Delivery Drivers Got Higher Wages. Now They’re Getting Fewer Orders.

Food-delivery apps have responded to cities’ new wage-increase requirements for gig workers by ratcheting up fees. Now, they are contending with frustrated consumers, plunging restaurant orders and an exodus of delivery drivers.

Lawmakers in New York City, one of the cities where pay increases for delivery drivers recently were adopted, say that their changes have worked well for workers. Seattle, which implemented similar rules this year, is planning to roll them back because of “outcry from drivers and restaurants over its devastating” impact, Seattle City Council President Sara Nelson said.

The delivery companies—whose businesses are built on gig workers they don’t employ full- time—say they can only afford to pay so many workers under the two cities’ latest pay standards. The cities want the companies to pay couriers a minimum hourly wage based on the time they spend delivering orders and reward the most efficient workers. New York City now requires that the companies pay couriers at least $19.56 per hour before tips, up from an average of $5.39 per hour before its rules went into effect in December.

Uber Eats’ orders in Seattle fell 45% last quarter from the same period a year earlier after the company imposed a $4.99 fee on each order to cover the city’s new pay requirements. Demand also cooled in New York City, Uber and DoorDash said.

The two cities make up a small slice of the apps’ business. DoorDash said the new laws collectively led to a reduction of some 1% of its overall orders in the first quarter. Analysts say the bigger concern is a wave of similar legislation could roll through more cities and states.

The apps have battled regulators since their inception over a decade ago. They have won several regulatory fights—both in the U.S. and abroad—and see some of the rules as roadblocks to growth and their effort to sustain the inconsistent profits they have only recently started reporting.

Consumers already pay the apps a service fee and delivery fee, in addition to tipping workers. For some, the latest app fees were the last straw.

Seattle-based researcher Ro Singh was hooked on ordering in several times a week until the city adopted its pay measure in January. App prices “became absolutely nuts,” he said, after adding varying delivery fees in addition to tipping. He started picking up the food himself.

“It’s like double the price to order a $20 burrito now” compared with the pickup price, he said. “This is insane.”

Other battles brewing

Prices for consumers are set to rise elsewhere, too, as wages for drivers increase. After months of negotiations—and threatening to leave the state altogether—Uber and Lyft reached a compromise with Minnesota over new pay requirements for ride-share drivers. Some of the additional costs will be passed on to consumers as new fees.

Old disputes over how drivers are classified have resurfaced in Massachusetts and California, which could further weigh on the companies’ bottom lines and affect how consumers pay for rides and deliveries.

In California, the state Supreme Court is hearing arguments against a landmark 2020 ballot measure that allowed the companies to avoid classifying their drivers as employees. A decision against that measure “potentially creates a huge snowball effect that every other state can follow,” said Robert Mollins, an analyst at Gordon Haskett Research Advisors covering the sector.

The new rules in Seattle and New York City apply to food-delivery couriers—ride-hailing drivers aren’t covered. Uber and DoorDash say they can afford to pay a limited number of workers under the new laws. To make the math work in New York City, Uber says it has to slot delivery drivers into shifts. The move has angered some drivers who want the flexibility to work when they want.

Uber Chief Executive Dara Khosrowshahi said the company has had to cut 25% of the delivery drivers who previously worked for the app in New York City. “So far, regulation has definitely hurt the people that it’s supposed to protect,” Khosrowshahi said last month on a call with analysts.

New York authorities say the new rules have been good for the market. “The minimum pay rate is working and has been very successful in raising the wages of NYC’s app-based restaurant delivery workers,” the city’s Department of Consumer and Worker Protection said in a statement.

In April, the agency  said the apps were paying workers $16.3 million more a week, more than double what they paid before the changes went into effect.

‘I lost my purpose’

New York City driver Jagat Pun, who mainly delivers for Uber Eats, said the app’s shift system has slashed his working hours by more than half. His weekly earnings are down about 60%, and he can’t choose when he works.

“I’m struggling to survive,” he said. Last month, he joined other drivers protesting the rule changes in front of New York City Hall.

Shuai Zhang, the owner of Poprice, an Asian street-food restaurant in New York City, says his delivery sales are a third of what they were before the changes. Drivers who once picked up from his restaurant are now asking him for jobs. He hired two of them.

Fewer workers delivering for the apps means it takes longer to pick up orders. Customers are complaining about deliveries arriving cold and soggy, Zhang said. To make up for lost sales, he has started working as a restaurant consultant.

“They need to rethink what they have done to our small business,” he said. “I feel like I lost my purpose.”

DoorDash said Seattle drivers have to wait between orders three times longer than before. Uber said 30% of its active delivery drivers in the city have quit its app.

Seattle driver Gary Lardizabal said he makes less money now despite working more hours. Breakfast and afternoon-snack delivery orders have disappeared. Smaller deliveries don’t make sense because of the new $4.99 fee, he said.

“People are unwilling to pay those prices for a latte,” Lardizabal said.

For the past four months, he has been showing up at the City Council every week to express his frustration. He told lawmakers that he is struggling to pay the bills. To cover rent and other life expenses, Lardizabal took a job as a part-time cashier at a restaurant.

“All our lives are at stake,” he said.

Nelson, the Seattle City Council president, is pushing to reverse the new earnings standard after complaints from drivers, restaurants and consumers, though she wants to ensure that workers still make the city’s minimum hourly wage before tips.

Write to Preetika Rana at [email protected]