• John B. Reyna

Texas law promotes third-party food delivery service transparency, but may give away a free meal.

Updated: May 31

On January 1, 2022, Texas Senate Bill 911 (SB911) went into effect. SB911 includes, among other things, regulations concerning third-party food delivery services.[1] A third-party food delivery services means “a website, mobile application, or other service that acts as an intermediary between consumers and multiple restaurants not owned or operated by the service to arrange for the delivery or pickup of food or beverages from those restaurants.”[2]


Background.


If you’ve been following my blog recently, then you know that I’ve commented about the importance of restaurants to control their online presence, especially when it comes to listings on third-party food delivery services’ websites and apps. These services have often taken it upon themselves to add restaurants to their websites and apps without the restaurants consent. This can cause numerous issues such as: confusing a restaurant with another (perhaps a lesser quality restaurant), use of outdated menus, cancelled or erroneous orders, and failed delivery. Each of these issues can severely damage a restaurant’s reputation.


This legislation aims to prevent those situations where restaurants are listed on third-party food delivery services without the restaurants’ consent or knowledge.[3]


Prohibited acts.


Under the new laws, third-party food delivery services are prohibited from the following acts:

  1. Acting as a third-party delivery service in Texas without first filing a certificate of formation or registering with the secretary of state;

  2. Using a restaurant’s mark or trade name in a misleading way to suggest the restaurant sponsors or endorses the service;

  3. Adding a restaurant to the service without the restaurant’s consent after the service has previously received a request from the restaurant to be removed from the service; and

  4. Charging a restaurant any fees unless the restaurant and third-party food delivery service have agreed to the terms in writing.[4]


What is a mark or trade name?


The terms mark and trade name are defined in the Texas Business and Commerce Code, and each of those definitions includes other terms of art that are also defined by statute.[5] In the restaurant industry, the terms mark and trade name encompass, among other things, a restaurant’s name, logo, and menu.


Restaurants have long complained that third-party food delivery services’ unauthorized use of their menus or logos misleads consumers into believing that the restaurants have endorsed the services. A common scenario occurs where a customer makes an order via a third-party food delivery service from an outdated menu, the restaurant won’t fulfill the order because they no longer serve certain items on that outdated menu, the delivery service tells the customer the restaurant refused the order, the customer then blames the restaurant because they believe the restaurant endorsed the service, and the restaurant is unable to resolve the customers’ complaints since they were not part of the transaction. This prohibition should lessen this occurrence.


Request to be removed from the service.


If a restaurant requests to be removed from the third-party food delivery service, then the service has ten days from the date of receipt to comply with that request.[6] The statutory language does not say how the request must be made, but I would highly recommend that the request be made in writing and sent to the third-party food delivery service via USPS with return receipt requested. That way it is clear what date the third-party food delivery service received the request and when the ten-day clock can commence.


Despite everything above, if the restaurant and third-party food delivery service have entered into a valid agreement that satisfies certain statutory requirements, which I discuss below, then this ten-day requirement is not triggered. Rather, the terms of the agreement govern how to remove a restaurant from the service.[7]


Customer complaints.


For orders arranged through the third-party food delivery service, the third-party food delivery service must “provide a consumer a clearly identified mechanism for the consumer to express concerns or complaints directly to the service.”[8] The legislative history does not provide any guidance on what qualifies as a clearly identified mechanism.


Agreements with restaurants.


To be a valid agreement under Ch. 114 of the Texas Business & Commerce Code, an agreement between a restaurant and a third-party food delivery service must:

  1. Be in writing;

  2. Expressly authorize the service to arrange for the delivery or pickup of food/beverages from the restaurant; and

  3. Clearly state each fee, including a commission or the charge, that the restaurant will be required to pay to the service or absorb for an order arranged through the service.[9]

Agreements between restaurants and third-party food delivery services may not include certain types of indemnification provisions.[10] Indemnification is a legal way to say reimbursement. These provisions are included in contracts to establish the reimbursement requirements if one of the parties is responsible for damages to the other party or its cohorts. Under SB911, an agreement between a third-party food delivery service and a restaurant may not include a provision requiring a restaurant to indemnify the third-party food delivery service, an employee of the service, or an independent contractor of the service, for the claims or liabilities resulting from acts or omissions of the service, an employee of the service, or an independent contractor of the service.[11]


Lastly, all of the above regarding agreements between restaurants and third-party food delivery services only apply to agreements entered into on or after January 1, 2022.


Limitation on local laws.


A municipality or county may not adopt or enforce any laws that would affect the terms of an agreement between a third-party food delivery service and a restaurant that otherwise satisfies the three requirements stated above.[12]


This particular part of SB911 may prohibit municipalities and counties from passing delivery fee caps. Restaurants have criticized delivery fees and commissions that range from 15% to 30% per order, which severely affects restaurants’ revenues. In 2021, both New York City and San Francisco passed permanent commission fee caps on third-party food delivery services. Time will tell whether this provision of SB911 prevents fee caps adopted at the local level.


