Grubhub is being forced to pay $25 million back to diners, food delivery drivers, and small restaurants to settle multiple charges of deceptive and unfair business practices brought by the FTC.
The US Federal Trade Commission accused the food delivery giant of “an array of unlawful practices,” including hidden delivery fees, locking of customer accounts and funds, false claims of potential earnings for delivery drivers, and listing restaurants on the GrubHub platform without permission.
“Our investigation found that Grubhub tricked its customers, deceived its drivers, and unfairly damaged the reputation and revenues of restaurants that did not partner with Grubhub – all in order to drive scale and accelerate growth,” said FTC Chair Lina M. Khan.
“There is no ‘gig platform’ exemption to the laws on the books,” Khan said. “Workers, consumers, and small businesses deserve markets that are fair and honest, no matter the technology or business model,” the FTC chair posted on X.
7. This case is the latest in the FTC’s work to crack down on lawbreaking by “gig” companies.
undefined Lina Khan (@linakhanFTC) December 17, 2024
Workers, consumers, and small businesses deserve markets that are fair and honest, no matter the technology or business model.
Hidden fees galore
According to the US consumer watchdog agency, for years the Chicago-based online food delivery platform had “hidden the true cost of its delivery services”– a corporate tactic known as the “pricing shell game.”
This included advertising one single price for delivery and then tacking on additional “service fees” or “small order fees,” which the FTC said were just delivery fees in disguise.
For paid Grubhub+ subscription members, delivery fees are advertised as “free,” but monthly subscribers were charged fees anyway, the complaint said. Oftentimes the final cost would be “more than double what it was advertised.”
Grubhub was also said to regularly block access to customer accounts loaded with funds or gift cards, providing no way for them to unlock their accounts, or cancel their subscription.
This would happen without warning, the FTC said, “leaving new families, those facing health challenges, and others who may have received a large amount of gift cards without access to their funds.”
Small businesses and workers also decieved
Grubhub is further accused of adding thousands of unaffiliated restaurants to its platform without the restaurant's permission to try and drum up more business.
“Grubhub has had as many as 325,000 unaffiliated restaurants on its platform – more than half of all of the available restaurants on Grubhub.” according to the complaint.
These restaurants – who often had their own delivery services for cheaper – would lose money and reputation due to complaints about chaotic ordering and outdated menus.
What’s more, when the restaurants requested Grubhub remove them from the platform, they would be subjected to a Grubhub marketing spiel and would have to threaten legal action to be taken off.
Additionally, the FTC said that Grubhub would recruit delivery drivers using false earnings claims.
For example, job ads in New York City claimed drivers could make up to $40/hour when the actual median pay for drivers was more like $10/hour, with only one in 1,000 drivers making $40/hour, the compliant said. Similar misleading ads were found running in other major metro areas as well.
“This settlement is the culmination of a multi-year investigation into deceptive and illegal business practices perpetrated by Grubhub,” said Illinois Attorney General Kwame Raoul, where the FTC action was filed.
Part of the $140 million settlement (reduced to $25 million due to Grubhub’s inability to pay) also requires the company to make substantial changes to its operations, including the elimination of all junk delivery fees, creating a simple subscription cancellation method for customers, and only listing affiliated restaurants on its platform.
Grubhub was bought out by the Dutch company “Just Eat Takeaway.com” in 2021. On November 13th, 2024, the company announced plans to sell Grubhub to the Wonder Group for $650 million (accompanied by $500 million of senior notes), according to the law firm handling the agreement.
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