Tipping Point: CA Legislature Takes Action Against Food Delivery Apps

Millions of people in COVID-19 lockdown ordered food online from food delivery platforms using mobile applications in 2020, which resulted in alleged abuses by certain food delivery platforms. In response, the California legislature enacted the Fair Food Delivery Act (“Act”) in September 2020.

The Act prohibited food delivery platforms from arranging for the delivery of an order from a food facility without first obtaining an agreement with the business. The agreement must expressly authorize the food delivery platform to take orders and deliver meals prepared by the food facility business or restaurant. The Act defined a “food delivery platform” as an online business that acts as an intermediary between consumers and multiple food facilities to submit food orders and arrange for the delivery of the order to a customer.

California continues to take action to regulate food delivery platforms.

Assembly Bill 286 was passed by the California legislature on September 1, 2021. Once signed by the Governor, AB-286 will make it unlawful for food delivery apps to charge customers any purchase price higher than the price posted on the app’s website, by the food facility at the time of the order. For purposes of this bill, “purchase price” means the price listed on the food facility’s menu for the items contained in an online order.

The bill will also make it unlawful for food delivery platforms to retain any portion of amounts designated by customers as a tip or gratuity for delivery drivers.

Under AB-286, food delivery platforms must pay any tip or gratuity paid for a delivery order in its entirety, to the person delivering the order – and must pay any tip or gratuity paid for a pickup order in its entirety, to the food facility.

Food delivery apps must also provide customers and food facilities with an accurate, clearly identified, and itemized cost breakdown of each transaction, which must include:

• The purchase price of the food and beverage,
• Each fee, commission, or cost charged customers by the delivery apps, and
• Any tip or gratuity left by customers.

In addition, food delivery platforms must provide both customers and food facilities with:

“A notice, if applicable, that the food delivery platform charges a fee, commission, or cost to the food facility, unless the food facility directs that the food delivery platform disclose to customers the delivery fee charged to the food facility and each fee, commission, or cost charged to the food facility.”

In addition to these state actions, several local jurisdictions in California also passed ordinances capping the commissions, fees, and service charges that food delivery apps can charge. The ordinances aim to remedy the imbalance in negotiating power that smaller independent and franchised restaurants had to negotiate lower fees.

In the past, many restaurants were paying in excess of 30 percent of the purchase price in commissions, fees, and service charges.

A Los Angeles ordinance, among other actions, makes it unlawful for food delivery platforms to charge a restaurant a fee per online order for the use of its services that totals more than 15 percent of the purchase price of the online order during the local public health emergency related to COVID-19. The ordinance will expire 90 days after restaurants can resume indoor dining capacity at 100 percent, and will remain in effect if, at any point, Los Angeles restaurants are required to reduce indoor capacity due to the COVID-19 virus.

AB-286, as originally proposed, included such a cap on the commissions, fees, and service charges that food delivery platforms could charge, but the cap provision was not included in the bill that was finally passed by the legislature.

Barry Kurtz is a Certified Specialist in Franchise & Distribution Law, by the State Bar of California Board of Legal Specialization.

This information provides an overview of a specific developing situation. It is not intended to be, and should not be construed as, legal advice for any particular fact or situation.