NYC Is Cracking Down on Exorbitant Grubhub Delivery Service Fees

On Wednesday, New York City Council passed a series of coronavirus relief bills, including two meant to help restaurants during the coronavirus pandemic and crackdown on app-based food delivery: a cap on commissions charged by third-party food delivery services and a ban on predatory fees for phone calls that don’t end in a sale.

Earlier this year, New York City was considering six bills to crack down on food delivery platforms. Sponsored by Councilmember Mike Gjonaj, the bills sought to: create tamper-free food packaging; allow restaurants to charge more for delivery items; allow customers to see how much delivery companies charge restaurants; require delivery companies get licenses; introduce a hard cap delivery service commission fees; eliminate predatory fees for phone orders.

The cap on commission fees and ban on predatory fees have been rushed through as emergency COVID-19 relief, albeit in modified form. Originally, a cap of 10 percent was proposed but eventually changed to allow a 5 percent baseline cap on all orders and an additional 15 percent cap for deliveries themselves. Another modification changed the violation fee structure for delivery companies from $10,000 per violation to $1,000 per day per restaurant.

A staff member close to Councilmember Gjonaj told Motherboard that the modifications were made out of concern that app-based delivery companies would retaliate by cutting worker compensation. They also confirmed to Motherboard that the office would be revisiting these issues to further protect workers, consumers, and restaurants from gig platform exploitation, including making the commission cap permanent—it currently lasts the duration of the state of emergency and then 90 days after its end.

In a statement, Gjonaj said: “While I am grateful that we are providing this much-need and immediate relief to restaurants looking for a lifeline during this pandemic, I remain confident that we will pass the full slate of third-party food delivery reform legislation that was introduced earlier this year. This includes enacting a permanent cap on commissions and prohibiting erroneous phone order charges.”

The second bill passed on Wednesday bans companies from charging restaurants for phone calls through the platform that don't end in orders. Grubhub, which celebrated record revenues this quarter thanks in part to its 15 to 30 percent commission rates, has been repeatedly caught making predatory phone charges, was warned by City Council to stop or face "legislative solutions", promised City Council it would stop, but was caught doing as recently as late last month.

Grubhub, which has been considering a sale or merger since early January, is now reportedly considering a merger with Uber. The $4 to $6 billion deal that would give UberEats over 50 percent market share in multiple major metropolitan areas, leave restaurants even more vulnerable to the exploitative business practices of app-based platforms, and continue the march of gig companies using misclassification to obscure their pursuit of the political and economic power that monopolies bestow.

“Small businesses and restaurants are the heart and soul of New York City,” New York City Council Speaker Corey Johnson said in a statement to Motherboard. “Right now, they are hurting and they need help. I’m proud that the City Council passed five bills to help these businesses during the pandemic, including a bill that caps third-party delivery fees. This is a fair cap that will allow these platforms, which are experiencing an uptick in business because of high demand for delivery service, to continue doing business without hurting restaurants.”