Third-Party Delivery Service Fees Could be Capped

PALM SPRINGS — Palm Springs is poised to move forward with plans to limit how much delivery services such as Postmates, Grubhub and Uber Eats can charge restaurants, capping delivery fees at 15% of the purchase price for orders during the COVID-19 crisis.

The City Council on Thursday will consider adopting an urgency ordinance establishing a limitation
on the amount that a third-party delivery service may impose as a fee.

If adopted, Palm Springs would be following in the steps other cities capping delivery service fees, including Los Angeles, San Francisco, Santa Clara, and New York City. Restaurants currently pay as much as 30% in fees to third-party delivery apps.

“Third-party Food Delivery Service” means any website, mobile application, or other internet service that offers or arranges for the sale of food and beverages prepared by, and the delivery or pick-up of food and beverages from, no fewer than 20 retail food establishments located in the city that are
each owned and operated by different persons.

The urgency ordinance under consideration is based on the third-party food delivery fee ordinance that  Los Angeles adopted in June of 2020.

The draft ordinance makes it unlawful for a third-party delivery service to charge a retail food service establishment a delivery fee that is more than 15% of the cost of the purchase price of an online order. The draft ordinance also makes it unlawful for a third-party delivery service to charge a retail food service establishment more than 5% of the cost of the purchase price of an online food order for the total of all other fees charged.

In addition, the draft ordinance requires a third-party delivery service to disclose to the customer each fee that it charged a retail food service establishment and mandates that the drivers receive the entire gratuity paid by the customer.

A violation of the draft ordinance can be enforced through a private right of action after a third-party delivery service has been given a period of 15 days to cure the violation.

Due to the critical issues that retail food service establishments are facing due to the COVID-19 emergency, the draft ordinance contains an urgency clause, so that it would become effective immediately upon adoption. As an urgency ordinance, the adoption would require a 4/5 vote by the City Council.

By way of background, the city manager, as the city’s Emergency Services Director, on March 17 issued a shelter-in-place order, ordering that individuals living in the city of Palm Springs to shelter at their place of residence, excluding activities necessary to provide or receive certain essential services or engage in certain essential activities and work for essential business and government service. A similar shelter in place order was subsequently issued by the state of California.

Under the first stay-at-home orders in March of 2019, restaurants were prohibited from providing in-person dining, and were limited to drive through, pick-up or delivery.

Although restaurants were subsequently authorized to provide in-person, indoor dining on May 12, 2020, that option was again removed by the state on July 1. After that date, and continuing until just recently — Sept. 22 — restaurants within Palm Springs were only able to provide in-person dining outdoors. As a result of the limitations placed on restaurants being able to provide in-person dining, there has been a significant increase in the use of third-party food delivery services.

As a result of the increased use of such services, and concerns about the amount of service fees that were being charged, many cities began moving to impose temporary fee caps on the platforms. By June, New York, Los Angeles, San Francisco, Washington, D.C., Seattle had all set commission limits, generally ranging from 15% to 20% percent of a diner’s total order.

The City Council recently requested that an ordinance similar to that of the city of Los Angeles be brought back to the Council for consideration and possible adoption.