Food delivery fee disclosures and caps in the wake of COVID-19 pandemic
The coronavirus disease 2019 (COVID-19) pandemic has impacted individuals and businesses throughout the country, and the restaurant industry is no exception. As a result of customers’ increased reliance on third-party food delivery services precipitated by social distancing measures and compliance with local stay at home orders, cities have begun to take note of the fees charged by third-party delivery service providers, often with disparate impact on restaurant companies of varying sizes and negotiating power. The result has been the proposal and issuance of regulations requiring the disclosure of the amount of a delivery fee at the time of purchase and the imposition of delivery fee caps. These regulations may have long-term implications impacting third-party delivery services for years to come.
Chicago is a prime example of a region experiencing this shifting regulatory backdrop. On May 12, 2020, Chicago Mayor Lori Lightfoot and the Department of Business Affairs and Consumer Protection announced new rules for third-party food delivery companies, mandating cost breakdowns for consumers. The rules go into effect on May 22, 2020 and will remain in place indefinitely. Chicago’s Rules for Third-Party Food Delivery Services require food delivery services to provide the following information to customers upon disclosure of the final price of their order, and on any printed receipts furnished after a transaction has been completed:
- The menu price of the food
- Any sales or other tax applicable to the transaction
- Any delivery charge or service fee, imposed on or collected from the customer by the third-party food delivery service or by the covered establishment, in addition to the menu price of the food
- Any tip that will be paid to the person delivering the food, and not to the third-party food delivery service, to be added into the transaction when it occurs
- Any commission associated with the transaction
A third-party delivery service’s failure to comply with the new Chicago rules is deemed to be a “deceptive practice” under Municipal Code of Chicago Sections 2-25-090 and 4-276-470 and can result in a daily fine of $500 to $10,000.
On May 6, 2020, Washington, DC also codified a similar food service disclosure law. The DC law requires that “at the time a final price is disclosed to a customer for the intended purchase and delivery of food from a restaurant through a third-party food delivery platform and before the transaction is completed” the third-party food delivery service “shall disclose to the customer, in plain language and in a conspicuous manner, any commission, fee, or any other monetary payment imposed by the third-party food delivery platform on the restaurant.” Violators of the DC order are guilty of a civil infraction and subject to a fine of “not less than $250 and not more than $1,000 for each such violation.” Unlike Chicago’s food delivery service disclosures, which will remain in effect indefinitely, the Washington, DC regulation will only be in effect for the duration of the COVID-19 public emergency.
In addition to food service disclosure regulations, cities like Washington, DC., Seattle, New York, and San Francisco have also passed local orders, proclamations, and/or legislation limiting the commissions that third-party delivery services can charge restaurants by imposing delivery fee caps. San Francisco, Seattle, and Washington, DC, have chosen to cap delivery fees at 15 percent, whereas New York has elected to impose a 20 percent cap consisting of a five percent cap on orders placed through third-party apps, and an additional 15 percent cap on restaurants using these apps for delivery as well.
The duration of these caps and enforcement mechanisms varies from city to city. The New York delivery fee cap, for example, is currently set to last for the duration of the COVID-19 pandemic and 90 days thereafter. Violators of the New York cap on delivery services may be subjected to penalties of up to $1,000 per day per restaurant.
San Francisco’s delivery fee cap, issued as part of a broader effort to “support small businesses in San Francisco during the COVID-19 pandemic,” also applies for the duration of the pandemic. In San Francisco, covered establishments are authorized to provide written notice to third-party food delivery services requesting a refund within seven days of a service charge in excess of 15percent. If the third-party delivery service does not provide the requested refund or continues to charge fees in violation of the order after notice and expiration of the seven-day cure period, the covered establishment can enforce the order by seeking damages and injunctive relief through a civil action and will also be entitled to attorney’s fees.
Seattle’s Civil Emergency Order not only caps delivery app fees at 15 percent, but also mandates that 100 percent of tips from food delivery apps go to drivers and includes provisions clarifying that it is illegal for a third-party platform to reduce driver compensation rates to facilitate the Order. The Order remains in force until restaurants are allowed to offer unrestricted dine-in service again, and the Governor’s Stay Home-Stay Healthy Proclamation and Mayoral Proclamation of Civil Emergency are rescinded. Any person found to have knowingly violated the Order is guilty of Failure to Obey the Mayor’s Emergency Order, and upon conviction may be punished by a fine up to $500, by imprisonment for up to 180 days, or both.
On May 5, 2020, Washington, DC, became the third city to pass a law temporarily capping third-party delivery service fees. The DC law requires third-party food platforms operating within DC during the COVID-19 public health emergency to register with the Department of Consumer and Regulatory affairs, and states that it is unlawful for third-party delivery platforms to charge restaurants commission fees of more than 15 percent of the purchase price per order. Like Seattle, the DC law also states that it is unlawful for third-party delivery services to reduce compensation paid to drivers or garnish gratuities in order to comply. Companies that violate the temporary law are subject to a fine between $250 and $1,000.
Other cities including Los Angeles, Boston, and Chicago are also reportedly considering similar temporary food delivery commission caps. Chicago, for example, has introduced an Ordinance which contemplates the imposition of a five percent cap on delivery fees from third-party couriers. If implemented, Chicago’s delivery fee cap would be the strictest in the country. Violators would have seven days to refund fees in excess of five percent and could be fined $1,500 to $3,000 for a first offense, with fines of $15,000 to $30,000 upon committing a fifth offense in a 12-month period. Boston and Los Angeles, in contrast, have not specified the scope of their potential rules implementing delivery service caps.
Food delivery services that are now required to comply with these new requirements have expressed concerns that these rules will result in consumer confusion, negatively impact sales and hurt efforts to support restaurants. Notably, in San Francisco alone, some delivery services have reported a drop in sales by as much as 10percent since the city enacted its 15percent cap on delivery fees. The response from restaurant companies to the disclosure requirements and delivery caps has been mixed, with some restaurant companies welcoming the restrictions on delivery service fees that have continued to rise in recent years, and other restaurant companies finding the disclosure requirements onerous. At a minimum, the promulgation of these new disclosure requirements and fee cap restrictions has resulted in a complex latticework of rules which present new challenges for food delivery services seeking to ensure compliance, and restaurant companies navigating the shift in customer demands for food delivery.
If you have any questions regarding these new requirements and their implications, please contact your DLA Piper relationship attorney.
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This information does not, and is not intended to, constitute legal advice. All information, content, and materials are for general informational purposes only. No reader should act, or refrain from acting, with respect to any particular legal matter on the basis of this information without first seeking legal advice from counsel in the relevant jurisdiction.
