UPDATE: July 10, 2023: On Friday, New York Judge Nicholas Moyne granted app-based delivery companies a temporary injunction against New York City’s $17.96 minimum hourly wage for app-based restaurant delivery workers, once set to take effect on July 12, court records show. Because of the injunction, DoorDash, Uber Eats and Grubhub do not have to follow the rule, for the time being, while their suit against the city is pending. The court will hold a hearing on the injunction on July 31.

Grubhub, DoorDash and Uber are suing New York City over a rule that mandates $17.96 minimum hourly pay for delivery workers starting July 12, according to court documents viewed by Restaurant Dive. This wage floor will jump to $19.96 per hour in 2025.

DoorDash and Grubhub filed a complaint jointly in the Supreme Court of the State of New York for the County of New York (Manhattan) to enjoin, then vacate and annul, the rule. Uber filed its complaint separately, The Wall Street Journal reports.

The suit filed by DoorDash and Grubhub argue the New York City Department of Consumer and Worker Protection “unlawfully” excludes grocery delivery companies when calculating the rule’s minimum wage. The suits also allege that various hourly charges selected to compensate for benefits denied to independent contractors were calculated in an arbitrary fashion. 

This marks the latest development in an ongoing conflict between delivery platforms and major jurisdictions, as some states and cities seek to raise pay and strengthen worker protections and aggregators fight to constrain labor costs.

The suit continues battles over wages, on-call time 

The lawsuits were filed several weeks after Mayor Eric Adams and DCWP Commissioner Vilda Vera Mayuga announced the final version of the minimum pay rule on June 11. A previous proposed version of the rule was scrapped after industry opposition and the target wage implemented in this month is 16% lower than that first, proposed wage goal. At the time, DoorDash and Grubhub pledged continued opposition, including legal action, which has now come to pass.

In the June announcement of the wage rule, the city said the rule was one part of “holistic approach to improving working conditions for delivery workers,” that would result in workers making nearly three times more per hour than before the rule’s implementation. Key to that is the requirement that delivery companies pay workers for on-call time, meaning time in which workers are connected to the delivery app but not fulfilling deliveries. 

DoorDash and Grubhub argued such a requirement would result in companies paying workers for periods of time in which no deliveries were completed, and argued the city should have used a formula designed to pay only for on-call time that corresponds to the time workers spend waiting for orders they accept.

The companies threatened that without an injunction against the minimum wage rule, they may “force workers to schedule delivery blocks; restrict workers from rejecting offers; automatically disconnect workers’ access during inactive periods or travel outside of busy areas; or eliminate platform access altogether for workers who reject too many offers,” to avoid higher labor costs. 

The city has sought to regulate other aspects of the delivery market as well, mandating restaurants to allow delivery workers use of restrooms. The city is currently working to develop regulations on the e-bikes commonly used by app-based delivery workers, following a string of deadly and destructive fires triggered by e-bike batteries. In September 2021, the big three delivery firms, Uber Eats, DoorDash and Grubhub, sued New York City over its delivery fee cap policy.

Wage growth may threaten aggregator path to profits

The fight to constrain wage growth may be particularly important for companies like Uber, DoorDash and Grubhub’s parent company, JustEatTakeaway. Uber reported a $262 million loss from its operations in Q1 2023, though it claimed its delivery segment had $282 million in EBITDA profits, according to its most recent 10-Q filed with the Securities and Exchange Commission. DoorDash similarly lost $171 million in Q1 2023 on its operations, per its 10-Q. At current exchange rates, JustEatTakeaway ran an operating loss of $5.91 billion in FY 2022, though most of that loss was driven by $5.64 billion in depreciation, amortization and impairments, according to its 2022 annual report.

In their regulatory filings, the three major delivery companies have been quite open about how regulation that boosts worker pay or bargaining power poses danger to their business model.

“If, as a result of legislation or judicial decisions, we are required to classify Drivers as employees, workers or quasi-employees where those statuses exist, we would incur significant additional expenses for compensating Drivers, including expenses associated with the application of wage and hour laws,” Uber Eats noted in its 10-Q.

Though both Uber Eats and DoorDash focused more on the risks posed by classifying drivers as employees, rather than independent contractors, the companies did note their pay models were likely to attract greater regulatory scrutiny.

“Our pay models for Dashers, particularly with respect to tips for Dashers, has previously led, and may continue to lead, to negative publicity, lawsuits, arbitration demands, and government inquiries,” DoorDash said in its 10-Q.

Both companies cautioned they may not reach profitability in the risks section of their 10-Qs.