HomeMy WebLinkAbout3C OCR (Supplemental Staff Report)
SUPPLEMENTAL
CITY COUNCIL STAFF REPORT
DATE: APRIL 27, 2023 BUSINESS AND LEGISLATIVE
SUBJECT: ORDINANCE AMENDING CITY MUNICIPAL CODE TO ESTABLISH
PERMANENT LIMITATIONS ON THIRD-PARTY FOOD DELIVERY FEES
FROM: Scott C. Stiles, City Manager
BY: Jeff Ballinger, City Attorney
SUMMARY:
This is a supplemental staff report for Agenda Item 3C. Following the publication of the
agenda for this meeting, the City had discussions with representatives of one of the major
food delivery service companies, DoorDash. Those conversations provided information
as to one aspect of these companies’ business model, which staff felt important for the
City Council to consider as the Council reviews this proposed ordinance.
Specifically, some major food delivery companies offer restaurants with services in
addition to mere delivery, which they charge higher commissions for. As such, companies
such as DoorDash have suggested that the proposed ordinance contain an exemption
from the 15% commission cap, for those restaurants that choose to take advantage of
these enhanced services.
STAFF ANALYSIS:
The City’s existing COVID-based ordinance, as well as the proposed permanent
ordinance, both cap the amount that a food delivery company can charge to restaurants
at 15% of the cost of the food purchase. After the publication of the staff report,
representatives of DoorDash met with the City, and explained a business model that has
been introduced to the food delivery sector since the original COVID-based ordinance
went into effect in 2020.
Namely, in 2021, DoorDash introduced a new plan whereby participating restaurants can
choose from a smorgasbord of service options provided by DoorDash. Restaurants can
choose a basic food delivery service plan for a commission equal to 15% of the purchase
price. Or, restaurants can choose to sign up for enhanced services provided by
DoorDash, designed to boost the restaurants’ sales. In exchange for these enhanced
Item 3A - Supplemental Report
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City Council Staff Report
April 27, 2023 -- Page 2
Third-Party Food Delivery Service Fee Limitation Ordinance (Supplemental Staff Report)
services, restaurants are charged higher commission rates rate of 25% or 30%.
Apparently, another major food delivery company, Grubhub also provides a multiple
commission rate structure to its participating restaurants. The enhanced services offered
by companies such as DoorDash include marketing, order processing, customer support
and technology and product development. According to DoorDash, the vast majority of
restaurants who have opted into a plan have chosen a plan that includes these enhanced
services, and therefore exceed the 15% cap. As such, representatives of DoorDash have
requested that the City consider an exemption to this one aspect of the ordinance, for
those restaurants that have chosen to sign up for the enhanced services.
Accompanying this report, as Attachment A, is language that would accomplish what
has been suggested above, should the City Council wish to consider such a modification.
Notably, other protections of the proposed ordinance would remain intact. For instance,
the ordinance would still contain the following regulations:
• Makes it unlawful for a third-party food delivery service to charge a customer a
purchase price that is higher than the price set by the retail food establishment on
its menu.
• Requires that the food delivery drivers (not their delivery company) receive the
entire gratuity paid by the customer.
• Requires a third-party delivery service to disclose to the customer each fee that it
charged a retail food service establishment, as well as any tip that will be paid to
the person delivering the food.
The City of San Francisco, which enacted a permanent delivery cap in 2021, has
amended its ordinance along the lines recently suggested by DoorDash, following the
resolution of a lawsuit that DoorDash and Grubbub filed against that City.1 Attached, as
Attachment B, is the language adopted by the City of San Francisco in 2022, providing
for an exemption for restaurants that sign up for enhanced services.
Therefore, should the City Council wish to incorporate this sort of exemption, City staff
and the City Attorney would recommend including language similar to that in the attached
ordinances.
REVIEWED BY:
City Attorney: Jeffrey S. Ballinger
City Manager:
1 DoorDash and Grubhub v. City and County of San Francisco, Case No. 3:21-CV-05502-EMC. This case was
dismissed in September of 2022, following a settlement mutually agreed to by those parties. That settlement
followed a motion to dismiss, filed by San Francisco, which was partially granted and partially denied by the trial
court. According to DoorDash, a similar lawsuit has been filed against the City of New York, following that City’s
adoption of a permanent ban. That lawsuit has not been resolved, as of the date of this Supplemental Report.
