As restaurants’ COVID-19 crisis ends, government’s emergency powers should end too

In America, consumer protection laws guarantee “truth-in-pricing” and honest commerce, but it is highly unusual – and generally unconstitutional – for governments to set, approve or limit private sector prices. For example, in New York City, there are only three private markets where the city government determines prices: rental housing, taxicabs, and (surprise!) restaurant delivery services. 

Rent control and taxi price regulation have existed for decades. Rent control has survived many legal challenges and applies to a diminishing percentage of New York City housing – primarily lower-priced housing that helps teachers, first responders, and other underpaid community contributors afford to live where they work. Taxi price regulation is tied to the highly regulated medallion system and perhaps was once based on antiquated (pre-Uber) public benefit reasoning because so few New Yorkers own automobiles. 

But restaurant delivery price controls? These are new, enacted during the pandemic in response to concerns about delivery services’ market power when restaurants were desperate to get online after indoor dining was prohibited. Understandably in a near-panic, restaurants were hastily signing contracts with delivery apps, likely barely reading the contracts and thinking they had no negotiating power. The Council jumped into action, as did more than 100 cities nationwide.

As a Brooklynite, I’m thrilled that the Council helped distressed, local restaurants avoid overpaying VC-funded delivery apps. But as a matter of law and policy, I have questions about why the fee cap continues after indoor dining restrictions have ended, and doubts about the cap’s legality. 

Once the restaurant crisis ended, the risk of hastily-signed, unfair contracts ended also, so there is no more concern of delivery services’ excessive market power from which restaurants need protection. That’s why the great majority of fee caps have been lifted as cities ended their states of emergency - except in New York City and San Francisco where the caps have been made permanent and have been challenged in court. Already the judge reviewing the San Francisco cap has expressed skepticism, and the odds are that both permanent fee caps will be thrown out for violating the U.S. and New York State constitutions, which prohibit government interference in legally binding contracts and government taking private property – in this case, the contractually agreed to fees – without compensating the parties involved.

It’s also notable that the Council did not protect only small, locally-owned, and independent restaurants. Why are Mastro’s, Morton’s, The Palm, and Del Frisco’s protected? I don’t think high-end steakhouses owned by a Texas-based, multibillion-dollar, 600-restaurant conglomerate need the Council’s protection.  

Perhaps most importantly, I’m confident that, if restaurants act collectively, they won’t need government protection because they already have the tools to help themselves. In Jersey City, Las Vegas, Knoxville, and other cities, hundreds of restaurants are building innovative delivery coops that compete against Doordash, GrubHub and UberEats. The coops have great apps, pay drivers well, and charge restaurants lower fees. And residents who want to eat local also have a “deliver local” option. 

Before the pandemic, my law students were helping a group of bike delivery people trying to build a worker-owned cooperative to compete against the venture-backed delivery platforms. When COVID-19 hit, restaurants quickly jumped into contracts with the big companies. During desperate times, our insurgent consortium couldn’t compete. If instead of a fee cap, the city had empowered restaurants or delivery people to self-organize, it would have been a market-oriented competitive solution that helped workers and restaurants, and it would have been legal. 

In extraordinary circumstances, the government should take extraordinary action. But when  crises end, governments in democratic societies should lay down their extraordinary powers. Now is the time for restaurants to thank Council members for helping and then take charge of their own delivery destinies. They can band together to negotiate group discounts with the big delivery services, or build a local coop, perhaps in partnership with workers. Whichever they choose, it should and will be competition, rather than raw government power, that drives down prices.