City Moves Closer to Capping Fees Food Delivery Services May Charge Restaurants

Hoping to protect local restaurants as they cope with the ever-changing pandemic economic landscape, the City Council’s Economic Development and Technology Committee unanimously passed a recommendation Wednesday to limit third party delivery company fees charged to Pasadena restaurants.

‘This is an attempt to assist our local businesses, prevent their downswing and increase transparency for our local restaurants in general,” said Committee Chair Victor Gordo.

The recommendation will now move to City Council next week for consideration.

Third-party delivery services such as Grubhub, Postmates, DoorDash and UberEats, charge fees to restaurants that can reach up to 30% or more per order, according to a city staff report.

Local restaurant owners to city officials in a survey on the issue last week that those fees swallow their operating margins.

Said one owner, “After a (third party delivery service) takes their commission, and our overhead is paid, we do not make enough of a profit. A cap is necessary for us to continue utilizing a third party delivery service, and given current operating conditions, it is imperative that we are able to offer delivery as an option.”

Deliveries also strip tips out of the process.

“With third party delivery services, restaurant workers aren’t tipped, as the customer tip only goes to the driver,” said another owner.

Should the recommendation be approved by the Council, City Manager Steve Mermell would prepare a local emergency supplement with a temporary cap on commission fees charged by third party delivery service to retail food establishments in Pasadena.

The recommendation also would require that delivery services disclose to the customer each fee charged through a transaction totaling no more than the allowable percentage cap. The local emergency supplement would also require that the drivers receive the entire gratuity if paid by the customer.

Michelle Garrett, Economic Development Special Projects Manager, explained to the Committee that third-party delivery services have two revenue streams. One comes from the restaurant and another comes from the consumer, and fees vary from company to company.

A  restaurant pays a third party delivery service of about  25 to 30% of a bill, and those commission fees can include a menu fee, which represents the actual charge for the food on the order, as well as a commission fee, the fee charged by the delivery service to the restaurant for the use of their app, as well as credit card processing.

The proposed cap on fees would only affect the fees charged by delivery services to the restaurants, and would not affect existing consumer fees.

Committee member Councilman Andy Wilson expressed concern that the salary or commission paid to drivers was small, pointing out that on a thirty-minute, 5-mile order, the driver might only make just over $9, “for half an hour or so, that’s maybe less than minimum wage.”

Economic Development Director Eric Duyshart responded that Governor Newsom is pushing AB5, the controversial 2019  “Gig Workers Law,” which would essentially create full-time employees from delivery drivers, and confer certain benefits, basic rights and protect protections under the laws, such as minimum wage workers compensation, if they’re injured on the job, unemployment insurance, paid sick leave, and paid family leave.

However, three delivery companies — Uber, Lyft, and DoorDash — have been gathering voter signatures to rewrite the law with a statewide ballot measure in November.

The council is basing its fee cap on the L.A. County’s fee cap, but will meet Monday, before the County Board of Supervisors meets to decide on the amount of fee cap, County-wide. Pasadena’s fee cap may then be modified by the city manager, should the council approve it.