There’s a lot of chatter in the news these days about different bills and laws that are affecting restaurant delivery service businesses throughout the United States. So, in today’s edition of Phil’s Field Notes, we’re giving you a quick rundown of what’s going on.
California Assembly Bill 5 (AB5) and California Proposition 22 (Prop 22): A brief guide.
There are two different things to know about what’s happening in California. The first is California Assembly Bill 5 (AB5), which was signed into law in 2019. AB5 changed the rules on how employers could classify the people who work for them. A worker could only be classified as an independent contractor under certain criteria.
For delivery companies such as Uber and DoorDash, the enactment of AB5 meant that all drivers in California must be classified as employees rather than independent contractors. This meant that all those people would be protected by all California labor laws. For the delivery companies, it meant a significant increase in operating costs.
The big players in this space lobbied pretty hard against AB5. When it was passed, a few big names—Uber, Lyft, DoorDash, Instacart, and Postmates—banded together to push a new initiative: California Proposition 22 (Prop 22)
Prop 22 pushes for more pay and benefits
Also called the App-Based Drivers as Contractors and Labor Policies Initiative was approved in November of 2020. Under Prop 22, app-based drivers are still classified as independent contractors. However, delivery companies are now required to give drivers some specific benefits in the state of California, including:
- A guaranteed minimum wage for active working time.
- A healthcare stipend for those who work a certain number of hours.
- Accident and disability insurance.
New York City recently passed a series of legislation that will guarantee similar benefits to delivery drivers working the city. My guess is that we’ll see more cities and states passing similar laws in the coming months and years.
Price controls and commission caps for restaurant delivery service businesses
At the height of the COVID-19 pandemic, a lot of cities put a temporary 15% cap on commission rates for big-name RDSs. A normal commission rate for one of the big players is around 20-30%, depending on the city. The cap was put in place to protect restaurants that were struggling to keep their doors open from losing additional income due to the massive increase in demand for food delivery.
In most places, the temporary caps have been lifted. But New York City and San Francisco have enacted permanent 15% commission caps for food delivery. In those two cities, RDSs have simply added surcharges to their customers’ bills to make up for the lost commission.
This may become more common as well. Time will tell.
A restaurant owner’s perspective.
Now, I’m not just a guy who writes these Field Notes every month. I’m also a current restaurant owner and a former RDS owner. A few people have asked me what I think of these laws. More specifically, they’ve asked me how I would react, as a restaurant owner, if an RDS partner told me they were going to charge my customer more. So here’s my take on it.
My restaurant recently overhauled our hiring practices so we could attract and retain great employees during a nationwide labor shortage. And it worked: We brought in 64 new team members. They feel cared for, which means they do better work, stay in their jobs longer, and are generally happier. In turn, our customers get great service, so they keep coming back. And the business grows. Everyone wins.
This was a serious investment for us, one that has benefited our employees and our customers as well as the business as a whole. We are thrilled with the results.
If our restaurant delivery service business partner wanted to raise the rates they charge customers, I’d want to know where those extra dollars are going. Personally, I’d hope some of that money is going to the drivers, and here’s why:
- When workers are paid better, they stick around longer. If an experienced driver is making deliveries for my restaurant, then my customers are getting better service and a better experience from our RDS partner.
- Better wages for employees mean more money flowing through the local economy. Paying your workers a good wage is an investment in the community, and we’re big fans of that.
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Here are my final thoughts on the matter:
These changes appear to be the start of a trend, and we’re probably going to see similar laws enacted around the country. There’s no way of knowing which states and cities will adopt these practices.
But no matter what happens, it’s never a bad idea to start thinking seriously about your own delivery team—in fact, it’s good business sense. Employee turnover is extremely expensive, but when your employees are happy, they stay in their roles much longer. So take care of your delivery drivers. Treat them well, pay them well, and thank them regularly for a job well done. Your business, your customers, your drivers, and you will all benefit.
See you next time!
Phil