Private cause of action.


If a third-party food delivery service violates Ch. 114 of the TBCC, then a restaurant who was the victim of the violation may file a civil lawsuit against the service for injunctive relief and damages.[13] An injunction refers to a court order mandating one or more parties involved in a civil trial refrain from doing a specified act or acts. For example, a court could order a third-party delivery service to stop using a restaurant’s mark. If a restaurant chooses to sue for damages, it may recover an amount equal to the restaurant’s actual damages arising from the third-party food delivery service’s violation or the service’s profits arising from the violation.[14] If a court finds that the third-party food delivery service committed the violation knowingly or in bad faith, then a court may award the restaurant punitive damages in an amount up to three times the sum of the restaurant’s actual damages from the violation and the service’s profits arising from the violation.[15]


Final thoughts.


On its face, SB911 appears to be a positive move towards protecting restaurants and consumers. Having a codified cause of action that may result in treble damages is a likely deterrent for third-party food delivery services to refrain from non-consensual listings. Further, restaurants can either opt out entirely from the service or, if they agree to be listed, they can control what menu and information is provided on the service. And consumers who use third-party food delivery services can rely on the information with certainty that they are ordering from the actual desired restaurant and from an updated menu.


Additionally, I applaud the restriction regarding indemnity provisions in favor of the third-party food delivery service for claims or liabilities that they, or their employees or independent contractors, caused. This is a big win for small restaurants that wouldn't have the negotiation power to remove provisions like this from agreements with these powerful services.


Still, DoorDash, Grubhub, and Uber Eats were all part of crafting SB911, and they have all praised SB911 as a positive piece of legislation.[16] Let that sink in. The potential defendants in a civil suit based on violations of these new laws are praising the new laws. So why are third-party food delivery services not protesting these laws?


I have a couple ideas.


First, third-party food delivery services have had a full year since California’s similar law went into effect. Thus, these services have been entering into agreements with restaurants in anticipation of similar legislation arising across the country. By now, they are well prepared to avoid any prohibited acts.


Second, third-party food delivery services scored a big win with the prohibition of a municipality or county to adopt or enforce any laws that would affect the terms of an agreement between a third-party food delivery service and a restaurant. This provision could preempt local governments from passing delivery fee caps or labor laws similar to what other major cities implemented over the past year.


Only time will tell who really benefits the most from SB911 and its progeny.


For further information on this topic, please contact John B. Reyna at info@texashospitalitylaw.com. This material is provided for informational purposes only. It is not intended to constitute legal advice nor does it create a client-attorney relationship between the Texas Hospitality and Non-profit Law Center, PLLC and any recipient.


******************************************************************************************** [1] Section 1–5 of SB911 amend the Tex. Alco. Bev. Code. Section 6 amends the Tex. Bus. & Com. Code. Section 7 of SB911 amends the Tex. Loc. Gov’t Code. [2] Tex. Bus. & Com. Code § 114.0001(3). [3] California passed a similar law in January 2021. See California Assembly Bill No. 2149, approved Sept. 24, 2020. [4] Tex. Bus. & Com. Code § 114.0002. [5] Tex. Bus. & Com. Code § 16.001(5) (A restaurant’s mark includes “a trademark or service mark that is registrable [under Ch. 16 of the Texas Business & Commerce Code], regardless of whether the trademark or service mark is actually registered.”). Tex. Bus. & Com. Code § 16.001(8) (A service mark is defined as “a word, name, symbol, or device, or any combination of those terms used by a person to: (i) identify and distinguish the services of one person, including a unique service, from the services of another; and (ii) indicate the source of the services, regardless of whether the source is unknown.”). Tex. Bus. & Com. Code § 16.001(10) (A trademark means “a word, name, symbol, or device, or any combination of those terms, used by a person to: (A) identify and distinguish the person’s goods, including a unique product, from the goods manufactured or sold by another; and (B) indicate the source of the goods, regardless of whether the source is known.”). Tex. Bus. & Com. Code § 16.001(9) (A trade name means “a name used by a person to identify the person’s business or vocation.”). [6] Id. § 114.0003(2). Cf. Cal Bus. & Prof. § 22599 (“A food delivery platform shall not arrange for the delivery of an order from a food facility without first obtaining an agreement with the food facility expressly authorizing the food delivery platform to take orders and deliver meals prepared by the food facility.”). [7] Id. [8] Id. § 114.0003(1). [9] Id. § 114.0004(a). [10] Id. § 114.0004(b). [11] Id. [12] Tex. Loc. Gov’t Code § 250.011(b). [13] Tex. Bus. & Com. Code § 114.0005(a). [14] Id. § 114.0005(a)(2). [15] Id. § 114.0005(b). [16] Texas Restaurant Association, https://www.txrestaurant.org/news/texas-restaurant-association-third-party-delivery-companies-applaud-texas-legislature-passing (last visited January 7, 2022).

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