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Back to Court for Regulators and Third-Party Delivery Apps: Grubhub Suing New York City

In the latest legal battle between third-party delivery apps and the government, Grubhub has filed a lawsuit against New York City. At question is a restaurant’s rights to their customer’s data held by delivery companies.

Restaurant Dive reported that Grubhub is seeking a permanent injunction against two ordinances. NYC Int. 2311-A is a bill requiring third-party food delivery services to share customer information with restaurants every month upon request. This information would include their name, email address, phone number, and what they ordered from the restaurant for delivery.

Customers would have the option of opting out of sharing their information with the restaurant. They must, however, opt out for each order they place.

Bill NYC Int. 1897-A enables New York City to revoke or suspend a third-party food delivery service’s business license if they commit two or more violations, including those contained in NYC Int. 2311-A and other recently passed laws.

Grubhub contends that these laws violate the First Amendment of the U.S. Constitution, citing compelled speech. In addition to addressing free speech, this doctrine states that the government cannot force someone to “articulate, advocate, or adhere to the government’s approved messages.”  In essence, it limits the government from telling people what they must say. Grubhub alleges that mandated customer data disclosures fall under this doctrine.

In addition, the third-party delivery service states that handing over customer information would jeopardize their rights to privacy and security. According to Grubhub, some restaurants may not be set up to provide adequate protection for this type of data.

The Growing Number of Lawsuits  

DoorDash filed a similar lawsuit against New York City in September. However, they withdrew an injunction against 2311-A after the city agreed to stop enforcing the law.

In addition to calling the law unconstitutional, DoorDash argued that sharing this information would enable restaurants to compete with DoorDash. According to CNBC, the company stated that the law would force DoorDash to “modify its services in a way that will result in fewer resources being offered to restaurants, fewer earnings opportunities for delivery couriers, and fewer choices for New York City customers.”

Nick Paolucci, New York City’s director of public affairs and press secretary, stated that the law was designed to place the control of customer’s data with the customer.

This was preceded by a lawsuit filed by DoorDash, Grubhub, and Uber Eats over a bill designed to make the emergency 15% delivery fee cap, instituted during the pandemic, permanent. The companies argued that the law represented unnecessary government overreach and qualified as unconstitutional and harmful.

The New York Times reported Katie Norris, director of corporate communications for Grubhub, as stating, “Price controls increase delivery fees for consumers, and therefore lead to a reduction of orders for both restaurants and couriers.”

A Sense of Fairness

According to legislators, these laws have been established in the hopes of bringing fairness and a level playing field to the relationship between restaurants and third-party delivery services. Kate Lucadamo, a New York City Council spokeswoman, said, “The Council could not allow third-party delivery apps to continue their predatory practices unchecked.”

In October, California passed a law requiring more transparency from food-delivery apps. AB 286 requires delivery services to give delivery drivers all of their tips and disclose all fees to restaurants and customers. The law goes into effect on January 1, 2022.

In 2020, California passed the Fair Food Delivery Act, which prevented third-party delivery companies from delivering food from restaurants without a signed agreement. Previously, some delivery companies would list non-partnered restaurants on their platforms and deliver their food without a contract.

As lawmakers continue to attempt to regulate the app-based food-delivery industry, it’s clear that they will have a fight on their hands now and in the future. So, where do restaurants stand in all of this? Some proclaim third-party delivery services as their saving grace, and others suggest they are a necessary evil to keep pace in an ever-tightening market.

One wonders where the incentive lies in a business model that remains largely unprofitable. Even during the pandemic, when restaurants held onto big delivery as a lifeline, profits were elusive. Of course, over 70 cities placed caps on delivery companies’ fees, hoping to help failing restaurants. DoorDash reported that fee caps cost the business $26 million in just three months.

With cities like San Francisco and New York trying to make these caps permanent, it’s unclear if government price constraints will be in the delivery apps future or, more likely, thrown out of court as unconstitutional.

One thing we do know: The courts haven’t seen the last of third-party delivery services.

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