Item 3A - Supplemental Report
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City Council Staff Report
April 27, 2023 -- Page 3
Third-Party Food Delivery Service Fee Limitation Ordinance (Supplemental Staff Report)
ATTACHMENTS:
A. (REVISED) ORDINANCE NO. ___. AN ORDINANCE OF THE CITY OF PALM SPRINGS,
CALIFORNIA, ADDING CHAPTER 5.89 TO THE PALM SPRING MUNICIPAL CODE,
REGARDING LIMITATIONS ON THIRD-PARTY FOOD DELIVERY FEES
B. SAN FRANCISCO ORDINANCE EXEMPTION
Item 3A - Supplemental Report
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5.89.010 Definitions.
For purposes of this ordinance, the following definitions apply.
A. "City" means the City of Palm Springs.
B. “Core delivery service” means a service that (1) lists a Retail Food
Establishment, and makes the Retail Food Establishment discoverable, on all
modalities or platforms offered by a Third-party Food Delivery Service,
including but not limited to any website, mobile application, or other internet
service where a Third-party Food Delivery Service lists Retail Food
Establishments, and (2) facilitates and/or performs the delivery (through
employees or independent contractors of the Third-party Food Delivery
Service and/or such establishments) of food and/or beverages from Retail
Food Establishments to customers. Core delivery service does not include any
other service that may be provided by a Third-party Food Delivery Service to a
Retail Food Establishment, including but not limited to advertising services,
search engine optimization, business consulting, or credit card processing.
C.B. "Delivery Fee" means a fee charged by a Third-party Food
Delivery Service for providing a Retail Food Establishment with a
service that delivers food and beverages from such establishment to
customers. The term does not include any other fee or cost that may
be charged by a Third-party Food Delivery Service to a Retail Food
Establishment, such as fees for listing or advertising the Retail Food
Establishment on the Third-party Food Delivery Service platform or
fees related to processing the online order, including, but not limited
to, service fees, fees for facilitating Online Orders for pick-up, and
credit card processing fees.
D.C. "Online Order" means an order placed by a customer through
or with the assistance of a platform provided by a Third-Party Food
Delivery Service, including a telephone order, for delivery or pick-up
within the City.
E.D. "Purchase Price" means the price, as listed on the menu, for
the items contained in an Online Order, minus any applicable coupon
or promotional discount provided to the customer by the Retail Food
Establishment through the Third-Party Food Delivery Service. This
definition does not include taxes, gratuities, and any other fees or
costs that may make up the total amount charged to the customer of
an Online Order
F.E. “Retail Food Establishment" means a restaurant,
delicatessen bakery, coffee shop, or other eat-in or carry-out service
of processed or prepared and ready-to-eat food or beverages.
G.F. "Third-party Food Delivery Service" means any website, Item 3A - Supplemental Report
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mobile application, or other internet service that offers or arranges for
the sale of food and beverages prepared by, and the delivery or pick-
up of food and beverages from, no fewer than 20 Retail Food
Establishments located in the City that are each owned and operated
by different persons.
5.89.020 Regulations.
A. It shall be unlawful for a Third-party Food Delivery Service to
charge a Retail Food Establishment a Delivery Fee that totals more
than fifteen (15) percent of the Purchase Price of each Online Order.
B. It shall be unlawful for a Third-party Food Delivery Service to
charge a Retail Food Establishment any amount designated as a
Delivery Fee for an Online Order that does not involve the delivery of
food or beverages, or both.
C. It shall be unlawful for a Third-party Food Delivery Service to
charge a Retail Food Establishment any combination of fees,
commissions, or costs for the Retail Food Establishment's use of the
Third-party Food Delivery Service that is greater than five (5) percent
of the Purchase Price of each Online Order. Fees, commissions, or
costs do not include Delivery Fee
D. It shall be unlawful for a Third-party Food Delivery Service to
charge a Retail Food Establishment any fee, commission, or cost that
is to be paid to the Third-party Food Delivery Service, other than as
permitted in Subsections A through C, above.
E. It shall be unlawful for a Third-party Food Delivery Service to
charge a customer any Purchase Price for a food or beverage item
that is higher than the price set by the Retail Food Establishment on
the Third-Party Food Delivery Service or, if no price is set by the
Retail Food Establishment on the Third-Party Food Delivery Service,
the price listed on the Retail Food Establishment's own menu.
