Food-Delivery Apps Press to Amend New York City Fee Caps

Similar laws were adopted in Philadelphia last year and in San Francisco this past summer. New York, one of the country’s largest and most lucrative delivery markets, is the only big city where a hard-fee cap is permanently in place.

Apps charge restaurants a cut of each order, which before the Covid-19 pandemic was as much as 30% of the bill, including apps’ commissions, credit-card processing fees and other charges. DoorDash and

Uber

UBER -1.07%

Eats began offering sliding commissions ranging from 15% to 30% of an order last year, as they aimed to appease restaurants hurting from the closure of indoor dining early in the pandemic. The delivery companies give greater marketing and visibility to restaurants that pay higher commissions.

New York City’s current law caps the commission on delivery services at 15% of an order’s cost, but allows companies to charge restaurants an additional 5% listing commission and a credit-card processing fee.

City Councilman

Robert Holden,

a Democrat from Queens who sponsors the bill amending the fee caps, said it didn’t make sense to limit restaurants that wanted to spend more for marketing. “Why restrict businesses, especially in the free enterprise system? It’s counterproductive,” he said.

The New York City Hospitality Alliance, which represents bars, restaurants and hotels, opposes Mr. Holden’s bill.

“They want to take the cap and make it a floor,” said

Robert Bookman,

a lawyer for the group.

San Francisco and New York both made their fee caps permanent in the summer of 2021. Grubhub and DoorDash sued in San Francisco. The companies, along with Uber, filed a similar lawsuit against New York City’s cap that is pending. 

Grubhub, which also owns the New York City-based delivery service Seamless, counts the city as a key market: It controls about half of all delivery orders there, it told investors last year. Parent company

Just Eat Takeaway.com

TKWY 0.68%

NV has said the New York City cap has dragged on Grubhub’s earnings. Just Eat said last April that fee caps across markets cut its profits by around $200 million a year.

Amid the legal uncertainty, Uber worked with San Francisco restaurants earlier this year on a compromise that allowed for the additional marketing charges, according to San Francisco Board of Supervisors member

Aaron Peskin.

DoorDash and Grubhub dropped their lawsuit in September after the law was enacted.

“Bottom line for us is, we preserved the cap,” he said. “If restaurants don’t want to be gouged they don’t have to be gouged.”

The San Francisco law takes effect at the end of January. Restaurants are now determining which tiers of service they want to buy, said Golden Gate Restaurant Association Executive Director

Laurie Thomas.

Ms. Thomas, owner of two restaurants in San Francisco, said she was paying 23% to delivery companies before the cap took effect. She plans to stay at the 15% level, and she is working now to ensure the basic service plan is appealing for restaurants.

“The devil’s going to be in the details. We’re going to see what happens, and it will be quantifiable,” she said.

George Constantinou

owns three restaurants in Brooklyn’s Park Slope neighborhood. Medusa the Greek opened in the fall of 2019, and in part because of the pandemic, about 70% of its business comes from takeout and delivery.

He said he is concerned that if delivery apps are able to charge for better placement, he’ll be forced to pay more. “In the end, to keep up with the Joneses, we’ll have to. I don’t want to be on page seven,” he said.

Howie Jeon,

co-owner of Yumpling in Long Island City, said apps have always been a large part of the business plan for his Taiwanese restaurant. He said he would like to have the option to use delivery apps for marketing if he opens a new location.

Mr. Holden’s bill hasn’t been scheduled for a floor vote or hearing. A City Council spokesperson said it was moving through the legislative process, and spokespeople for the mayor didn’t respond to a request for comment.

It is being considered as the city moves forward with minimum-wage requirements for the estimated 60,000 people who each week make deliveries for app-based companies. The Department of Consumer and Worker Protection is set to hold a hearing this coming Friday on a rule that would mandate minimum earnings of $17.87 for every hour a worker is making a delivery, with additional payments for time when they are logged into the app. The figure will rise to $23.82 within two years of its expected effective date next year.

A survey by the department found the average hourly wage of a delivery worker is now $14.18 before expenses. “Delivery workers have delivered for New York time and again, including during the Covid-19 pandemic—now it’s time for New York to deliver for them,” Mr. Adams said in a statement.

DoorDash said the higher wage costs would be passed to customers, and estimated the result could be an $87 million reduction next year in orders for restaurants using its platform. A company spokesperson said DoorDash was encouraged by Mr. Holden’s bill, which would “ensure New York City merchants can continue to access resources to grow their businesses, and also mitigates the harmful and unintended consequences of price controls.”

An Uber spokesman said the company supports Mr. Holden’s bill as a way to potentially increase revenue as the wage requirements take effect, potentially increasing costs.

A Grubhub spokeswoman said the wage proposal doesn’t offer flexibility for when and where their delivery drivers choose to work, and they don’t support the rule as written. “It would also markedly and problematically lead to fewer opportunities both for drivers and for the city’s small businesses,” she said. 

The Grubhub spokeswoman said Mr. Holden’s bill would help preserve delivery-fee protections for restaurants while giving them flexibility in marketing options.

“Grubhub, independent restaurant owners, local community advocates and business groups support those goals to help restaurants grow,” she said.

—Heather Haddon and Preetika Rana contributed to this article.

