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Could This Bill Change the Third-Party Delivery Industry?
AB 286 is a recently proposed California bill that would require food delivery companies to provide greater transparency into fees and commissions, as well as let operators set their own menu prices on the platforms.
Last week, assemblywoman Lorena Gonzalez (D-San Diego) sent AB 286 to California Gov. Gavin Newsom's desk for consideration. The bill, which would give restaurants the option of having each fee and commission they’re being charged by a food delivery platform disclosed directly to the customer, as well as set the price of food and beverages that are sold through delivery apps, comes after a year fraught with controversy for third-party delivery providers.
What Is the AB 286 Bill?
In a press release, Gonzalez argues third-party delivery transactions "obscure how much money is actually going to individual restaurants," which causes a whole slew of alleged problems for consumers, employees and restaurant owners. AB 286 would aim to eliminate these issues by enforcing more transparency and regulations across the board.
"We've seen reports of restaurant owners losing money on food delivery app orders because of hidden fees from companies like DoorDash, UberEats and GrubHub," Gonzalez said in the release. “AB 286 is about providing much-needed transparency so restaurants and customers know exactly what they're being charged up front, and gives restaurant owners the choice to share with their customers how much from the transaction is actually going to their business."
When it comes to employees, AB 286’s cost transparency would also help protect delivery couriers from tip theft by ensuring couriers are entitled to the full amount of tips and gratuities after completing a delivery. The press release points to a 2019 report in the New York Times that revealed DoorDash was using customer tips to subsidize workers’ base pay. Following the article, DoorDash agreed to pay $2.5 million to settle a lawsuit alleging the company kept customer tips that were intended to go to their delivery drivers.
Why the Industry Is Pushing Back Against Third-Party Delivery Platforms
Although the practices of third-party delivery platforms were being questioned long before the pandemic, the topic has become a hot-button issue over the past year. The pandemic not only put a strain on restaurant owners’ bottom line, but also increased the popularity of online ordering. As a result, everyone including consumers, restaurant operators, couriers and government officials have been rallying against questionable third-party delivery practices.
Just last week, Chicago sued Grubhub and DoorDash — the first comprehensive law enforcement action against meal delivery companies in the U.S. — claiming their business practices are unfair and "harm restaurants and mislead consumers.”
"As we stared down a global pandemic that shuttered businesses and drove people indoors, the defendants' meal delivery service apps became a primary way for people to feed themselves and their families, as well as support local restaurants," said Mayor Lightfoot in a press release. "It is deeply concerning and unfortunate that these companies broke the law during these incredibly difficult times, using unfair and deceptive tactics to take advantage of restaurants and consumers who were struggling to stay afloat.”
The city's lawyers claim that Grubhub and DoorDash advertise services from unaffiliated restaurants without their consent, as well as utilize "bait-and-switch" tactics that promise small delivery fees up front but add increased fees at the end of the order. The city also claims delivery aggregators conceal that menu prices on their platforms are often significantly more expensive than the restaurant’s direct delivery prices.
Since the start of the pandemic, many cities have instituted temporary third-party delivery fee caps to keep costs down for recovering restaurants, with New York City and San Francisco going as far as to pass permanent 15% delivery fee caps.
Now, the proposed AB 268 bill reflects how government officials hope to hold third-party aggregators responsible for some of these allegedly harmful practices.
How Third-Party Delivery Providers Are Responding
In response to the recent Chicago lawsuit, Grubhub, DoorDash and other major delivery providers have denied accusations that their business models are predatory.
"This lawsuit is baseless. It is a waste of taxpayer resources, and Chicagoans should be outraged. DoorDash has stood with the City of Chicago throughout the pandemic, waiving fees for restaurants, providing $500,000 in direct grants, creating strong earning opportunities, and delivering food and other necessities to communities in need. This lawsuit will cost taxpayers and deliver nothing," a DoorDash spokesperson said in a statement to The Verge.
DoorDash also maintains that its delivery workers have always received 100% of their tips and that all affiliated restaurants had the ability to opt out from the platform, after which they would be removed within 48 hours.
Looking ahead, the AB 286 bill shows the third-party delivery landscape will likely continue to evolve as outside sentiment influences the trajectory of the platforms. In June, for example, UberEats collaborated with local attorney generals in Washington, D.C. and Pennsylvania to add a disclosure on its app, which provides increased pricing transparency concerning the difference between in-app orders and in-restaurant order prices.
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