F. It shall be unlawful for a Third-party Food Delivery service to retain
any portion of amounts designated as a tip or gratuity. Any tip or
gratuity shall be paid by the Third-party Delivery Service, in its
entirety, to the person delivering the food or beverages.
G. As an example, except as provided for in Subsection H. of this
Section 5.89.020, if a customer orders a meal that is advertised for
$10.00 on the Third-party Food Delivery Service’s app., the Third
party Food Delivery Service cannot charge the customer more than
$10.00 for the meal. Nor can the Third-party Food Delivery Service
charge the restaurant more than $1.50 as a Delivery Fee. Nor can
the Third-party Food Delivery Service charge the restaurant more
than 50¢ as a fee or commission for the restaurant’s placement on
the Third-party Food Delivery Service’s app. Finally, if the customer
agrees to provide the delivery person a $2.00 tip, that tip must go to
the delivery person; not the Third-party Food Delivery Service
company. Item 3A - Supplemental Report
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H. Beginning on August 1, 2023, the fee limits in Subsections A
through D of this Section 5.89.020 shall not apply to a Third-party
Food Delivery Service that does both of the following:
(1) offers all Retail Food Establishments the option to obtain
Core Delivery Service for a total fee, commission, or charge
not to exceed 15% of the Purchase Price of the Online Order,
without requiring the purchase of additional services; and
(2) no later than June 1, 2023, notifies all Retail Food
Establishments that have an existing contract with the Third-
party Food Delivery Service of the option described in
subsection (H)(1).
5.89.030 Disclosures.
The Third-party Food Delivery Service shall disclose to the
customer an accurate, clearly identified, and itemized cost
breakdown of each transaction, including, but not limited to the
following:
(a) the Purchase Price of the food and beverages at the cost listed
on the Retail Food Establishment's menu;
(b) a notice, if applicable, that the Third-party Food Delivery Service
charges a fee, commission, or cost to the Retail Food
Establishment, unless the Retail Food Establishment directs that
the Third-party Food Delivery Service disclose to customers the
delivery fee charged to the Third-party Food Delivery Service and
each fee, commission, or cost charged to the Third-party Food
Delivery Service.
the Delivery Fee charged to the Retail Food Establishment;
(c) each fee, commission, or cost, other than a Delivery Fee,
charged to the Retail Food Establishment;
(c)(d) each fee, commission, or cost, other than the Delivery Fee or
the Purchase Price of the food, charged to the customer by the
Third-party Food Delivery Service; and
(d(e) any tip or gratuity that will be paid to the person delivering the
food or beverages.
5.89.040 Enforcement.
A violation of this ordinance shall subject the violator to the following:
A. A civil action in the Superior Court of the State of California to
recover all actual damages resulting from a violation of this
ordinance.
Item 3A - Supplemental Report
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B. Reasonable attorneys' fees and costs awarded by a court to a
plaintiff that prevails in an action against a Third-party Food Delivery
Service. If plaintiff fails to prevail against a Third-party Food Delivery
Service, a court may award reasonable attorneys' fees and costs to
the Third-party Food Delivery Service upon a determination by the
court that the plaintiff's action was frivolous.
C. A civil action alleging a violation of any provision of this ordinance
shall commence only after the following requirements have been
met:
1. Written notice is provided to the Third-party Food
Delivery Service of the provisions of the ordinance alleged to
have been violated and the facts to support the alleged
violation; and
2. The Third-party Food Delivery Service is provided 15
days from the date of the written notice to cure any alleged
violation.
55575.18100\41080882.1
Item 3C - Page 10
Ordinance No. _____
Page 6
D. Notwithstanding any provision of this Code, or any other
ordinance to the contrary, no criminal penalties shall attach for
violation of this ordinance, nor shall it be enforced as a violation of a
City ordinance. Enforcement of this ordinance shall be solely through
a private cause of action. Neither the City nor its staff is responsible
for enforcement of this ordinance.
