New Class Action Lawsuit Filed Against Food Delivery Fees

• Author: Bryan Miller
• Posted: 2024-06-26

Food delivery apps have been highly controversial. Many customers swear by them because they increase convenience, even though they end up paying high fees. However, some merchants go out of their way to keep these companies from delivering for them, claiming that the high fees kill their business. The truth is that these apps take a very high proportion of sales and squeeze restaurants who get priced out of customers' budgets. One New York City bakery has filed a class action lawsuit against the food delivery apps, alleging that they charge illegal fees.

Grubhub has already settled lawsuits alleging that it illegally listed itself as a partner to countless restaurants. The food delivery service listed numerous restaurants without their permission, cutting into their revenues. The settlement would give nonpartner restaurants the ability to assert control over the listings. However, new lawsuits are still being filed over unauthorized listings.

Alleged Fee Markups to Get Around Delivery Charge Caps

Now, new class action complaints target GrubHub, DoorDash and Uber Eats over fees. Some cities have imposed fee caps on food delivery services. The existing fees end up both harming consumers and putting a ceiling on prices that restaurants can charge because they do not want to become too expensive. For example, New York City has passed legislation that limits food delivery services to charging 15% in delivery fees and 5% in other fees. Restaurants do not like high delivery fees because they chase away customers. The fee limits were New York City's response to the pandemic, coming to the aid of struggling restaurants that were reeling from lost customers.

The lawyers for the plaintiff restaurant alleges that companies like UberEats and DoorDash illegally tack on fees for customers and then hide them. Customers get a high bill, but it is often hard to tell where the fees are added. The result is that the meal they have ordered puts a big hit on their wallet, and the money goes to the food delivery service as opposed to the restaurant. Eating establishments have come to depend on delivery to survive, and the apps are allegedly leveraging that to take as much money for themselves as they possibly can. The lawsuit alleges that these apps inflated the processing fees to 4.5%, which is far higher than what they are charged.

Allegedly Inflating the Credit Card Processing Fees

Here, the food delivery companies are accused of inflating the credit card processing charge on their customers' bills. These services are allowed to pass along the credit card fee in addition to the 20% in fees. However, they are limited to strictly passing alone the fee, and they cannot raise it. That is exactly what the plaintiffs claim that the restaurant did. The delivery app is the one that controls the transaction as opposed to the restaurant. When customers order from DoorDash, the app is the one that puts the transaction through and is charged the credit card processing fee.

Local legislators are closely monitoring the lawsuit. They are afraid that the food delivery industry is trying to enrich itself at the expense of a local industry that is still struggling from the effects of the pandemic. They are already talking about making these temporary fee caps permanent.

The plaintiffs are hoping that other New York City businesses will join the lawsuit, so it can get class certification. The New York City restaurant industry has been in a tug-of-war with food delivery apps. New York is far from the only local jurisdiction that has tried to limit what these companies can charge. St. Louis and Philadelphia have also passed similar local ordinances. In fact, at least 73 local jurisdictions have passed these laws. If the food delivery apps did mark up their processing fees, it would mark an attempt to get around these local laws. The food delivery apps have already tried to raise prices every way that they can to offset the fee caps.

For its part, DoorDash says that the lawsuit is baseless and lacks merit. It claims that it is looking forward to defending itself from these allegations. These companies fall back on touting what they claim to do for local restaurants and argue that they are the lifeline that allows them to stay in business. However, once the lawsuit gets into discovery, it should be pretty clear whether the food delivery apps have marked up credit card processing fees.