveries, those commission fees will now be capped at an additional 15 percent.

Based on the current legislation, a restaurant that uses third-party delivery services to both accept orders and fulfill deliveries could now be charged up to 20 percent commission on each order. When the City Council discussed the legislation in a hearing in late April, the bill called for a 10 percent cap on all food delivery commission fees across the board.

The fines for infractions have also changed. In a previous version, violators would be fined $10,000 per infraction. Now, violators will be fined $1,000 per day per restaurant where they are not compliant.

A source close to the writers of the bill tells Eater that the bill was modified over concerns that Grubhub and its competition would lower gig worker wages and benefits in order to offset the revenue lost due to the fee cap.

Currently, delivery platforms charge as much as a 30 percent commission to restaurants, though fees vary by business. Some restaurants only use the platforms like Caviar and Grubhub as marketing tools and have their own delivery workers, while others hire the services to deliver the food.

Grubhub, which also owns Seamless and is the biggest player in the market, has repeatedly warned that capping fees will impact workers, though the company has not publicly gone into specifics.

“Any arbitrary cap — regardless of the duration — will lower order volume to locally-owned restaurants, increase costs for small business owners, and raise costs on customers,” a spokesperson for Grubhub said in a statement. “Delivery workers would have fewer work opportunities and lower earnings. We also believe that any cap on fees represents an overstep by local officials and will not withstand a legal challenge.”

During the pandemic, the company reported record revenue due to collecting fees from restaurants. Uber is also now reportedly trying to buy Grubhub.

The bill is set to go in front of City Council for a vote tomorrow, along with several other pandemic relief measures. Another bill would prohibit third-party delivery services from charging restaurants for phone calls made through the platform that don’t result in orders — Grubhub has allegedly been a repeat offender on this front. Other bills suspending sidewalk cafe fees and preventing landlords from personally suing tenants over unpaid rent are also on the table.

Mayor Bill de Blasio confirmed that he would support the bill capping food delivery fees in a press conference on May 12. If the bill passes tomorrow, it will go into effect seven days after the mayor signs it into law, according to a spokesperson for council member Mark Gjonaj, who chairs the City Council’s Committee on Small Business.

NYC is following in the footsteps of other major cities across the country, including San Francisco, Seattle, and D.C., in considering emergency legislation to regulate delivery service fees while restaurants are restricted to delivery and takeout during the pandemic. Similarly, Chicago just passed a law that requires delivery services to provide detailed, itemized receipts to all of its customers breaking down each charge in an effort to require more transparency around costs.

In SF, Seattle, and D.C., the emergency orders all cap fees at 15 percent. Jersey City also capped food delivery fees last week, at 10 percent.

Restaurant groups have been advocating for limits on third-delivery fees for months, long before the crisis hit. In a statement, Andrew Rigie of NYC Hospitality Alliance commended the new version of the bill, calling the 5 percent cap part of the bill “urgently needed legislation that will provide an immediately lifeline to thousands of New York City’s restaurants.”