Write to Jimmy Vielkind at jimmy.vielkind@wsj.com

Similar laws were adopted in Philadelphia last year and in San Francisco this past summer. New York, one of the country’s largest and most lucrative delivery markets, is the only big city where a hard-fee cap is permanently in place.

Apps charge restaurants a cut of each order, which before the Covid-19 pandemic was as much as 30% of the bill, including apps’ commissions, credit-card processing fees and other charges. DoorDash and

Uber

UBER -1.07%

Eats began offering sliding commissions ranging from 15% to 30% of an order last year, as they aimed to appease restaurants hurting from the closure of indoor dining early in the pandemic. The delivery companies give greater marketing and visibility to restaurants that pay higher commissions.

New York City’s current law caps the commission on delivery services at 15% of an order’s cost, but allows companies to charge restaurants an additional 5% listing commission and a credit-card processing fee.

City Councilman

Robert Holden,

a Democrat from Queens who sponsors the bill amending the fee caps, said it didn’t make sense to limit restaurants that wanted to spend more for marketing. “Why restrict businesses, especially in the free enterprise system? It’s counterproductive,” he said.

The New York City Hospitality Alliance, which represents bars, restaurants and hotels, opposes Mr. Holden’s bill.

“They want to take the cap and make it a floor,” said

Robert Bookman,

a lawyer for the group.

San Francisco and New York both made their fee caps permanent in the summer of 2021. Grubhub and DoorDash sued in San Francisco. The companies, along with Uber, filed a similar lawsuit against New York City’s cap that is pending. 

Grubhub, which also owns the New York City-based delivery service Seamless, counts the city as a key market: It controls about half of all delivery orders there, it told investors last year. Parent company

Just Eat Takeaway.com

TKWY 0.68%

NV has said the New York City cap has dragged on Grubhub’s earnings. Just Eat said last April that fee caps across markets cut its profits by around $200 million a year.

Amid the legal uncertainty, Uber worked with San Francisco restaurants earlier this year on a compromise that allowed for the additional marketing charges, according to San Francisco Board of Supervisors member

Aaron Peskin.

DoorDash and Grubhub dropped their lawsuit in September after the law was enacted.

“Bottom line for us is, we preserved the cap,” he said. “If restaurants don’t want to be gouged they don’t have to be gouged.”

The San Francisco law takes effect at the end of January. Restaurants are now determining which tiers of service they want to buy, said Golden Gate Restaurant Association Executive Director

Laurie Thomas.

Ms. Thomas, owner of two restaurants in San Francisco, said she was paying 23% to delivery companies before the cap took effect. She plans to stay at the 15% level, and she is working now to ensure the basic service plan is appealing for restaurants.

“The devil’s going to be in the details. We’re going to see what happens, and it will be quantifiable,” she said.

George Constantinou

owns three restaurants in Brooklyn’s Park Slope neighborhood. Medusa the Greek opened in the fall of 2019, and in part because of the pandemic, about 70% of its business comes from takeout and delivery.

He said he is concerned that if delivery apps are able to charge for better placement, he’ll be forced to pay more. “In the end, to keep up with the Joneses, we’ll have to. I don’t want to be on page seven,” he said.

Howie Jeon,

co-owner of Yumpling in Long Island City, said apps have always been a large part of the business plan for his Taiwanese restaurant. He said he would like to have the option to use delivery apps for marketing if he opens a new location.

Mr. Holden’s bill hasn’t been scheduled for a floor vote or hearing. A City Council spokesperson said it was moving through the legislative process, and spokespeople for the mayor didn’t respond to a request for comment.

It is being considered as the city moves forward with minimum-wage requirements for the estimated 60,000 people who each week make deliveries for app-based companies. The Department of Consumer and Worker Protection is set to hold a hearing this coming Friday on a rule that would mandate minimum earnings of $17.87 for every hour a worker is making a delivery, with additional payments for time when they are logged into the app. The figure will rise to $23.82 within two years of its expected effective date next year.

A survey by the department found the average hourly wage of a delivery worker is now $14.18 before expenses. “Delivery workers have delivered for New York time and again, including during the Covid-19 pandemic—now it’s time for New York to deliver for them,” Mr. Adams said in a statement.

DoorDash said the higher wage costs would be passed to customers, and estimated the result could be an $87 million reduction next year in orders for restaurants using its platform. A company spokesperson said DoorDash was encouraged by Mr. Holden’s bill, which would “ensure New York City merchants can continue to access resources to grow their businesses, and also mitigates the harmful and unintended consequences of price controls.”

An Uber spokesman said the company supports Mr. Holden’s bill as a way to potentially increase revenue as the wage requirements take effect, potentially increasing costs.

A Grubhub spokeswoman said the wage proposal doesn’t offer flexibility for when and where their delivery drivers choose to work, and they don’t support the rule as written. “It would also markedly and problematically lead to fewer opportunities both for drivers and for the city’s small businesses,” she said. 

The Grubhub spokeswoman said Mr. Holden’s bill would help preserve delivery-fee protections for restaurants while giving them flexibility in marketing options.

“Grubhub, independent restaurant owners, local community advocates and business groups support those goals to help restaurants grow,” she said.

—Heather Haddon and Preetika Rana contributed to this article.

Write to Jimmy Vielkind at jimmy.vielkind@wsj.com