REQUEST FOR CITY COUNCIL ACTION
SUBMITTED TO: Honorable Mayor and City Council Members
SUBMITTED BY: Oliver Chi, City Manager
PREPARED BY: Travis K. Hopkins, Assistant City Manager
Subject:
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Adopt an Emergency and Interim Ordinance No. 4229, Establishing Limitations on Third-Party Food Delivery Fees
Five Affirmative Votes are required to adopt per Charter Section 501
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Statement of Issue:
On February 1, 2021, the City Council directed that staff prepare an emergency Ordinance limiting the delivery fees that can be charged by third-party food delivery application services to fifteen percent (15%) of the cost of food purchased for delivery, with a five percent (5%) cap on the non-delivery charges, while COVID-19 restrictions remain on indoor and outdoor dining.
These interim regulations were directed given that the COVID-19 crisis has placed extreme pressures on restaurant operations. Due in large part to the pandemic restrictions that have been placed on indoor and outdoor dining, normal operational procedures have been disrupted, and in response, restaurants have had to rely heavily on third party delivery apps such as Postmates, Grubhub, DoorDash, and Uber Eats, which can charge fees as high as 30% for use of their delivery services.
Per the Huntington Beach Charter, the City Council can approve the proposed fee limitations that technology companies can charge to restaurant owners via an emergency ordinance, which would become effective immediately if at least five (5) affirmative votes endorse the measure. Also, as an urgency ordinance, the proposed regulations will expire automatically after 120 days.
Financial Impact:
This emergency Ordinance will have limited costs related to the staff time needed to enforce these provisions while it remains in place for the 120 days.
Recommended Action:
recommendation
Adopt Ordinance No. 4229, “An Emergency and Interim Ordinance of the City of Huntington Beach Establishing Limitations on Third-Party Food Delivery Fees.”
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Alternative Action(s):
Do not adopt the Emergency Ordinance and provide alternate Council Direction.
Analysis:
The COVID-19 crisis has placed extreme financial pressures on restaurants, due in large part to the restrictions that have been placed on indoor and outdoor dining. As such, restaurants have had to rely heavily on third party delivery apps such as Postmates, Grubhub, DoorDash, and Uber Eats to generate sufficient revenue to stay in business and keep staff employed.
These third-party apps require restaurants to pay high delivery fees that can at times exceed 30% of the cost of each order. Some restaurants pay these fees directly, which reduces their operating margins, while others have had to increase menu prices, which discourages potential customers.
Noting that restaurants have been disproportionately impacted during COVID-19, several cities have adopted temporary ordinances to limit the fees that third party apps can charge restaurants during the pandemic. For example, the City of Los Angeles implemented fee caps of 15% and 5% for delivery and non-delivery fees that restaurants have paid, respectively. Further, the Los Angeles regulations also mandate that 100% of tips go directly to the drivers.
Other cities that adopted similar measures in California include Alhambra, Palm Springs, San Francisco, and Santa Clara. Of note, these measures are temporary and are set to expire upon the end of the pandemic, or the lifting of indoor dining COVID-19 restrictions, whichever comes first.
On February 1, 2021, the City Council considered Councilmember Moser’s initiated item directing staff to prepare a temporary ordinance that limits the fees paid by restaurants to Third-party Food Delivery Service during the COVID-19 pandemic. The Council approved the motion directing staff to prepare the temporary ordinance that places a 15% cap on fees paid by restaurants and a 5% cap on non-delivery fees paid by customers until the current COVID-19 pandemic restriction on both indoor and outdoor dining are lifted. The Huntington Beach Charter Section 501 sets the requirements for emergency ordinances, which requires at least five (5) affirmative votes and the all emergency ordinances expire after 120 day if no further Council action is completed.
The City Attorney’s Office prepared Ordinance No. 4229 for Council Consideration that includes the following provisions for Third-party Food Delivery Service:
• Limits charging delivery fee to no more than fifteen (15) percent of the purchase price of each online order.
• Prohibits charging any amount designated as a delivery fee for an online order that does not involve the delivery of food or beverages.
• Limits charges for all other fees, commissions, or costs for service to no greater than five (5) percent of the purchase price.
• The cost for food or beverage item charged to customers through the apps are limited to the price set by the retail food establishment.
• Any tip or gratuity shall be paid, in its entirety, to the person delivering the food or beverages.
The ordinance also requires the Third-party Food Delivery Service to disclose to the customer an accurate, clearly identified, and itemized cost breakdown of each transaction including and not limited the purchase price of food and beverages, delivery fees, other fees and commissions, and gratuity.
The ordinance provides enforced alternatively as a misdemeanor or an infraction at the discretion of the City Attorney, or the City Attorney may bring a civil action to enforce the provision of the urgency Ordinance
The Council may approve the Ordinance with five or more affirmative votes declaring an emergency measure and for immediate preservation of the public peace, health, or safety during the COVID-19 pandemic, and the provisions will remain in effect for 120 day after which will expire.
Environmental Status:
Not applicable.
Strategic Plan Goal:
COVID-19 Response
Attachment(s):
1. Ordinance No 4229, An Emergency and Interim Ordinance of the City of Huntington Beach Establishing Limitations on Third-Party Food Delivery Fees