Grubhub to pay $25M to settle allegations it deceived customers, restaurants and drivers
Illinois Attorney General Kwame Raoul and the Federal Trade Commission announced a $25 million settlement with Chicago-based food delivery app Grubhub Tuesday after the company allegedly deceived customers, delivery drivers and restaurants to boost its own growth and profit.
The attorney general's office and the FTC have investigated the company for years after nearly 50 complaints were filed related to consumer protection laws, Raoul said at a news conference Tuesday. The investigation revealed that the company inflated fees, deceived drivers about how much money they could make and put restaurants on its app without their permission — and in some cases —despite their explicit objections.
"Our investigation revealed deceptive business practices that negatively impacted participants involved in nearly every aspect of its transactions," Raoul said.
By deceiving its customers and employees, Grubhub violated several laws and FTC rules, including the Consumer Fraud Act and the Restore Online Shoppers' Confidence Act, according to the complaint.
Grubhub, which New York-based startup Wonder acquired in November for $650 million, has denied the allegations but said paying a settlement is the simplest way forward.
"At Grubhub, we're committed to transparency so that every single day diners, restaurants and drivers can make well-informed choices to do business with us," a spokesperson wrote in a statement to the Sun-Times. "While we categorically deny the allegations made by the FTC, many of which are wrong, misleading or no longer applicable to our business, we believe settling this matter is in the best interest of Grubhub and allows us to move forward."
The settlement, if approved by a judge, would mostly be paid to Grubhub customers and delivery drivers who were affected by the company's business practices.
As many as 325,000 restaurants — more than half the total number of restaurants — on Grubhub hadn't been affiliated with the app, the investigation found. Grubhub intentionally placed these restaurants on the app to bolster its own growth and be more competitive against other food delivery apps, FTC Chair Lina Khan said. But including unaffiliated restaurants on the app meant diners and restaurants suffered. Deliveries from unaffiliated restaurants would take longer and often have more issues, according to an FTC news release.
"We also allege that this conduct, especially with regard to the restaurants, is an unfair method of competition," Khan said. "The idea being that Grubhub relied on these false affiliations as a way to boost its growth and scale, and we believe that that basically gave it an unfair competitive advantage in the marketplace."
Grubhub also duped customers with its delivery fees, leading diners to believe they would pay a lower amount in delivery fees, only to be charged for a "small order fee" or "service fee." The FTC and attorney general's office found these fees were "simply delivery fees in disguise."
Delivery drivers also paid the price for Grubhub's deception, the complaint says. In New York, for example, the company advertised that delivery drivers could make up to $40 per hour, even though only one in 1,000 drivers made that amount, and the median rate was $10 per hour. In Chicago, a similar advertisement promised up to $26 per hour. Only 2% of drivers actually made that, while the median was $11 per hour.
The settlement also requires Grubhub to immediately stop the deceptive and illegal practices, provide clear and accurate information on fees, remove unaffiliated restaurants from the app and refrain from adding them again and provide proof of potential earnings.
The FTC and Illinois attorney general's office have been investigating gig economy platforms for the last few years, and a similar settlement with DoorDash was made last month. That $11.25 million settlement was paid to the attorney general's office for allegedly encouraging customers to tip as much as possible, saying the full amount would go toward the driver, but DoorDash instead used tip amounts to lower the amount the company paid workers.