In recent years, several large progressive cities have begun pushing aggressive minimum wage policies for food delivery and rideshare. The results have been predictable: A decline in the number of gig tasks being performed, an increase in prices for consumers, and a reduction in drivers as platforms restrict access to aspiring gig workers.
But in addition to the economic fallout, these policies also may run afoul of the law. In response to New York City’s recent expansion of its delivery driver minimum wage, the gig company Instacart has sued the city. Instacart’s lawsuit argues that NYC’s minimum wage ordinance is preempted by federal law—an argument that, if it prevails, could send shock waves through progressive city councils across the country.
In 2023, NYC became the first city in America to pass a minimum wage for delivery drivers. The ordinance set the minimum wage for drivers at $19.96 per hour, which has now risen to $22.13. Last year, New York’s city council overrode a veto by former Mayor Eric Adams to expand the minimum wage law from restaurant delivery drivers to also include grocery deliverers. The grocery delivery wage, which went into effect in January of this year, drew an immediate legal challenge from Instacart.
The company lost at the district court level on dubious grounds and has now appealed its decision to the U.S. Court of Appeals for the 2nd Circuit. The heart of their argument is that NYC’s minimum wage ordinance is preempted by the Federal Aviation Administration Authorization Act (FAAAA).
While the FAAAA has “aviation” in the title, it applies to all “motor carriers,” as the law was passed as part of a congressional effort in the 1990s to bring the success of airline deregulation to more sectors of the transportation economy. At the time, Congress was particularly concerned about a “patchwork” of local rules that could unduly burden interstate commerce. Therefore, under the FAAAA, local laws “relating to rates, routes, or services” of motor carriers are preempted.
The arguments may seem arcane and technical at first blush, but in reality, they are relatively straightforward. Courts have previously held that independent contractors who “perform first-and-last mile pick-up and delivery services” qualify as “motor carriers” under the FAAAA; this first-and-last-mile service precisely describes the work that Instacart drivers—known as “shoppers”—routinely do.
The key question then becomes whether NYC’s minimum wage laws are related to the “rates, routes, or services” of Instacart shoppers. Past Supreme Court rulings have clarified that the effect on “rates, routes, or services” only needs to be indirect to qualify, and this is a bar that NYC’s own data show is easily cleared.
For instance, NYC found that when its minimum wage law for restaurant delivery drivers went into effect in late 2023, average consumer fees per order rose by 46 percent in the first quarter of 2024, while total consumer spending rose by 10 percent. At the same time, the total number of delivery drivers declined by 9 percent, and by Q4 of 2024, the total number of drivers had fallen by 35 percent on a year-over-year basis. The annual growth of food delivery in the Big Apple dropped from a 17 percent growth rate to 8 percent.
By definition, then, NYC’s minimum wage policies have impacted the “rates, routes, or services” of food delivery in the city as prices increased, the number of drivers declined, and comparatively fewer delivery orders were placed. A fair reading of the city’s own evidence therefore shows that its minimum wage ordinance should be preempted by the FAAAA.
If the 2nd Circuit agrees, the implications for minimum wage policy in the gig economy context would be vast. Economic research from Seattle has shown that its experience with a delivery minimum wage has produced similar results to that of NYC. Delivery fees in Seattle are the highest in the country in the aftermath of the wage’s enactment, while the mean delivery delay increased by more than 35 percent from December 2023 to December 2024, according to DoorDash. Once again, this shows a clear effect on “rates, routes, or services.”
In the end, the economic evidence continues to demonstrate that minimum wage laws in the gig economy backfire. And, ironically, this very same evidence also demonstrates that such laws should be preempted and struck down.
