Milpitas restaurant owner Francisco Rodriguez was looking over his financial records last winter when he noticed something was off.
DoorDash, the country’s largest food delivery company, was imposing 25 to 30% fees each time someone ordered food through the app from his restaurant, Taqueria Las Vegas — a violation of a city ordinance that, for now, caps third-party food delivery companies from charging restaurants at 15% for deliveries or 10% for pick-ups. Meanwhile, other delivery companies that he works with, like Uber Eats, had notified him they were lowering their fees in line with the city ordinance that went into effect in October 2020.
After prodding from the city, DoorDash finally reimbursed Rodriguez between $7,000 and $8,000 after being overcharged for roughly two months in November and December 2020.
Even so, Rodriguez has mixed feelings about it all as a majority of his orders come through DoorDash, he said, and it gave him business that kept him afloat during the pandemic.
“I couldn’t hate DoorDash,” Rodriguez said in an interview as he was driving to his restaurant to help complete a $1,000 order that had come through the app. “It’s a service I couldn’t provide on my own. But it has to be clear. They have to stick to what they say.”
He wasn’t the only Milpitas restaurant owner to have this happen. Eligio Ramirez, the owner of Mikonos Grill, said that he also was overcharged for a couple months after the ordinance went into effect and later reimbursed about $4,000 from DoorDash.
When asked about Taqueria Las Vegas and Mikonos Grill, DoorDash blamed the extra charges on a “temporary implementation error” involving the ordinance. A spokeswoman for DoorDash said the company “immediately resolved (the error) once it was raised to us.”
But then in June, the overcharges began happening again, potentially affecting a large swath of the 300 or so restaurants in the city — a development DoorDash acknowledged.
DoorDash says that it accidentally removed the price caps when Santa Clara County — who had an ordinance similar to Milpitas — lifted theirs this past June.
“Unfortunately, due to price controls in overlapping jurisdictions expiring at different times, we inadvertently lifted the price controls on Milpitas merchants,” Briana Megid, a spokeswoman for the company, said in an emailed response. “We sincerely regret this mistake.”
Megid said the company will be reinstating the price caps and is “quickly” reaching out to restaurants to reimburse those who were affected. She declined to answer how many restaurants have contacted the third-party company.
DoorDash also will be reinstating the city’s regulatory response fee, a $1 to $2.50 charge imposed on users of the app that was installed in jurisdictions around the country to offset ordinances that were put in place.
In the meantime, during the last month, another restaurant has come forward to Milpitas, inquiring why they were being charged higher fees than what the ordinance allows, according to city officials, who declined to share the name of the owner.
Now, a Milpitas councilmember is proposing making the fee caps permanent and beefing up enforcement.
Milpitas Councilmember Anthony Phan, who raised the issue of DoorDash avoiding the ordinance at a Nov. 16 council meeting, said there is “no excuse” for the company’s conduct.
“These restaurants have been faced with really thin margins and the labor shortage,” he said. “The fact that DoorDash has been engaging in these practices really troubles me.”
During the start of the pandemic, restaurants were prevented from offering indoor dining and started relying heavily on services like DoorDash and Uber Eats to fill in for lost income.
In response, cities and counties across the Bay Area started establishing ordinances that, in their view, protected restaurants from being price gouged by the delivery apps, who normally charge a fee to the restaurant every time a user orders food through the app.
For years, DoorDash has dominated the food delivery space, and currently holds a 57% share of the market, according to Bloomberg Second Measure, which analyzes consumer behavior. The company, headquartered in San Francisco, went public about a year ago with a $72 billion valuation. While the company boasted revenue north of $1.2 billion in its most recent earnings report, it is still struggling to make a profit as are other delivery companies.
Some cities in Santa Clara County still have a price cap in place, while in other areas it has expired, presenting a logistical challenge for third-party delivery companies to ensure they are following local laws.
Santa Clara County imposed a cap in December 2020, which covered cities that didn’t have their own ordinance. Milpitas, San Jose, Santa Clara and Hayward ended up passing their own fee caps.
Some cities, like Milpitas, Hayward and Santa Clara, still have an ordinance in place, and have drafted them in such a way that they will expire when their local state of emergencies — which were put in place because of the pandemic — come to an end. Other jurisdictions, like San Jose and Santa Clara County, lifted their fee caps in June.
It appears Milpitas may be the only city in which the fee cap was mistakenly lifted by DoorDash. Officials from Hayward, San Jose and Santa Clara said that no restaurants have reached out to them with complaints about the company charging them for more than what their ordinance required.
Councilmember Phan described Milpitas’s ordinance as “complaint driven,” meaning the city can’t go after third-party delivery companies in any legal or monetary sense. But he intends to have that changed.
“I think there needs to be standards set for these third-party apps,” he said. “At the end of the day, the complaint driven model had a lot of challenges. I would want to reform that a bit. And really put some teeth into the law.”
He said that he’d like to see companies that break the ordinance face fees of their own.
“Reimbursement isn’t going to cut it,” he said “They are going to be fined. I say that to prevent them from really doing this again. Because otherwise they’ll keep doing it. We’re trying to prevent that.”
Companies like DoorDash have already started pushing back on local governments like Phan’s who are setting stricter rules.
In June, San Francisco supervisors approved making fee caps for delivery companies permanent. DoorDash and GrubHub filed suit a month later, calling the rules set by the city “irrational” and “driven by naked animosity.” The suit is ongoing, according to the city attorney’s office.
Policymakers at the state level also are trying to reign in delivery companies. In October, Gov. Gavin Newsom signed into law AB 286, which requires increased transparency from the companies, such as a cost breakdown of what they are charging restaurants and users of their apps.
The state law, which goes into affect at the beginning of the year, also orders companies to give tips to their delivery drivers in full. DoorDash, who claims that 100% of their tips go to workers, was accused in a 2019 lawsuit of pocketing tips. They later settled for $2.5 million.