The Federal Trade Commission (FTC) secured a $25 million settlement from Grubhub, resolving a lawsuit alleging deceptive practices that harmed consumers, delivery drivers, and restaurants. The FTC’s complaint painted a picture of Grubhub employing a range of misleading tactics to inflate profits and obscure the true costs of its services. The settlement forces Grubhub to implement significant changes to its platform and operations, aiming for greater transparency and fairer practices.
One of the core accusations revolved around Grubhub’s manipulation of delivery fees. The FTC argued that Grubhub lured customers with promises of low delivery fees, only to tack on hidden “service” fees that ultimately increased the overall cost of orders. This practice, the FTC asserted, misrepresented the actual expense consumers would incur, effectively hiding the true cost of delivery. Furthermore, the FTC alleged that Grubhub Plus subscribers, who were promised “free” or “$0” deliveries, were also subjected to hidden fees, contradicting the advertised benefits of the subscription service.
Beyond delivery fees, the FTC scrutinized Grubhub’s driver compensation claims. The lawsuit accused Grubhub of advertising inflated hourly pay rates for drivers, misrepresenting the earning potential and potentially misleading individuals considering driving for the platform. This practice, the FTC argued, created a false impression of driver income and could have influenced individuals’ employment decisions.
The FTC’s complaint also extended to Grubhub’s handling of restaurant listings. The agency alleged that Grubhub added thousands of restaurants to its platform without their consent, creating a significant number of “unaffiliated” restaurants. This practice led to order inaccuracies, delivery complications, and negative customer feedback, ultimately harming the reputations of restaurants that had no formal agreement with Grubhub. The FTC estimated that over half of the restaurants listed on Grubhub’s platform were unaffiliated, highlighting the scale of this alleged practice.
The settlement compels Grubhub to implement a series of corrective measures. The company is now required to clearly display the full delivery cost to customers upfront, eliminating the practice of adding hidden or “junk” fees. Grubhub is also prohibited from listing unaffiliated restaurants on its platform, ensuring that only businesses that have agreed to be listed are included. The settlement mandates transparency in driver earnings claims, requiring Grubhub to substantiate any advertised pay rates with verifiable evidence.
Furthermore, the settlement addresses Grubhub’s practices related to account management. Grubhub is now required to provide clear notification to users whose accounts are banned and offer a transparent appeals process. The company must also simplify the cancellation process for Grubhub Plus subscriptions, addressing the FTC’s concerns about making it difficult for users to opt out of the service. These changes aim to enhance user control over their accounts and subscriptions.
While Grubhub maintains its denial of the FTC’s allegations, the company agreed to the $25 million settlement, characterizing it as a decision made in the best interest of the business and to allow the company to move forward. The initial judgment sought $140 million, but the final amount was reduced based on Grubhub’s claimed inability to pay the full sum. The $25 million will be used to refund affected customers. However, the full $140 million judgment could be reinstated if Grubhub is found to have misrepresented its financial status.
This settlement marks a significant step towards greater transparency and accountability in the food delivery industry. By addressing deceptive practices related to fees, driver compensation, and restaurant listings, the FTC aims to protect consumers, drivers, and restaurants from misleading tactics. The required changes to Grubhub’s platform and operations aim to create a fairer and more transparent marketplace for all stakeholders. The settlement serves as a reminder of the importance of regulatory oversight in ensuring ethical business practices within the rapidly evolving digital economy.