SECTION 3. Severability. If any section or provision of this Ordinance is
for any reason held to be invalid or unconstitutional by any court of competent
jurisdiction, or contravened by reason of any preemptive legislation, the remaining
sections and/or provisions of this Ordinance shall remain valid. The City Council
hereby declares that it would have adopted this Ordinance, and each section or
provision thereof, regardless of the fact that any one or more section(s) or
provision(s) may be declared invalid or unconstitutional or contravened via
legislation.
SECTION 4. CEQA. The City Council determines that the adoption of this
Urgency Ordinance is exempt from environmental review under the California
Environmental Quality Act (“CEQA”) pursuant to the following provisions of the
CEQA Guidelines, 14 California Code of Regulations, Chapter 3: this Urgency
Ordinance is exempt under CEQA Guidelines Section 15378(b)(5) in that it is not
a “project” under CEQA and will not result in direct or indirect physical changes in
the environment.
SECTION 5. Adoption, Certification, and Publication. The Mayor shall
sign, and the City Clerk shall certify to the passage and adoption of this Ordinance
and shall cause the same, or the summary thereof, to be published and posted Item 3A - Supplemental Report
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pursuant to the provisions of law and this Ordinance shall take effect thirty (30)
days after passage.
Item 3A - Supplemental Report
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Case 3:21-cv-05502-EMC Document 72 Filed 09/07/22 Page 5 of 9
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FILE NO. 211131
SUBSTITUTED
06/28/2022 ORDINANCE NO. 164-22
[Police Code -Third-Party Food Delivery Services]
Ordinance amending the Police Code to define core delivery service to mean a service
that both lists a covered establishment on all of a third-party food delivery service's
platforms, including websites and mobile applications, and facilitates and/or performs
delivery of food and/or beverages from the establishment; to exempt from the 15% cap
on per-order fees , starting January 31, 2023, third-party food delivery services that
offer restaurants the option to obtain only core delivery service at a cost of no more
than 15% of the purchase price of an on line order without requiring the purchase of
additional services, and that notify all covered establishments with which the third-
party food delivery services have an existing contract of this option no later than
December 1, 2022; and to require that contracts between a third-party food delivery
service and a covered establishment clearly define the fees, commissions, or charges
associated with contracted services.
NOTE: Unchanged Code text and uncodified text are in plain Arial font.
Additions to Codes are in single-underline italics Times New Roman font.
Deletions to Codes are in strike#wough #alies Times 1Vew Rem.an .fent.
Board amendment additions are in dou ble-underlined Arial font.
Board amendment deletions are in strikethrough ,'\rial font.
Asterisks (* * * *) indicate the omission of unchanged Code
subsections or parts of tables.
Be it ordained by the People of the City and County of San Francisco:
Section 1. The Police Code is hereby amended by revising Sections 5301 (adding a
defined term to be placed in alphabetical sequence with other defined terms) and 5302, to
read as follows :
Supervisors Peskin; Chan, Mandelman, Safai, Preston , Mar, Walton
BOARD OF SUPERVISORS Page 1
Case 3:21-cv-05502-EMC Document 72 Filed 09/07/22 Page 6 of 9
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SEC. 5301. DEFINITIONS.
* * * *
"Core deliverv service" means a service that 0) lists a covered establishment, and makes the
covered establishment discoverable, on all moda lities o r platforms offered by a third-party food
delivery service. including but not limited to anv website, m obile application. or other internet ser vice
where a third-party food deliverv service lists covered establishments, and (2) facilitates and/or
per forms the delive,y (th rough employees or independent contractors o[the third-par tv food deliverv
service and/or s uch establishments) offood and/or beverages from covered establishments to
customers. Core deliverv service does not include any o ther service that mav be provided bv a third-
p artv food deli very service to a covered establishment. including but not limited to advertising services.
search engin e optimization . business consulting. or credit card processing.
* * * *
SEC. 5302. CAP ON PER-ORDER FEES; CLEAR DEFINITION OF FEES
REQUIRED.
(a) No third-party food delivery service may charge a cove red establishment a fee,
commission, or charge per online order that totals more than 15% of the purchase price of the
online order.
(b) No third-party food delivery service may charge a covered establishment a fee,
commission, or charge that exceeds 15% of the purchase price of online orders to that
covered establishment processed through the third-party food delivery service during the time
period covered by the fee, commission , or charge.
