Food delivery fees remain uncapped in San Jose

A San Jose measure to limit fees DoorDash and other delivery companies charge businesses expired six months ago—and it’s not coming back, officials say.

San Jose capped delivery fees at 15% in December 2020 to help alleviate costs for local businesses, but it expired in June. The city has no immediate plans to reinstate a fee cap, according to Elisabeth Handler, spokesperson for the city’s Economic Development office.

The cap came in response to third-party delivery apps including DoorDash, Uber Eats and Grubhub that commonly collected up to 30% in fees on each order. That eats into a restaurant’s bottom line, meaning less profit on each order. The cap also protects delivery workers from losing out on tips and wages related to the restriction.

“It is crazy all the fees we pay as a small business. This way of doing things is not sustainable,” Rodney Baca, owner of The Shop by Chef Baca, told San José Spotlight. “If DoorDash reduces its fees, it means someone else raises their prices. It’s a Catch-22.”

Delivery apps became essential for restaurants during the early months of the pandemic, as businesses shut down indoor dining to comply with the state’s shelter in place orders. But delivery apps also took large percentages of a restaurant’s revenue through fees.

The 15% cap, proposed by Mayor Sam Liccardo and then-Councilmember Lan Diep, sought to combat these high charges. Prior to this ordinance, restaurants would have to file complaints with the city to recapture lost revenue from fee cap violations.

Like fee caps across the county, San Jose’s ordinance was complaint-driven, meaning restaurants had to bring up complaints about being shortchanged to the city. According to city officials, no restaurants reached out to complain about food delivery apps charging more than the fee cap.

“As with all the measures undertaken as a response to the pandemic and required closures, the city did not allocate resources to enforcement of such non-safety-related ordinances,” Handler told San José Spotlight.

While San Jose let its fee caps expire in June, San Francisco permanently capped fees on food delivery apps that same month.

Differing regulations in cities just miles apart cause logistical concerns for delivery apps. A Mercury News story last month revealed DoorDash charged more than the city’s fee caps in Milpitas for months. According to a DoorDash spokesperson, the company accidentally removed caps in Milpitas when Santa Clara County lifted its own caps in June.

“Most businesses (in Milpitas) appreciate the caps because they’re already operating on thin margins,” Milpitas Councilmember Anthony Phan told San José Spotlight. Phan led the charge in Milpitas to go after DoorDash’s overcharges at a council meeting last month.

When asked how he would reform the system, Phan said he was in favor of fining app companies that try to skirt regulations.

The fees, DoorDash says, aren’t arbitrary. According to the company, fees cover expenses like credit card processing costs, insurance, background checks for drivers and pay for drivers. Price controls eat away at those lifelines, giving fewer opportunities to drivers to earn more, a company spokesperson said.

“DoorDash’s mission is to empower local economies, which is why we work hard to provide merchants with the products and services they need to keep up with a rapidly evolving and increasingly competitive industry,” spokesperson Briana Megid told San José Spotlight.

Contact Lloyd Alaban at [email protected] or follow @lloydalaban on Twitter.