New York City Council Approves Two Bills Limiting Third-Party Delivery Service Fees

Council Member Mark Gjonaj speaking at the May 13, 2020 virtual Stated Meeting Image Credit: City Council Livestream

Council Bills intended to support the restaurant industry and small business. On May 13, 2020 the New York City Council voted to approve two bills intended to restrict the amount of fees third-party delivery services can charge restaurants during the COVID-19 pandemic and restaurant closures. Intro 1898-A, which essentially prevents fees to restaurants when no actual transaction results, was approved with 47 votes in the affirmative and three votes in the negative. Intro 1908-B, which restricts third-party food delivery service fees to a maximum 15 percent per order, was approved by a vote of 46 votes in the affirmative and 4 votes in the negative.

The bills were approved by the Committee on Small Business earlier that morning and were discussed at an April 29, 2020, joint hearing by the Committee on Small Business and the Committee on Consumer Affairs and Business Licensing. To read CityLand’s prior coverage of the joint hearing and the proposed COVID-19 Relief Bills click here. The two third-party delivery service bills are discussed in further detail below.

Intro 1898-A, sponsored by Small Business Committee Chair Mark Gjonaj, would prohibit third-party delivery services, entities that provide restaurants with online order and delivery services, from charging restaurants for telephone orders that did not result in an actual transaction. It is important to note that this prohibition would only apply while a state of emergency is in effect, and restaurants are prohibited from offering on-premises consumption. This law would last an additional 90 days past the reopening of restaurants for on-premises consumption. Third-party delivery services found in violation of this law would be subject to civil penalties up to $500 per day.  This bill was also sponsored by Council Members Moya, Constantinides, Brannan, Rosenthal, Gibson, Perkins, Louis, Ayala, Lander, Chin, Koslowitz, Rivera and Ampry-Samuel.

Intro 1908-B, sponsored by Council Member Francisco P. Moya, would restrict the fees that certain third-party food delivery services, entities that provide restaurants with online order and delivery services, may charge restaurants during the state of emergency. The local law would prohibit the third-party delivery service from charging more than a 15 percent fee per order for providing delivery services and prohibit more than a 5 percent fee per order for all other charges. Violating this law would subject the third party-delivery service to civil penalties up to $1,000 per restaurant per day. This bill would also last an additional 90 days past the reopening of restaurants for on-premises consumption. The other sponsors for the bill were Council Members Gjonaj, Kallos, Brannan, Rosenthal, Gibson, Ayala, Van Bramer, Rivera, Cohen, Perkins, Louis, Lander, Chin, Koslowitz, Ampry-Samuel and Powers.

Background

According to the May 13, 2020, Committee Report and a recent survey by the New York State Restaurant Association, sales in the restaurant industry have declined 79 percent and New York State restaurants are expected to lose $3.6 billion in sales revenue from April alone.  The Committee Report also explains that the spread of COVID-19 has increased the popularity of online food delivery platforms. According to a survey by the National Restaurant Association, around 60 percent of consumers order takeout through a third-party delivery service and by 2022, 70 percent of online delivery sales are projected to take place on those platforms.

As clearly explained by the report, restaurant owners choose which service appeals most to their business model, and are then subject to that company’s fee structure after contracting. It is reported that some fees are a flat 10 percent, others average around 20 percent and some have been cited close to, or over 30 percent of the delivery bill. The four most prominent third-party delivery platforms in New York City are Grubhub/Seamless, Uber Eats, DoorDash and Postmates—all of whom utilize different fee structures. The report further explains that restaurateurs throughout the City have expressed difficulty remaining financially profitable while contracting with the third-party services, even before the pandemic. While many of many of these platforms have engaged in COVID-19 relief programs, many in the restaurant industry still report a disproportionate financial burden from high commission fees.

Commentary

After the bills passed, Council Member Mark Gjonaj released a statement, saying “the New York City Council took a historic step in standing up for locally owned restaurants that are struggling to stay afloat during the COVID-19 public health crisis. By capping the sky-high commissions charged by third-party food delivery platforms and banning these platforms from charging for phone orders that never actually happened, the City of New York has taken decisive action to stand up for small businesses who only ask for a fair shot.” Council Member Gjonaj added, “there is little doubt that the passage of these bills will save restaurants and jobs.”

Lisa Sora, President of The New Bronx Chamber of Commerce, stated “We are happy with the decision made by our City Council members today, specifically Councilman Cohen. Although as a chamber we do not support government intervention in private businesses, this is on big exception. These are unprecedented times and the delivery services are making money on the backs of one of the hardest hit industries,” adding, “Restaurants need to keep their business viable by providing food deliveries, even if it’s at a loss. All industries are feeling the financial pain of this pandemic, especially our food industry, the delivery companies should not profit or price gouge on the backs of our small businesses. Government intervention is never a good way to do business, but the delivery company[ies] forced our hands to support this measure.”

Randy Peers, Brooklyn Chamber of Commerce President and CEO, stated, “We applaud the City Council for passing legislation that caps third party platform delivery fees and protects restaurants from predatory practices. The next step is enacting these protections on a permanent basis, and ensuring that all small businesses across the city have resources and support the need to reopen.”

Council Member Francisco Moya stated, “Mom and pop restaurants across New York City are being bled dry by billion-dollar tech companies. Unfortunately, this relationship isn’t unique to the pandemic. Exorbitant fees from third-party food delivery services threatened restaurants before the COVID-19 outbreak but like so many other issues, this crisis has amplified and expanded that inequity to devastating effects.” On Intro 1908-B, which he sponsored, Moya said “My bill will provide restaurants with desperately needed relief and prevent tech giants from profiting off of a global crisis. By capping the fees third-party food apps can charge restaurants during declared states of emergency, restaurants can continue providing essential services while not putting themselves out of business in the process.” On Intro 1891-A, Moya said “this is simple: don’t charge customers who didn’t make a purchase.”

Samantha Keitt, Press Secretary for the Department of Small Business Services, stated “while delivery apps can provide helpful marketing, infrastructure, and delivery services for small restaurants, restaurant owners have long vocalized that their main concern is the high cost of using these services. We applaud the council for passing local legislation in favor of support our businesses during this pandemic. Now is the time to support, not profit from our most vulnerable populations.”

CityLand reached out to Grubhub, Uber, and Doordash but received no comment.

The Council also voted to approve Intros 1914-A, 1916-A and 1932-A from the COVID-19 Relief Package. Intro 1914, which makes it a civil penalty to harass COVID-19 impacted commercial tenants, passed by a vote of 47 to three. Intro 1916-A, which will refund and waive sidewalk café consent fees for 2020, unanimously passed. Intro 1932-A, which will prevent the enforcement of personal liability provisions in commercial leases for tenants impacted by the COVID-19 outbreak, passed by a vote of 44 to six. Council Member Kalman Yeger, who voted in the negative, expressed concern that the Intro 1932-A is unconstitutional because it affects the mutually agreed contract rights of private parties. For more details on these bills read the CityLand article linked in the first paragraph.

For New York City-specific COVID-19 updates, the City has established an information site with updates from all major administrative agencies. Agencies include the Department of Buildings, City Planning, Citywide Administrative Services, the Department of Finance and the Department of Transportation among others. You can find that page here.

By: Jason Rogovich (Jason Rogovich is the CityLaw Fellow and New York Law School Graduate, Class of 2019)