2021 Update: Third-Party Food Delivery Service Lawsuits and Legislation

The landscape of food production and delivery has seen an expedited logistical shift thanks to the COVID-19 pandemic. In fact, one study suggests as much as $19 billion in growth of third-party delivery services resulted “purely due to the pandemic.”¹ Over the past five years in the United States, the market revenue for platform-to-consumer services like DoorDash, Grubhub, and UberEats has increased by a dramatic 204 percent.² Most recently, third-party food delivery companies have been the source and target for nationwide litigation spanning an array of legal issues, from employment concerns to deceptive sales practices. Below is a description of the pending litigation and bills of concern current to the time this update was written.

New York

Lawsuits

Fee Caps

Doordash, Inc., Grubhub Inc., and Portier, LLC v. City of New York, No. 21-cv-7564 (S.D.N.Y. 2021)
In May 2020, the city of New York enacted price controls that set the amount of money that third-party delivery services could charge restaurants to 15 percent of the total order price, as well as 5 percent for marketing fees. ³ Plaintiffs assert that the city government repeatedly pushed back the expiration date for these price controls and eventually announced that the price controls would be permanent. The plaintiffs allege that the price controls are unconstitutional because they limit the freedom to pursue legitimate business enterprise, as well as violate the equal protection clause of the New York and U.S. Constitutions.
The plaintiffs state that the price controls unfairly target third-party delivery services, and that the city arbitrarily set the cap at 15 percent without an inquiry the economic impact of the price controls. Furthermore, the plaintiffs state that the irrational motivations" of the city government are made clearer by other measures that the government has undertaken against third-party delivery services, including policies that mandate licensing requirements.⁴

Customer Data

DoorDash, Inc. v. City of New York, No. 21-cv-7695 (S.D.N.Y. 2021)

In September 2020, DoorDash filed an additional lawsuit challenging a New York City ordinance requiring DoorDash’s disclosure of customer data to restaurants, such as their names, addresses, emails and telephone numbers.⁵ Notably, the ordinance prohibits “third-party platforms from limiting restaurants’ ability ‘to download and retain such data’ or to ‘use . . . such data for marketing or other purposes,’”⁶ and restricts the applicability of the bill to third-party food delivery platforms. The ordinance also functionally requires customers to opt-out of the app’s sharing of their data for each specific online order.⁷ Plaintiffs allege that the ordinance violates the First Amendment, the Contract Clause, the Takings Clause, the Dormant Commerce Clause, the Due Process Clause, and the Equal Protection Clause of the U.S. Constitution.

Legislation

Additionally, the New York City Council passed a series of bills in September of 2021 to address many of the issues involved in the nationwide litigation, which are detailed below. The New York City Council is the first to take action of this kind, establishing a minimum set of protections for delivery workers.⁸

• Int. 2294-A Establishes minimum payments
  • Requires the Department of Consumer and Worker Protection (DCWP) to “conduct a study to determine how much delivery workers must be paid for their work,” and to “promulgate rules establishing a method of determining minimum payments for delivery workers by January 1, 2021. “⁹
• Int. 2296-A Creates standards for payment
  • Prohibits “food delivery apps and couriers from charging delivery workers for the payments of their wages. It would also require the food apps and couriers pay their delivery workers for their work at least once per week.”¹⁰
• Int. 2298-A Bathroom access for deliveristas
  • Requires that, during the creation of contracts between third party delivery services and restaurants, apps “include a provision in these contracts requiring restaurants and other food service establishments to make their toilet facilities available for delivery workers’ use, as long as the delivery worker seeks to access the facilities while picking up a food or the beverage order for delivery.”¹¹
• Int. 1846-A Ensures gratuity policies
  • “Prohibits a food delivery app from soliciting a tip from a customer unless that app discloses conspicuously in plain language the amount or proportion of each gratuity that is provided to the delivery worker; and the manner in which gratuities are provided, whether immediately or not, and whether in cash or not . . . before or at the same time the gratuity is solicited from the customer.”¹²
  • Requires “food delivery apps to credit gratuities to the delivery worker . . . [and] notify delivery workers whether a gratuity was added to the order, how much the gratuity was, whether the customer removed it from the bill and why, if a reason was provided.”¹³
• Int. 2289-A Distance and route limits
  • Protects delivery workers by allowing them to set and change the following trip parameters: “maximum distance per trip, from a restaurant, that they will travel; and that such worker will not accept trips over any bridges or tunnels, or over particular bridges or tunnels.”¹⁴
  • Requires apps to provide the following information to the delivery driver prior to their acceptance of the trip: “the address where the food, beverage or other goods must be picked up; the estimated time and distance for the trip; the amount of any gratuity, if specified by the consumer; and the amount of compensation to be paid to the food delivery worker, excluding gratuity.”¹⁵
• Int. 22880-A Requires insulated food delivery bags
  • Requires provision of insulated bags to any delivery worker who has completed at least six deliveries for the company, free of charge.¹⁶
  • Grants DCWP power to suspend, revoke, and deny or refuse to renew a food delivery app license if any provision relating to this bill is violated twice in the previous two years.¹⁷

