An app-based delivery man waits outside a restaurant in New York City on July 7, 2023.
Spencer Pratt | Getty Images
Grubhub will pay $25 million to settle lawsuits from the Federal Trade Commission and Illinois Attorney General Kwame Raoul over alleged torts that harmed restaurants, workers and small businesses, the FTC said. announced on Tuesday.
The complaint alleges that Grubhub deceived customers about delivery fees and blocked access to their accounts. The company also deceived its employees about how much they could earn from food delivery and listed restaurants on its platform without their permission.
“We found that Grubhub deceived customers, defrauded drivers, and unfairly harmed the reputations and revenues of restaurants not affiliated with Grubhub,” FTC Chair Lina Khan said in a press release. “All at scale. and to accelerate growth,” he said in a press release. .
Grubhub has 325,000 unaffiliated restaurants on its platform, more than half of all restaurants available on Grubhub, according to the complaint. The company allegedly kept a list of unaffiliated restaurants to foster growth, but customers often had to pay more for delivery from those restaurants, damaging its reputation.
The complaint further alleges that Grubhub often avoided removing unaffiliated restaurants from its platform when requested and instead sought to sell paid partnerships.
As part of the settlement, the food delivery company will stop adding surprise fees, often referred to as “service fees” or “small order fees,” stop listing unaffiliated restaurants on its platform, and reduce drivers’ income. The company plans to be more transparent about drivers’ income and notify customers of any driver income. Your account will be blocked and you will be provided with an easier way to cancel your membership.
Rising prices at third-party food delivery services continue to plague Americans looking to cut down on extra fees. According to Technomic, from 2022 to 2024, consumers reported a year-over-year increase in total checkout on third-party apps compared to ordering directly from restaurant sites.
The FTC’s complaint alleges that Grubhub often charges “service fees” and “small order fees” despite advertising that customers pay a single, low-cost amount for Grubhub’s delivery-related services. They claim that they are adding a so-called junk fee to the delivery fee.
In a statement to CNBC, a Grubhub spokesperson said, “At Grubhub, we’re committed to transparency so that restaurants, restaurants, and drivers can make informed choices when doing business with us every day.” said. “While we categorically deny the FTC’s allegations, many of which are false, misleading, and no longer apply to our business, it is in Grubhub’s best interest to resolve this issue. We believe this will be a benefit for our company moving forward.”
The settlement includes a $140 million money judgment, which will be partially suspended due to Grubhub’s inability to pay the full amount, according to a press release. The company will instead pay $25 million, nearly all of which will be used to reimburse consumers harmed by its actions. If Grubhub is found to have misrepresented its financial position, a full judgment will be entered immediately, according to the press release.
“Because we negotiated with the FTC in good faith and provided extensive details about our business and financial performance, we believe the FTC has agreed to withhold portions of the judgment,” a Grubhub spokesperson said. said. “Monetary judgments are not intended to cause irreparable harm or undue hardship to businesses.”
