DoorDash, Grubhub and Uber Eats sue NYC for price caps

New York City is being sued by three of the country's biggest food delivery companies over a cap on fees it set during the pandemic in order to protect restaurants that were forced to close due the the outbreak.

DoorDash, Grubhub and Uber Eats sue NYC for price caps

Despite the fact that indoor dining is now permitted, the city has extended those caps. This cost the city millions of dollars this summer, according to companies.

The lawsuit was filed by DoorDash, Grubhub, and Uber Eats late Thursday at the U.S. District Court in the Southern District of New York. It claims that the fees caps are government overreach. After investing millions in relief, the companies claim they were "instrumental" in keeping restaurants afloat.

They have filed for an injunction to stop the city's extension of August's fee caps.

Both the companies and jurors are also seeking unspecified monetary damages.

Nicholas Paolucci, a spokesperson for the New York Law Department, stated in an email that Nicholas Paolucci believes the initiative was legal and will defend it in court.

In May 2020, New York City enacted the price limit in response to the pandemic. It limits the rates that third-party platforms can charge restaurants at 15% for online orders and 5% for any other services including marketing.

The New York City Council passed several bills last month that would benefit small restaurants. These included prohibiting third-party delivery charges and mandating that their numbers be listed on delivery sites.

It also proposed an extension of the fee caps, which would not expire until at most early next year.

Grubhub, DoorDash, and Uber Eats, which saw explosive growth during the pandemic, are now clashing with local governments, who claim that consumers and restaurants are being hit with high fees and high costs.

Last month Chicago officials accused DoorDash and Grubhub of harming the city's restaurants and their customers by charging high fees and through other deceptive practices. Although delivery companies have been sued in the past by authorities in other states and cities, those cases have focused on specific aspects of operations. Chicago's lawsuits were deemed baseless by the companies.

San Francisco's District Attorney has accused delivery companies in California of violating California law. He claimed that they had classified drivers as contractors. Washington, D.C., also reached a settlement in 2019 with DoorDash after alleging that the company misled customers regarding tips received by drivers.

In July, the Massachusetts attorney general filed a lawsuit against Grubhub alleging that it charged restaurants illegally high fees during the pandemic. For much of 2020, the state had set fees caps.

Grubhub and DoorDash, along with Uber Eats, claim that New York City has repeatedly pushed back expiration dates for price caps. Now there is no expiration date, making them permanent. The law, they claim, has cost them hundreds of millions of dollars through July.

The lawsuit states that the ordinance is invalid because it interferes with the freely negotiated contracts between restaurants and platforms by changing and dictating economic terms upon which a dynamic sector operates.

Despite their high revenues, food delivery companies have had mixed economic results, even though they were turned into a vital service during the pandemic.

DoorDash handled unprecedented orders during its last quarter. Revenue growth has slowed since the peak of the pandemic. However, DoorDash said last month that it still had sales up 83% to $1.24 Billion.

The company still lost $102 million. Delivery start-ups must invest large amounts to grow. This is because they have to pay more to attract new drivers and increase their chances of being infected. DoorDashs reported that its fee caps had cost them $26 million in the last three months.

DoorDash has already sued to stop a San Francisco cap on fees.

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