Chicago

Fee Caps/Deceptive Practices

City of Chicago v. DoorDash, Inc. and Caviar, LLC, (Cook County Cir. Ct. 2021)

In September 2021, Chicago “officials accused DoorDash and GrubHub of harming the City’s restaurants and their customers by charging high fees and through other deceptive practices.”¹⁸ These deceptive practices include the misrepresentation of various fees, from describing the delivery fee as the full price of delivery service to hiding markups of menu prices. Other allegations include accusations that DoorDash and other third-party delivery services deceptively inflated menu prices and promotional discounts, that they list unaffiliated restaurants without the restaurants’ permission while falsely portraying them as business partners, and that they deceptively used consumer tips to subsidize the platform’s payment to the driver.¹⁹

Legislation

Since the COVID-19 pandemic, the City of Chicago has passed various ordinances regulating third-party food and beverage delivery fees. The latest Ordinance (Ordinance 2021-2862) was passed on July 28, 2021 and took effect on September 24, 2021 but expired, along with all other third-party food delivery fee regulations, on October 31, 2021.
           
The Ordinance (2021-2862) replaced the prior temporary fee relief that the City had passed (Ordinance 2021-2592) which, in addition to other restrictions, had provided that it was unlawful for third-party delivery services to charge fees in excess of 10 percent of the total order price. Under the new regulations, it was unlawful for a third-party delivery service to charge a restaurant:

1. a fee greater than 15 percent of the total order price;
2. any amount designated as a ‘delivery fee’ for an online order than does not involve the delivery food or beverages;
3. any fee, commission, or cost other than as specifically stated above.

Notwithstanding this language, third-party delivery services could give restaurants an option to obtain delivery services for a total fee not to exceed 15 percent of the total order price. If the delivery services provided this option to restaurants, then such delivery services could also offer services wherein the above restrictions would not apply to such delivery services. Further, the regulations in this Ordinance do not apply to chain restaurants (i.e. restaurants with ten or more locations operating under a common business name).

Again, Chicago’s food delivery fee cap regulations all expired on October 31, 2021. At this time, it is not anticipated that new fee cap regulations will be enacted in the City of Chicago.

Massachusetts

Fee Caps

Commonwealth of Massachusetts v. Grubhub Holdings Inc. (Suffolk County Superior Ct. 2021)

On January 14, 2021, the Commonwealth of Massachusetts enacted an ordinance that capped fees that third-party delivery services could charge restaurants to 15 percent of the order price. The purpose of the ordinance was to protect restaurants that had been adversely affected by the pandemic and lasted the duration of the state of emergency declared by the Governor. The Massachusetts Attorney General brought a lawsuit against Grubhub in July of 2021.²⁰ While the plaintiff alleges that delivery services like DoorDash and Uber Eats seamlessly adjusted their policies to comply with the statute, they allege that GrubHub knowingly continued to charge restaurants in excess of the 15 percent cap, thus violating the General Legislature’s ban on deceptive and unfair trade practices.²¹ GrubHub allegedly did this by tacking on unnecessary fees such as those related to customer care and fraud monitoring, increasing the total fee amount to above 15 percent, and continued to engage in this unfair practice even after restaurants complained that the company was violating the delivery fee cap.²²

San Francisco

Fee Caps

DoorDash, Inc. and Grubhub Inc. v. City and County of San Francisco, Case No. 3:21-CV-05502 (N.D. Cal. 2021)

San Francisco recently enacted an ordinance that established price controls on what delivery services can charge restaurants for their services (15 percent cap), limiting the ability of delivery services and restaurants to freely negotiate prices. Doordash and other third-party food delivery services filed suit against the City and County of San Francisco in response in July 2021.²³ The plaintiffs assert that the ordinance at question is economically detrimental to restaurants, consumers, and delivery drivers since it limits the service options available to restaurants, could lead to higher prices for consumers, and decreases employment opportunities for delivery drivers.²⁴ Furthermore, the plaintiffs assert that the ordinance is unconstitutional since it violates the constitutional right to freely negotiate contracts and borders on violating the equal protection clause; the plaintiffs claim that the ordinance is targeting them because of the companies’ support of Proposition 22, which was recently struck down.²⁵

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Jessica Guarino, J.D., LL.M., Postdoctoral Legal Research Associate, Bock Agricultural Law & Policy Program, Department of Agricultural and Consumer Economics, University of Illinois. The authors would also like to thank our research assistant, Jacopo Demarinis, for his extensive research on this topic upon which the article relies.

Patrick Wartan, Esq., partner and chair of Taft Law’s Food & Beverage industry group, also serves as an Adjunct Professor of Legal Writing for the Illinois Institute of Technology Chicago Kent College of Law.