December 15, 2023 • Featured Resource
Fee Cap Legislation Across the Country
In 2023, the big third party delivery companies worked hard to repeal and weaken fee cap legislation that was meant to protect local restaurants in cities across the country. Beware of similar legislation to the bills below going into 2024. If you see this in your city or states, please reach out so we can find ways to advocate for your business.
In November, New Jersey state legislators introduced a bill aiming to restrict service fees imposed on restaurants by third-party food takeout and delivery applications. The proposed bill would set a maximum limit of 20 percent on service fees for individual orders, but also permit third party delivery platforms to charge an additional 5 percent to access additional ‘optional’ advertising, products, and services.
~Why it Matters~
Despite the appearance of progress in reducing service fees, fees as high as this legislation proves detrimental to restaurants.A service fee range of 20 to 25 percent is unsustainable and cuts into thin margins for small restaurants. The option to pay for access to additional marketing services is highly inequitable and punishes smaller restaurants that do not have the resources to pay higher fees. Restaurants that choose not to pay these ‘optional’ fees see their order volume and revenues plummet because the big third party delivery companies are pay-to-play marketplaces and have the power to manipulate their algorithms to reward restaurants that pay more and penalize restaurants that pay the minimum.
Elizabeth, New Jersey:
In September, Grubhub submitted a letter to the City of Elizabeth encouraging the city to allow its temporary cap on commissions that third-party delivery companies may charge to expire.
~Why it Matters~
While fee transparency is ideal, allowing these caps on commissions to expire enables third party delivery companies such as Grubhub to impose exorbitant fees on restaurants. Adopting fee transparency policies and removing the option to pay extra for marketing is crucial in leveling the playing field and supporting restaurants across the country.
Doordash Sued for Unethical Fees:
Earlier this year, Doordash was hit with a $1 billion lawsuit for imposing higher fees on Apple phone users then Android users. Although Doordash denies these allegations, screenshots of orders from the app display the differences between Apple user and Android user fees. The suit also alleged that DoorDash purposefully sends customers’ orders to restaurants located farther away to trigger extra fees that are associated with ordering from outside one’s “normal delivery areas” or “delivery radius.”
~Why it Matters~
Doordash regularly abuses the lack of fee transparency required by adding high and hidden fees under the guise of “service” fees. This deceptive practice is not unique to Doordash; major third-party delivery companies similarly take advantage of both customers and restaurants with these concealed fees.
Instead of imposing fee limits, we strongly recommend fee transparency as a key regulatory measure for third-party delivery platforms. Fee transparency ensures delivery companies cannot hide the true cost of their services. These policies grant customers, restaurants, and drivers a comprehensive breakdown of all fees, empowering consumers to make informed choices about the platforms they choose.