United States: St. Paul, Minnesota Limits The Amounts Food Delivery Platforms Can Charge During The Pandemic

St. Paul has joined the growing list of cities limiting fees food delivery platforms can earn during the COVID-19 pandemic. In enacting its ordinance, St. Paul follows fellow Minnesota cities Minneapolis and Edina, as well as several other cities around the country.

By a vote of 7-0, the St. Paul City Council passed emergency Ordinance 21-2 (the "Ordinance") on Wednesday, January 13, 2021.¹ The Ordinance took effect on Monday, January 18, 2021.

The Ordinance is substantively very similar to the regulations recently enacted in Minneapolis and Edina, Minnesota.² Like those rules, the Ordinance prohibits platform companies from charging restaurants a fee of more than 15% of a food order's total price (excluding taxes, gratuities, and other fees that make up the cost to the customer) for their services. In addition, platforms may not charge restaurants fees without prior agreement from the restaurant, as the City Council indicated there was an issue with platforms selling food from restaurants without the restaurant's knowledge or consent.

In addition to overseeing platforms' relationships with the restaurants they serve, the Ordinance seeks to regulate relationships between platform companies and the independent contractor delivery drivers with whom they work. Platform companies may not reduce drivers' compensation to comply with the Ordinance, including compensation earned through tips. Platforms must transfer tips and gratuities to the delivery drivers that customers pay, and the platform may not retain a percentage or part of the tips and gratuities.

The Ordinance also requires platforms to provide a receipt with each order disclosing: (1) the menu price of the food; (2) the amount of tax charged; (3) delivery and service charges charged to the customer, either by the platform or the restaurant; (4) tips paid to delivery drivers; and (5) commissions paid to the platform. These requirements may in many cases mean that platforms will have to make adjustments to their existing structure and IT systems to comply.

Companies that violate the Ordinance can be charged with a misdemeanor, and may face other unspecified legal consequences. If platforms have ongoing violations of the Ordinance, each day the platform fails to comply will be considered a separate violation. St. Paul's Department of Safety and Inspections will enforce the Ordinance.

St. Paul's Ordinance follows similar regulations passed since the beginning of the COVID-19 pandemic in places such as Los Angeles and San Francisco, CA; New York City; Philadelphia, PA; Portland, OR; Washington D.C.; Washington State and others.

These regulations limit the amounts that food delivery platforms can recover in professed efforts to support locally owned restaurants. For example, in enacting the Ordinance, St. Paul noted that COVID restrictions have "had severe and ongoing financial impacts" on restaurants, while simultaneously "increasing the need for take-out meal services." St. Paul City Council members characterized the fees delivery platforms charge as a form of "gouging" from restaurants that have "razor thin margins."³

Platform companies warn, however, that these regulations could do more harm than good. There is widespread agreement that locally owned restaurants and other small businesses have suffered during the pandemic. Food delivery platforms, however, enable restaurants that may not have otherwise been able to offer delivery services to connect with customers who demand delivery. In addition, some platforms have voluntarily reduced their fees or offered other concessions to restaurants during the pandemic, and imposing artificial caps on the fees platforms recover may not allow them to cover their own costs.⁴

Platforms have also expressed concerns that limiting the fees they can earn will force them to shrink the areas to which they provide service, and result in a reduction in the volume of orders. In turn, the delivery drivers platforms work with will have fewer opportunities to make deliveries and will earn less, in spite of cities efforts to protect their compensation.

Ultimately, though, laws and regulations like the St. Paul Ordinance may not expire with the end of the pandemic. During St. Paul's deliberations on the measure, City Councilmember Rebecca Noecker commented that she "would be very open to considering this as an ordinance going forward. . . . I think this is just a good policy in general to support local businesses."

Footnotes

1 St. Paul Ordinance 21-2, "Emergency ordinance regulating third-party food delivery platforms during the COVID-19 Emergency," available at https://stpaul.legistar.com/LegislationDetail.aspx?ID=4745317&GUID=3CDAAB4A-268A-4BA6-BB41-38E230D9C27A&Options=&Search=&FullText=1.

2 Compare the Ordinance with Edina's Ordinance, Emergency Regulation 2021-01 Imposing a Cap on Third-Party Food Service Delivery Fees During the COVID-19 Emergency, January 5, 2021, available at https://edina.novusagenda.com/agendapublic/AttachmentViewer.ashx?AttachmentID=20068&ItemID=10173; and Minneapolis's Emergency Executive Order, Emergency Regulation No. 2020-20, December 21, 2020, available at http://www2.minneapolismn.gov/www/groups/public/@clerk/documents/webcontent/wcmsp-226924.pdf.

3 Video of St. Paul City Council Meeting, January 13, 2021, available at http://stpaul.granicus.com/MediaPlayer.php?view_id=37&clip_id=3762&meta_id=502728.

4 "Portland Places Cap on Fees Delivery Apps Charge Restaurants," Rebecca Ellis, Oregon Public Broadcasting, July 7, 2020, available at https://www.opb.org/news/article/portland-considering-cap-on-delivery-app-fees-for-restaurants/.

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