Grubhub To Pay $25 Million To Settle Allegations Of False Claims, Deceptive Fees

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If it turns out company officials misrepresented its financial status, Grubhub will have to immediately pay the rest. Customers are due to receive $24.8 million, with $200,000 set aside for the Illinois Attorney General’s Office for use on consumer education and enforcement.

In a statement, company representatives said they have been cooperative with regulators during their review of the business.

“While we categorically deny the allegations made by the FTC, many of which are wrong, misleading or no longer applicable to our business, we believe settling this matter is in the best interest of Grubhub and allows us to move forward,” they said.

According to the seven-count complaint filed in the Northern District of Illinois, Grubhub company officials falsely advertised low-cost or “zero-fee” deliveries to attract consumers, only to tack on hidden “service” and “small order” fees at checkout.

These charges often doubled or tripled the final cost of an order, even for subscribers to its Grubhub+ membership program, which was marketed as offering “unlimited free delivery” for $9.99 a month. According to the FTC, Grubhub failed to disclose these fees upfront and made it intentionally difficult for subscribers to cancel.

Grubhub’s tactics allowed company officials to seize money from its customers who paid with gift cards and pocket it for themselves, according to the 66-page complaint.

“Grubhub routinely fails to provide diners with any notification that their accounts are blocked or any means to restore access to their frozen funds,” it alleged. “As a result, Grubhub often permanently denies those diners the use of their legitimate gift cards, effectively confiscating diners’ money.”

Internal company documents acknowledge the issue is its customers’ biggest complaint to the Better Business Bureau. In just one month in 2022, there were more than 11,000 customer service contacts from nearly 7,000 diners reporting that their accounts had been improperly blocked.

“One consumer whose family of six became ill with COVID-19 could use a $500 gift card only once before Grubhub blocked her account. Grubhub promised that someone would reach out within 48 hours to help, but no one ever did. Because they could not get any food delivered for over seven days, they had to ask other people to bring them food,” the complaint alleged.

“Yet another consumer, who was staying near a cancer center while her husband was receiving radiation treatment, could only use her $300 gift card once before she was blocked,” it continued. “Grubhub purported to ‘escalate’ her issue and repeated the same empty promises of hearing back within 48 hours. The consumer reported that the experience was ‘extremely extremely frustrating in an already vulnerable situation.’ Similar sad stories abound.”

Restaurants also suffered under Grubhub’s business model, according to regulators, who found that company officials listed hundreds of thousands of restaurants on the platform without their consent, misleading consumers into believing they had somehow partnered with the company while seeking to secure steep commissions from small business owners.

The unauthorized listings resulted in outdated menus, incorrect orders and delivery delays that tarnished restaurants’ reputations. Grubhub, the complaint said, routinely delayed or imposed obstacles when unaffiliated restaurants requested removal from the platform.

When Evanston restaurant owner Eric Young attempted to sever his relationship with the company in 2019, it continued to be listed the following year. In one case, he described a situation where a driver’s GrubHub-issued credit card was declined and subsequently created a scene at his restaurant.

“I’m sure you understand what a predicament that put me in, as I had no way to contact the customer to explain that GrubHub’s unprofessionalism and predatory practices are what ultimately led to the order going unfulfilled,” Young told company officials. “On top of that, I had to perform damage control to my waiting guests and explain that this entire situation is out of my hands, and that GrubHub is preying on small independent restaurants in order to maintain a failing, unsustainable business model.”

Federal regulators also took issue with Grubhub’s description of its drivers’ potential earnings.

Company officials have advertised the claim that its drivers can make more than double the minimum wage. But, in reality, only a tiny fraction of its drivers were making that much. For instance, its ads last year claimed that drivers in New York City could make up to $40, though only 0.1 percent of its drivers earned that much.

“Similarly, when Grubhub advertised in April 2023 that Chicago drivers could earn “Up to $26 Hourly,” that was not true, either. The median earnings of a Chicago driver were only $11 per hour, and only 1.3% of drivers earned the promised $26 per hour,” according to the complaint.

The terms of the settlement require Grubhub, which does not admit wrongdoing, to cease deceptive business practices and implement transparency measures across its operations.

Company officials must clearly and conspicuously disclose all fees on the Grubhub platform — including any service and small order fees — at every stage of the ordering process.

The company is prohibited from misrepresenting delivery costs, subscription benefits like “free delivery” for Grubhub+ and driver earnings and officials must simplify subscription cancellations to make sure it is as easy as enrolling and send its subscribers automatic renewal reminders.

Grubhub is also barred from listing unauthorized restaurants without formal agreements, and it must also provide immediate notice and resolution mechanisms when blocking customer accounts with gift card balances.

Founded by Matt Maloney and Mike Evans in 2004, Grubhub quickly grew into one of the largest food delivery platforms in the United States. In 2013, it merged with Seamless, making an initial public offering the following year.

Facing rising competition from DoorDash and UberEats, which merged with Postmates in 2020, Grubhub’s market share significantly declined.

Amsterdam-based delivery firm Just Eat Takeaway bought Grubhub for $7.3 billion in June 2021, near the peak of the pandemic-fueled food delivery boom, in what turned out to be a tremendously unwise financial decision.

By 2021, Grubhub handled 17 percent of food delivery sales in the U.S., compared to 57 percent for DoorDash and 21 percent for Uber Eats, according to Bloomberg data.

In 2022, the European company wrote down its Chicago-based acquisition by nearly $3 billion. Then, last month, company officials announced a deal to sell Grubhub to New York startup Wonder Group for just $650 million, taking a 91 percent loss while retaining the company’s material liabilities — including the partially suspended $140 million judgment.

“This settlement is the culmination of a multi-year investigation into deceptive and illegal business practices perpetrated by Grubhub,” Raoul said in a statement. “I thank FTC Chair Lina Khan for another successful partnership between our offices that has resulted in relief for Illinois consumers, and I remain committed to holding businesses like Grubhub accountable for their deceptive business practices.”

Congresswoman Jan Schakowsky (D-Evanston), the ranking member of the Innovation, Data, and Commerce Subcommittee of the House Energy and Commerce Committee, applauded the action from federal regulators and Raoul’s office.

“Consumers, workers, and small businesses alike are tired of being deceived. Food delivery apps promised more choice for consumers, flexibility and good pay for drivers, and access to customers for restaurants,” Schakowsky said. “Instead, they are being deceived and defrauded by middlemen in the name of growth and profit.”

The FTC voted 5-0 to authorize the filing of the complaint and the settlement that resolves it, but two commissioners offered dissents on specific counts.

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