DoorDash backs down from higher fees on D.C. restaurants after city attorney general steps in

DoorDash’s decision came one day after the D.C.’s Office of the Attorney General sent a cease-and-desist letter to the San Francisco-based company, saying its plan to implement higher fees for the DashPass premium service would violate the Coronavirus Support Temporary Amendment Act of 2020, an emergency piece of legislation that capped delivery fees at 15 percent during the pandemic. DoorDash had planned to start charging the higher fees for DashPass on Wednesday.

“To the extent DoorDash charges restaurants 30 percent of the purchase price of online orders as a commission fee, this would directly violate the Act’s prohibition against commission fees exceeding 15 percent,” Attorney General Karl A. Racine wrote in a latter obtained by The Post. “DoorDash’s failure to comply with this directive may result in further action by this office.”

Launched in August 2018, DashPass is a subscription service for which customers pay $9.99 a month. The service provides free deliveries and reduced service fees for all orders over $12, which could save customers a significant amount of money depending on how frequently they use the service. But restaurants also have to opt-in to DashPass, and those establishments that do have a small DashPass logo next to their name on the DoorDash app.

“DashPass customers are more likely to order from participating restaurants, so signing up for DashPass is a great way for restaurants to boost orders,” DoorDash wrote in a recent blog post that promoted the service.

More than 5 million customers have subscribed to the DashPass service, according to the company. DoorDash considers this premium program separate from its core meal delivery service, which is why the company thought DashPass wasn’t subject to the District’s 15 percent cap. The attorney general’s office saw it differently.

“We recognize that there has been confusion as a result of our response to the unintended consequences of the pricing regulations in Washington, DC.,” spokeswoman Campbell Matthews said in a statement to The Post. “While DashPass is a premium marketing offering and provides benefits to many restaurants, we have decided to not charge D.C. restaurants their contractual DashPass rate at this time. We look forward to engaging with local policymakers to increase understanding of the impact pricing regulations have, and solutions that better serve customers, Dashers and restaurants.”

This is not the first time that the D.C. attorney general’s office has targeted DoorDash. Last year, Racine filed a lawsuit against the company, alleging it pocketed millions of dollars in workers’ tips and used them to cover labor costs. Among other alleged deceptive-trade violations, the District accused DoorDash of misrepresenting to consumers how the company would use tips.

The lawsuit was settled in November. As part of the settlement, DoorDash agreed to pay $1.5 million to drivers as well as an additional $750,000 to the District and $250,000 to two D.C. charities.

DoorDash had wanted to raise its fees in Washington on the same day it was expected to raise billions of dollars via its initial public offering on the New York Stock Exchange. The company has seen its revenue rise dramatically during the pandemic as Americans spend more time at home, trying to avoid the virus. In its Securities and Exchange prospectus, DoorDash noted that in the first nine months of 2020, it had generated $1.9 billion in revenue, compared to $587 million for the first nine months of 2019. That represented a growth rate of 226 percent.

The company doesn’t expect those numbers to remain sky high once the pandemic is history and Americans stop relying on third-party delivery platforms to deliver food.

“The circumstances that have accelerated the growth of our business stemming from the effects of the covid-19 pandemic may not continue in the future, and we expect the growth rates in revenue … to decline in future periods,” the company said in a recent Post story.

But DoorDash also doesn’t plan to stand down as jurisdictions put caps in place on delivery fees. As Campbell’s statement makes clear, the company will continue to talk to lawmakers to explain what the commission rates cover, including driver pay, background checks, insurance, credit-card processing fees, advertising and marketing.

DoorDash has been adopting different measures to try to offset the impact of fee caps, one of which was the company’s approach in Washington. On Nov. 30, DoorDash sent an email to restaurants that had opted into DashPass, explaining they will be subject to the higher contractual fees for the premium service (but not for the regular service). But almost immediately there was confusion from restaurant owners, including one who didn’t even know his business had signed up for DashPass.

Timber Pizza in Petworth has a DashPass logo next to its name on the DoorDash app, but owner Andrew Dana said neither he nor his general manager opted into the service. Neither received the email from DoorDash, explaining the higher fees for a service.

“We’re going to do some digging and see what the hell is going on,” Dana said Wednesday.

DoorDash looked into Timber Pizza and explained that the pizzeria was a strong partner that was added to DashPass for free, said Matthews, the spokeswoman. All of Timber’s orders have been subject to the rate set by the cap regulations. DoorDash also said that the service is optional and that merchants, such as Timber, can be removed at anytime.