Grubhub to pay $25 million to settle claims of deceiving diners, drivers, restaurants
CHICAGO (CBS) -- Food delivery app Grubhub has agreed to pay $25 million after a federal investigation found that the Chicago-based company tricked its customers, misled its drivers, and damaged the reputation of some restaurants that didn't partner with them.
Grubhub said they "categorically deny" the allegations made by the Federal Trade Commission and Illinois Attorney General's office, but they believe it is in the best interest of the company to pay the money and move forward.
The FTC and Raoul's office accused Grubhub of making millions of dollars and gaining an unfair advantage in the online food delivery marketplace through deceptive practices.
"For years, Grubhub deliberately and systematically cheated its customers, deceived its drivers, and undermined restaurants that did not partner with Grubhub," FTC Chair Lina Khan said.
A federal lawsuit filed by the FTC and Raoul's office accuses Grubhub of baiting with low delivery fees, only to tack on additional fees often labeled as "service fees" or "small order fees" that were simply delivery fees in disguise.
Grubhub was also accused of misleading users about its Grubhub+ subscription service, claiming it offered free delivery, while still charging subscribers for delivery, and making it difficult to cancel Grubhub+ subscriptions.
The FTC and Raoul's office also found that Grubhub exaggerated how much drivers could make working for the food delivery app.
According to the lawsuit, Grubhub advertised that its drivers were likely to earn $26 per hour, when the vast majority never received that much. In reality, the complaint claims the median Grubhub driver earned $11 per hour in 2023, and only the top 2% of drivers earned the promised hourly pay.
"Despite knowing from its own data that the vast majority of delivery drivers were not making anywhere near the claimed hourly rates, Grubhub continued to run advertisements with unsubstantiated hourly earnings claims," the lawsuit states. "Due to the disconnect between Grubhub's representations and drivers' actual earnings, drivers quickly leave Grubhub. Internal analyses show that Grubhub loses 50% of its driver population every 7-8 months. This high driver churn rate places even greater pressure on Grubhub's marketing efforts to recruit new drivers."
The complaint also claims Grubhub resorted to adding tens of thousands of restaurants to their platform without their knowledge or consent in order to draw in more users, often using outdated menus, routinely leading to canceled orders, delays, or missing items.
In some cases, because delivery drivers could only pay for orders using Grubhub credit cards that were sometimes declined for insufficient funds, restaurants were often left unpaid for food that was already prepared.
The FTC said thousands of restaurants even sent cease and desist letters to Grubhub, demanding they be removed from the platform, but Grubhub would routinely ignore these requests, and sometimes then pressure restaurants to pay to join the platform.
"In the last five years, my office has received early nearly 50 consumer complaints regarding Grubhub," Raoul said.
Those complaints prompted a state-level investigation by the consumer fraud bureau at Raoul's office.
Without admitting fault, Grubhub agreed to pay a suspended judgment of $25 million, and according to a statement, "will make changes to its platform to make it even easier for diners to understand the fees we charge, how we advertise earnings potential for delivery partners, and how we communicate about Grubhub+, among other updates."
The FTC said nearly all of the $25 million in settlement money from Grubhub will be returned to consumers, restaurants, and drivers, based on the data that they get back from the company. That could mean a check that goes out or online payments, but it's unclear exactly how that money will be split up.
The settlement comes more than four years after a pandemic-era ordinance in Chicago set a temporary 15% cap on the various service fees third-party delivery companies like Grubhub could charge to restaurants. That cap was only in place until restrictions on indoor dining at restaurants were lifted during the COVID-19 pandemic.
The settlement with Grubhub also comes one month after Raoul's office reached an $11.25 million settlement agreement with DoorDash for misrepresenting to customers that tipping would increase drivers' pay.
