An app-based delivery worker waits outside a restaurant in New York City on July 7, 2023.
Spencer Platt Getty Images
Grubhub will pay $25 million to settle a lawsuit from the Federal Trade Commission and Illinois Attorney General Kwame Raul over alleged illegal practices that hurt diners, workers and small businesses, the FTC announced Tuesday.
The complaint claims Grubhub misled diners about delivery costs and blocked access to their accounts. The company cheated employees about how much money they would make for providing food and listed restaurants on their platform without their permission.
“Our investigation found that Grubhub defrauded its customers, defrauded its drivers and unfairly damaged the reputation and revenue of restaurants that did not partner with Grubhub — all in order to drive scale and accelerate growth,” FTC Chair Leena Khan said in a press release. . .
According to the complaint, Grubhub has 325,000 unauthorized restaurants on its platform, more than half of all restaurants available on Grubhub. The company allegedly enlisted unauthorized restaurants to drive growth, but diners often had to pay higher delivery fees from those restaurants which, in turn, damaged their reputation.
The complaint also alleges that Grubhub often avoided removing unauthorized restaurants from the platform when requested, instead trying to sell them a paying stake.
As part of the settlement, the food delivery company will stop adding surprise fees often labeled as “service fees” or “small order fees”, stop listing unaffiliated restaurants on the platform, be more transparent about driver earnings, inform customers if their Provides an easier method for account blocking and cancellation of membership.
Rising prices among third-party food delivery services continue to discourage Americans from cutting extra fees. Between 2022 and 2024, according to Technomic, customers will report an annual increase in their total checks on third-party apps compared to orders placed directly through restaurant sites.
The FTC complaint alleged that Grubhub would add junk fees to the cost of delivery, often labeled as “service fees” or “small order fees,” despite advertising that diners would pay a single, low cost for Grubhub’s services tied to delivery.
“At Grubhub, we are committed to transparency so that everyday diners, restaurants and drivers can make informed choices about doing business with us,” a Grubhub spokesperson wrote in a statement to CNBC. “While we categorically deny the allegations made by the FTC, many of which are inaccurate, misleading or no longer applicable to our business, we believe that settling this matter is in Grubhub’s best interest and allows us to move forward.”
The settlement includes a monetary judgment of $140 million, but has been partially suspended due to Grubhub being unable to pay in full, according to the press release. The company will instead pay $25 million, nearly all of which will be used to reimburse customers affected by the company’s conduct. If Grubhub is found to have misrepresented its financial condition, full judgment will be immediate, according to the press release.
“We believe the FTC has agreed to suspend a portion of the ruling because we have negotiated with them in good faith and provided extensive details about our business and financial performance,” a Gruvub spokesperson said. “Financial judgments do not cause irreparable harm or undue hardship to companies.”
