While some of the City’s residents were busy declaring part of the city an autonomous zone, Seattle’s City Council quietly seized control of some private grocery-delivery businesses with a sweeping new ordinance. The ordinance is a breathtaking abuse of the city’s police power, one that cannot possibly withstand a legal challenge.
The Premium Pay for Gig Workers ordinance requires “food delivery network companies” with more than 250 workers worldwide, such as Instacart and Postmates, to pay drivers no less than an extra $2.50 for each initial work-related stop or dropoff within Seattle city limits, plus $2.50 for each additional stop or dropoff. Initial drafts of the ordinance applied the mandate to other entities that delivery groceries, such as grocery-store-owned services and Uber Eats. But union leaders objected and the sponsors obediently narrowed the ordinance’s scope.
The ordinance purports to protect public health and safety by “requiring food delivery network companies to provide premium pay for gig workers . . . thereby increasing retention of gig workers who provide essential services on the frontlines of a global pandemic.” Though the City Council cloaks its action in the mantle of the coronavirus, the premium-pay requirement can remain in effect for three years after Seattle’s mayor lifts the emergency.
The ordinance not only compels increased pay, it also dictates that companies may not “reduce or otherwise modify the areas of the City that are served” and cannot alter gig workers’ salary or reduce their online orders “as a result of this ordinance going into effect.” In other words, Instacart, Postmates, and others face substantial fines and loss of their operating licenses if they attempt to distribute the regulation’s costs or reduce service to cut financial losses. And the companies are no longer free to terminate operations in Seattle in response to the ordinance. If the city alleges that a company’s reduced service violates the ordinance, the company must prove that the ordinance was not “a motivating factor” in its decision.
Destined to Fail
The requirement that companies must continue doing business in Seattle is an extraordinary measure. A coalition of technology companies told the City Council, “We know of no instance in which such an ordinance has ever been enforced.” It’s akin to the remedy of specific performance that courts occasionally order in breach-of-contract disputes. But for reasons that should be obvious, courts refrain from compelling performance of personal services contracts like those that grocery-delivery companies maintain with customers.
The ordinance also acts as a price control. Just like other government intrusions into market pricing decisions, such as rent control, the premium-pay mandate will not only fail to achieve its goals, it will harm its intended beneficiaries.
The pay mandate increases food-delivery companies’ costs. Because the ordinance prohibits adjusting delivery workers’ salaries and schedules, the companies will be forced to make other modifications that will undermine the City Council’s goals. They will hire fewer workers, which will reduce both grocery deliveries and employment opportunities (especially for vulnerable lower-income individuals). A reduction in deliveries will lead to more in-person store visits and an increased risk of exposure to the coronavirus.
The ordinance doesn’t prevent delivery companies from passing on the premium pay to consumers as a surcharge. As the Washington Food Industry Association stated in a letter to the City Council, such a surcharge “disproportionately impacts those on fixed incomes, already struggling financially . . . during a time when vulnerable populations need remote access the most.” Of course, Seattle residents can do their own shopping to avoid the surcharge, but as noted before, that undercuts the City Council’s stated public-health aims.
If the ordinance ultimately deprives delivery companies of their profitability, the rational economic response would be to leave Seattle. Companies do face financial penalties for reducing deliveries, but Seattle’s current state of affairs offers plenty of alternative reasons they can offer for exiting the city’s market.
Premium Pay for Gig Workers isn’t just bad policy, it’s also constitutionally suspect. Seattle’s police powers are broad, but not without limits, even during a public-health crisis. As District of Massachusetts Judge Richard G. Stearns wrote in an opinion we discussed here last month, “The mere fact of an emergency does not increase constitutional power, nor diminish constitutional restrictions.”
Section 100.027 of the ordinance “takes” grocery-delivery companies’ property in violation of the Fifth Amendment. To avoid fines or business-license cancellation, delivery companies must continue serving Seattle in perpetuity, no matter how unprofitable operations become. The city thus extracts the companies’ personal property for a public use without any compensation, a per se taking under U.S. Supreme Court precedent.
Impairment of Contract
The ordinance also “impair[s] the Obligation of Contracts” in violation of Article I, § 10, cl. 1 of the Constitution, also known as the Contract Clause. The Supreme Court has blunted this fundamental economic liberty by discovering an unwritten term, “unreasonable,” in front of “impairs.” The Court also “adopt[ed] a radically undemanding definition of ‘reasonable,'” as Judge Richard Posner quipped in an opinion. Delivery companies would need to overcome this pro-government thumb on the scale, but given the facts, they would have a fighting chance.
The ordinance severely impairs delivery companies’ contracts. It upends hundreds of contracts under which the companies could otherwise choose to discontinue operations, and prohibits them from renegotiating salaries. The City Council utilized unreasonable and inappropriate means to achieve its public purpose. As we discuss above, the ordinance is more likely to undermine public health than safeguard it. The companies had no reason to anticipate the contract impairment, and the ordinance eschewed a broader scope for a very narrow focus on specific delivery entities—two factors that the Supreme Court has found significant when judging reasonableness in Contract Clause cases.
Finally, the delivery companies could claim a due-process violation, arguing that the ordinance arbitrarily deprives them of a property interest. They would have to establish that the property deprivation is not rationally related to a legitimate government interest. The ordinance will only increase businesses’ costs, which will in turn increase consumers’ costs, compelling some to cease home grocery delivery and risk trips to the store. Increased costs can also cause delivery businesses to end services in Seattle, which benefits neither gig workers or vulnerable residents. And if Seattle wished to safeguard gig workers’ health, the city could have pursued “alternative reasonable and practical means,” such as requiring delivery companies to provide adequate personal protection equipment.
Keep this Policy Idea in Seattle’s Laboratory
This pandemic has encouraged local-government “laboratories of democracy” to experiment with their broad police powers. West-coast cities like Seattle have long been the vanguard of policy activism, setting trends that spread east to other municipalities.
Before embracing the ideas contained in the Premium Pay for Gig Workers ordinance, other city councils should take a long pause and consider the profound policy and constitutional flaws that we’ve outlined here. If cities wish to encourage residents to stay home, and want to ensure that grocery-delivery workers’ job security and personal health are protected, adopting Seattle’s approach will achieve neither. It’s a policy idea that should not escape the lone laboratory of Seattle.
Also published by Forbes.com on WLF’s contributor page.