Grubhub, Uber Eats and DoorDash suing New York City over fee limits designed to protect restaurants during pandemic

Companies claim they have lost ‘hundreds of millions of dollars’ due to fee caps

Uber Eats, Grubhub and DoorDash - the nation's largest food delivery services - are suing New York City over a limit it put on fees the companies could charge in an effort to shield restaurants struggling to survive during the pandemic.

The lawsuit was filed on Thursday in the US District Court for the Southern District of New York, and claims the fees represent government overreach. The companies said in the suit that they were "instrumental in keeping restaurants afloat and food industry workers employed" and that they invested millions of dollars to support the industry during the pandemic.

The companies hope to secure a jury trial and an injunction preventing New York City from extending a fee cap that was put in place in August, as well as unspecified monetary damages.

In May 2020, the city first enacted price caps on third-party delivery services. The cap prevents the services from charging restaurants more than 15 per cent of an online order in fees and 5 per cent for any other services, including marketing.

In August, the city passed several bills aimed at helping smaller restaurants. Included in those bills were prohibitions on some service charges and mandates requiring restaurant phone number to be posted on the services, according to The Associated Press.

The city also extended the fee caps until at least early next year.

New York Law Department spokesman, Nicholas Paolucci, told the AP that the extensions were legal and that the city intends to defend them in court.

The lawsuit claims that the city is continually pushing back the expiration date of its price caps, essentially making them permanent. The complaint claims that the extensions have cost them "hundreds of millions of dollars”.

"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 lawsuit states.

On Friday, DoorDash issued a statement regarding the lawsuit, saying: "Price controls can lead to higher prices for consumers, which can reduce orders and earnings for Dashers. Imposing permanent price controls in an unprecedented and dangerous overreach by the government and will limit the options small businesses rely on to compete in an increasingly competitive market."

The food delivery services have been sparring with local governments across the nation over similar restrictions.

Chicago accused DoorDash and Grubhub of hurting city restaurants and customers by charging high fees and using "deceptive" practices. The companies said Chicago's allegations were "baseless".

The companies are also embroiled in a battle in California, particularly in San Francisco. The city accused the companies of violating state law by not classifying drivers as employees. In Washington DC, DoorDash settled with the city in 2019 over allegations it misled customers regarding the amount drivers made in tips.