Los Angeles City and County Move to Cap Food Delivery Fees

COVID-19 Update

On Wednesday, August 26, 2020, the Los Angeles City Council voted to have the City Attorney draft an ordinance to extend the cap on fees for food delivery services. Under this new ordinance the fee cap, which was scheduled to sunset on August 31, 2020, will remain in place until 90 days after restaurants are permitted to operate at full indoor capacity. The proposed ordinance would also add enforcement mechanisms, including fines and a reporting mechanism for restaurants that have been charged fees in excess of the cap.

Manatt will continue to monitor the progress of this ordinance and related legislative initiatives in Los Angeles City and County.

Over the last several weeks, the City and County of Los Angeles—like other cities and counties across the nation—have actively pushed forward new laws and regulations intended to address the economic impacts of COVID-19. Following this trend, the City and County are now planning to cap how much app-based food delivery services can charge for orders made during the COVID-19 crisis.

First, on Wednesday, June 3, 2020, the Los Angeles City Council unanimously passed an ordinance capping the fees that third-party delivery services can charge within the City. Among other features, the ordinance:

  • Caps fees at 15% of the total sale for a delivery, and mandates that third-party delivery app companies take no more than 5% for all other non-delivery charges.
  • Prohibits third-party services from retaining tips meant for delivery workers and from charging prices for items higher than those set on the service by a food establishment.
  • Requires third-party services to disclose their fees and charges to customers.
  • Creates a civil cause of action, with a right to obtain attorney fees, against potential violators.
  • Sunsets after the COVID-19 local emergency ends.

The Mayor signed the ordinance into law on June 5, 2020, and it is now effective.

Second, on Tuesday, June 9, 2020, the L.A. County Board of Supervisors unanimously approved a motion to prepare a similar ordinance to cap third-party delivery fees, which would apply to the unincorporated areas of the county. Initially, Supervisors Hilda Solis and Sheila Kuehl presented a motion, followed by another proposed by Board Chairperson Kathryn Barger.  At the meeting, Supervisors Solis and Kuehl accepted Supervisor Barger’s motion as a series of “friendly” amendments.  The consolidated motion, as amended, directs County staff to investigate each of the following:

  • A cap on the commission fees that third-party food delivery services charge on the purchase price of an order
  • A cap on any additional fees charged by a third-party food delivery platform beyond those fees charged for delivery of an order
  • A fee that can be imposed on third-party food delivery platforms for all deliveries to create a countywide fund that could be used for assisting certain food establishments and their workers as well as for economic development activities
  • Prohibiting third-party food delivery platforms from reducing compensation paid to delivery service drivers or garnishing any of the gratuities paid to delivery service drivers as a result of any caps or fees implemented
  • Requiring food delivery companies to disclose “a clearly identified and itemized cost breakdown of each transaction”
  • If a fee is used in lieu of a cap, whether the fee should be “set up under the County Fund for Los Angeles” that was established as part of the County’s Roadmap to Economic Recovery
  • Including a sunset date for any cap sunset 90 days after the conclusion of the “Safer at Home” Health Officer Orders

Notably, despite conversations over time-limited caps, Supervisors Solis and Kuehl suggested that it might be appropriate to keep the measure in place permanently, irrespective of the pandemic.  The ramifications of an indefinite pricing cap could be significant.

The City and County of Los Angeles continue to focus on news laws and regulations that address COVID-19 and its aftermath. Manatt will monitor these developments.

manatt-black

ATTORNEY ADVERTISING

pursuant to New York DR 2-101(f)

© 2020 Manatt, Phelps & Phillips, LLP.

All rights reserved