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Food delivery apps challenge New York’s commission caps

Uber Eats, DoorDash and Grubhub say the Big Apple’s 15% cap on commissions hurts rather than helps local restaurants and unconstitutionally interferes with contracts.

(CN) — Even as global economies tumbled, food delivery apps did brisk business through the Covid-19 pandemic. Now, with stay-at-home measures all but gone, several of the industry’s big hitters have filed suit against New York City, arguing that price controls it put in place early in the pandemic are unconstitutional and no longer necessary.

In a complaint filed late Thursday night in Manhattan federal court, delivery companies Uber Eats, DoorDash and Grubhub argued that a city ordinance passed in May 2020 capping commissions for delivery services at 15% per order was unconstitutional from the start and should not have been extended after the end of pandemic executive orders.

They said that the commission caps, which also include a 5% cap on charges for any other services the companies offer restaurants, were passed as an emergency coronavirus relief measure but never intended as such. Initially introduced outside of the context of Covid-19 with a proposed 10% cap, the bill was signed into law in May 2020 by Mayor Bill DeBlasio as a temporary measure set to expire 90 days after the end of the public health emergency.

In August 2020, however, “the City Council moved the goalposts,” attorneys Anne Champion and Joshua Lipshutz of the New York-based firm Gibson, Dunn and Crutcher wrote in the complaint. The initiative’s end date was shifted twice before an amendment was introduced to remove the sunset date entirely.

“This now-indefinite legislation bears no relationship to any public-health emergency, and qualifies as nothing more than unconstitutional, harmful, and unnecessary government overreach that should be struck down,” the lawsuit states. “The ordinance is unconstitutional because, among other things, it interferes with freely negotiated contracts between platforms and restaurants by changing and dictating the economic terms on which a dynamic industry operates.”

The companies argue that the restrictions violate the contract clause of the U.S. Constitution by impairing preexisting contractual relationships with restaurants and constitute a taking under both the federal and state constitutions. They also allege that the rule “does not promote the public health, safety or general welfare of the public at large,” and therefore exceeds the City’s police power by advancing the interests of a narrow class of restaurants. The plaintiffs also raise due process and equal protection claims in the complaint.

They further argue that the ordinance’s professed purpose of protecting restaurants did exactly the opposite.

 “Plaintiffs have always strived for fair contracts that properly value the services that their platforms offer to restaurants,” the complaint said. “Many restaurants find this to be an advantage compared to offering their own delivery services, the costs of which restaurants will have to bear regardless of whether their order volumes justify the expenses.”

New York City’s Law Department offered a brief statement in response to the suit, with spokesman Nicholas Paolucci saying that “the initiative is legally sound and we’ll defend it in court.”

A call to one of the bill’s original sponsors, City Council members Francisco Moya, was not returned.

In the complaint and in a statement from a company spokesperson, DoorDash argues that the ordinance is harmful to everybody involved.

“Not only do price controls violate the U.S. and New York constitutions, but they will likely harm the very restaurants the city purports to support,” spokeswoman Campbell Millum said. “In addition, price controls can lead to higher prices for consumers, which can reduce orders and earnings for Dashers.”

DoorDash namechecked another suit to overturn commission caps in San Francisco in its statement, but similar rules have been put in place in several other cities. Los Angeles, Chicago, Washington, D.C., and Seattle all put similar caps in place during the pandemic, as did smaller urban areas like Minneapolis, St. Paul and Monroe County, New York, home to the city of Rochester.

Some have outlasted restrictions on in-person dining, with proponents citing a desire to protect local businesses long-term, while others have allowed theirs to expire. The San Francisco suit, filed in January, is still pending.

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