(c) B eginning on Januarv 31. 2023, the fee limits in s ubsections (a) and (b) o[Lhis S ection
5302 shall not applv to a third-party food delivery service that does both of th e following:
Supervisors Peskin; Chan, Mandelman, Safai, Preston , Mar, Walton
BOARD OF SUPERVISORS Page
Case 3:21-cv-05502-EMC Document 72 Filed 09/07/22 Page 7 of 9
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(1) offers all covered establishments the option to obtain core deliven1 service for a total
fee. commission. or charge not to exceed 15% o[the purchase price o(the online order. without
requiring the purchase of additional services: and
(2) no later than December 1. 2022, notifies all covered establishments that have an
existing contract with the third-partv delive,y service of the option described in s ubsection (c)(J ).
(d) Contracts between a th ird-party food deliven1 service and a covered establishment shall
clearly define the fees, commissions, or charges associated with contracted services. For example, i(a
covered establishment enters into a contract with a third-partv food delivery service for core delive,y
service onlv. that contract shall clearlv state a fee. commission. or charge of ] 5% o[the purchase price
for core deliverv service.
Section 2 . Effective Date. This ordinance shall become effective 30 days after
enactment. Enactment occurs when the Mayor signs the ordinance, the Mayor returns the
ordinance unsigned or does not sign the ordinance within ten days of receiving it, or the Board
of Supervisors overrides the Mayor's veto of the ordinance.
II
II
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II
Supervisors Peskin; Chan, Mandelman, Safai, Preston, Mar, Walton
BOARD OF SUPERVISORS Page
Case 3:21-cv-05502-EMC Document 72 Filed 09/07/22 Page 8 of 9
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Section 3. Scope of Ordinance. In enacting this ordinance, the Board of Supervisors
intends to amend only those words, phrases, paragraphs, subsections, sections, articles,
numbers, punctuation marks, charts, diagrams, or any other constituent parts of the Municipal
Code that are explicitly shown in this ordinance as additions, deletions, Board amendment
additions, and Board amendment deletions in accordance with the "Note" that appears under
the official title of the ordinance.
APPROVED AS TO FORM:
DAVID CHIU, City Attorney
By: ISi Sarah Crowley
SARAH CROWLEY
Deputy City Attorney
n :\legana\as2022\2000108\01610103.docx
Supervisors Peskin; Chan , Mandelman, Safai, Preston. Mar, Walton
BOARD OF SUPERVISORS Page
Case 3:21-cv-05502-EMC Document 72 Filed 09/07/22 Page 9 of 9
Item 3A - Supplemental Report
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City and County of San Francisco
Tails
Ordinance
City Hall
I Dr. Carlton B. Goodlett Place
San Francisco, CA 94102-4689
File Number: 211131 Date Passed: July 26, 2022
Ordinance amending the Police Code to define core delivery service to mean a service that both lists
a covered establishment on all of a third-party food delivery service's platforms, including websites
and mobi le applications, and faci litates and/or performs delivery of food and/or beverages from the
establishment; to exempt from the 15% cap on per-order fees, starting January 31, 2023, third-party
food delivery services that offer restaurants the option to obtain only core delivery service at a cost of
no more than 15% of the purchase price of an online order without requiring the purchase of
additional services, and that notify all covered establishments with which the third-party food delivery
services have an existing contract of this option no later than December 1, 2022; and to requ i re that
contracts between a third-party food delivery service and a covered establishment clearly defi ne the
fees, commissions, or charges associated with contracted services.
July 11, 2022 Rules Committee -RECOMMENDED
July 19, 2022 Board of Supervisors -PASSED ON FIRST READING
Ayes: 11 -Chan , Dorsey, Mandelman, Mar, Melgar, Peskin, Preston, Ronen,
Safai, Stefani and Walton
July 26, 2022 Board of Supervisors -FINALLY PASSED
Ayes: 11 -Chan, Dorsey, Mandelman, Mar, Melgar, Peskin, Preston, Ronen ,
Safai , Stefani and Walton
File No. 211131
London N. Breed
Mayor
City and County of San Francisco Pagel
I hereby certify that the foregoing
Ordinance was FINALLY PASSED on
7/26/2022 by the Board of Supervisors of
the City and County of San Francisco.
Angela Calvillo
Clerk of the Board
Date Approved
Printed at 8:37 am <>n 7127122