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Aldermen propose 10% cap on third-party restaurant delivery fees

The ordinance proposed by two mayoral allies would automatically end 90 days after restrictions on indoor capacity are eased to allow at least 40% capacity. The catch is, Chicago restaurants only get the break immediately if two-thirds of the City Council approves.

Signs for food delivery services GrubHub and Seamless displayed on the door of a restaurant.
Signs for food delivery services GrubHub and Seamless displayed on the door of a restaurant.
AP file

Chicago would impose a 10% cap on delivery fees that restaurants pay to third-party services, but restaurants would get the break immediately only if two-thirds of the City Council approves, under a plan proposed Monday by mayoral allies.

Ever since the stay-at-home shutdown triggered by the coronavirus, Finance Committee Chairman Scott Waguespack (32nd) has sought a 5% cap on delivery service fees to give restaurant patrons a break.

But, the ordinance championed by Mayor Lori Lightfoot and introduced Wednesday by Waguespack and Aviation Committee Chairman Matt O’Shea (19th) includes a 10% cap on “online” restaurant orders.

“We need to make sure that every bit of resources that can be earned by restaurants and their employees is maximized during this difficult time, particularly with the closure of indoor dining,” Lightfoot told a City Hall news conference after Monday’s Council meeting.

“This fee cap is temporary and will be rescinded once businesses are able to safely and viably re-open to indoor dining.”

UberEats, Grubhub, Postmates, DoorDash and similar services also would be prohibited from charging restaurants “any combination of fees, commissions, or costs ... greater than 15 percent of the orders placed through” the third-party delivery service.

It would also be illegal to charge customers a higher price for food or beverages than the price set by the restaurant or on the menu.

And third-party delivery services would be required to “provide on their platform a mechanism for customers to provide gratuities” to restaurant employees.

Violators would be punished by daily fines ranging from $1,000 to $3,000 per offense.

The ordinance would automatically expire 90 days after city and state restrictions on indoor capacity are eased to allow at least 40% capacity.

But there’s a catch: Chicago restaurants — already fighting for survival amid a new ban on indoor dining — get the break immediately only if two-thirds of the City Council approves. Otherwise, the cap takes effect “upon passage and publication,” which normally takes about a month. That’s precious time many restaurants don’t have.

The fees restaurants pay to delivery services can mean eat those eateries make little off online orders.

Waguespack said his decision to cap fees at “15 percent overall, including delivery” is aimed at preventing the closure of restaurants that are the “heartbeat out neighborhoods.”

“When one of our restaurants closes on a block, the whole block loses that liveliness. It loses the energy that keeps our neighborhoods going,” he said.

“We’ve seen far too many of them go under during this pandemic. This piece of legislation will help keep more of them ... serving our constituents, keeping their workers at the table and providing food and employment for them as well.”

O’Shea made no apologies for his more modest proposal.

“We are trying to be reasonable, working with the Illinois Restaurant Association. If the cap is too low, we run the risk of losing drivers willing to provide the service,” O’Shea wrote in a text message to the Sun-Times.

He argued a 10% cap would “provide badly-needed temporary relief to struggling restaurants, many in danger of closing because of the pandemic.”

Ald. Tom Tunney (44th), owner of Ann Sather’s Restaurants, said a 5% cap “is not sustainable for the third-party delivery guys” and 10% makes more sense.

“People have to make some money on transaction,” Tunney said. “There’s so many floating targets. As restauranteurs, we don’t even know how to interpret these fees. It’s almost like credit card fees. There’s so many different cards. So many different users. At the end of the day, you just figure out what the overall commission is. It’s got to be pretty simple.”

A spokesman for Grubhub argued fee caps are “well-intentioned, but counterproductive” at a time when restaurants “need visibility and order volume than ever.”

That’s because they limit how small and independent restaurants in particular “can effectively market themselves to drive demand, which severely impacts how many customers and orders” third-party delivery services can bring to them.

“Caps lower pay for drivers by reducing the number of orders to be delivered; reducing restaurant orders; increasing costs for diners; disrupting an essential supply chain of meals; and costing jobs, tax revenues and economic activity,” the Grubhub statement said.

“We understand the ordinance is being revised and our hope is that the final proposal supports Chicago’s restaurants while allowing for a fair playing field that doesn’t provide a competitive advantage to one business model over another.”

Uber spokesman Robert Kellman agreed the proposed ordinance, “puts marketing profits ahead of paying drivers.”

“A more reasonable approach would be to expand a cap on deliveries so that the tens of thousands of drivers who deliver food to help support their families would take less of a hit to their pocketbooks,” Kellman was quoted as saying in a statement.

DoorDash spokesperson Campbell Matthews warned that capping commissions “could cause us to increase costs for customers, which could lead to fewer orders for local restaurants and fewer earning opportunities” for delivery jobs.

“City Council should oppose this ordinance and seek alternative solutions that preserve choice for restaurants and ensure Chicagoans can continue to access safe and affordable food delivery,” Matthews was quoted as saying in a statement.

Third-party delivery services have been united in their opposition to a cap ever since Lightfoot threw her support behind the idea earlier this month after Gov. J.B. Pritzker ordered restaurants and bars to stop serving indoor patrons for a second time.

A joint City Council committee is scheduled to consider the proposed cap Tuesday.

New York proposed a 20% cap on restaurant delivery services, but retained 15% for drivers. In Los Angeles, 10% of the 15% cap was for drivers.