Continuing Limits on
Charges Imposed by Third-
Party Food Delivery
Services:
Introduction of
Ordinance Amending Alameda
Municipal Code Section 6-62
March 7, 2023
Presentation Overview
• Purpose:
• Introduction of an ordinance amending Municipal Code
Section 6-62 to:
1. Continue limits on fees charged to restaurants by Third- Party Delivery Services at 15%, while allowing
restaurants to pay for additional marketing services at a higher cost if desired;
2. Limit the addition of new customer fees, but allow for the increase of existing fees by the rate of inflation; and
3. Extend the Ordinance for two years to evaluate
effectiveness.
Presentation Overview
• Tonight’s presentation:
• Background
• Outreach
• Potential Impacts
• Staff Recommendation
Key Events Affecting Delivery Service
Ordinance
• September 2020 City Council unanimously approves ordinance capping Third-Party Delivery Service charges imposed on restaurants and limiting fees imposed on consumers
• October 2021 California Legislature adopts AB 286
• September 2022 Discussion facilitated by former Councilmember Knox White with Restaurant Coalition, Chamber, BIAs and City staff • October/November 2022 City Council lifts the City’s local state of emergency; Council directed staff to extend ordinance duration until the State of California’s State of Emergency is rescinded; City Council approves modification
• February 2023 California ends emergency declaration
Pre-Ordinance (2020) Context for Delivery
Services
• Delivery companies played an important role in
helping restaurants to quickly scale up their food
delivery services and residents/consumers to access
critical food needs
• Alameda restaurants reported paying fees as high as
31% and customers reported paying fees as high as
30% of the purchase price; upper end of fee levels
infeasible for businesses and members of the
community with limited income
• Council approved 2020 ordinance to limit restaurant
closures, maintain a vibrant restaurant industry in
Alameda, and protect the vulnerable members of
the community
Unique Elements of 2020 Ordinance vs AB
286
• Differences from AB 286/Unique Elements
• Limit fees charged to restaurants by Third-Party Delivery Services at 15%, while permitting voluntary added charges for additional services; and • Limit increase to customer fees charged by Third-Party Delivery Services. • Alignment with AB 286
• Customers cannot be charged more for a menu item than the price set by the restaurant;
• All tips or gratuity must go to the person delivery the food; • Prohibition of fees for telephone orders that do not result in transaction; and
• Customers must receive itemized breakdown for transaction.
Current Context for Delivery Services
• Take-out/delivery services continue to be a
critical source of income for restaurants
• Consumer demand for delivery has
increased significantly and is expected to
continue to increase in the coming years
• Vulnerable populations depend on delivery
services for life-sustaining meals
• Delivery services have demonstrated ability
to successfully conduct business under
current limits
Additional Context
• One in five (19%) of those previously infected with COVID currently still have symptoms of “long COVID.” Women and Hispanic adults are among the groups more impacted by long COVID. (CDC, 2022). • Seen through a COVID-19 lens, about 3% of the population in the United States is considered moderately-to-severely immunocompromised, making them more at risk for serious illness if they contract COVID-19, even after vaccination. (Yale School of Medicine, 2022). • One in five adults reported experiencing household food insecurity in the summer of 2022 (Urban Institute, 2022).
• One in five Californians is experiencing hunger, with a disproportionate impact experienced in Black and Hispanic communities. (California Association of Food Banks, 2023) • Based on judicially recognized finding in the SF litigation, 15% cap is “a reasonable step to protect restaurants from financial collapse without unduly constraining third-party food delivery services’ businesses” because “leading third-party food delivery services companies currently charge a 10% per- order fee for the most resource-intensive aspect of their business—delivery services—and these companies report high profit margins from all aspects of their business operation”.
Outreach to Restaurants and Third-Party
Food Delivery Services
• Facilitated discussions in October and November 2022
• Survey to restaurants in January 2023
• Discussions with DoorDash, GrubHub and Uber in
February 2023
Potential Impacts on Restaurants and
Delivery Service Companies
• Impacts on restaurants: Limits on
charges provides predictable and
transparent costs related to delivery
services.
• Impacts on delivery services: Limited
impact as demonstrated ability to
operate with existing limitations.
Staff Recommendation
1. Limit delivery fees charged to restaurants at 15%, while allowing restaurants to pay for additional marketing services at a higher cost if desired;
2. Continue limiting establishment of new, flat fees, costs or commissions charged to consumers beyond those in the 2020 ordinance; permit increase of existing fees/costs/ commissions charged to consumers by rate of inflation (CPI);
3. Largely maintain current prohibitions, disclosure requirements, and enforcement mechanisms; and
4. Extend sunset to May 1, 2025.
Thank
you!
Reserved Q & A
Slides
Alameda v. San Francisco Ordinance
Comparison
Item San Francisco
(Litigation
Ordinance)
San Francisco
(Settlement Ordinance)
Alameda Proposed Ordinance
Restaurant
Side
15% hard cap 15% limit, permit
voluntary agreement to
beyond 15% for additional
services (e.g. marketing)
15% limit, permit voluntary agreement to
beyond 15% for additional services (e.g.
marketing)
Consumer Side No limitation,
No protection
No limitation, No
protection
Limited to 2020 levels with CPI increases
(Alameda was first & only in the nation to
protect residents and remains so)
Administrative
Hearing Safety
Valve
None None Permit Third-Party Delivery Operators to
demonstrate constitutional necessity to
move beyond Ordinance limits based on an
Administrative Hearing
Duration Permanent Permanent 2 years, subject to potential further extension at Council direction
San Francisco Litigation
District Court Dismissed Doordash and Grubhub’s claims for - Contract Clause
- Police Power
- Equal Protection
- First Amendment
“When the government is not a contracting party, like this case, the Supreme Court has held that “courts properly defer to legislative judgment as to the necessity and reasonableness of a particular measure.” Energy Rsrvs., 459 U.S. at 412–13. The Supreme Court has explained, in a decision after Pension Benefit, that courts must “refuse to second-guess” the government’s identification of “the most appropriate ways of dealing with the problem” at issue. Keystone Bituminous Coal Ass'n v. DeBenedictis, 480 U.S. 470, 506 (1987).
San Francisco Litigation
District Court Permitted two remain claims to continue because factual development was necessary
- Takings
- Confiscatory Due Process
The court’s concerns are potentially alleviated in the proposed Alameda Ordinance because:
- Alameda Ordinance provides an administrative hearing
process for operators to demonstrate constitutional
necessity
- Alameda Ordinance permits voluntary agreements to go
beyond the 15% limitation