Grubhub to Pay $25 Million Settlement for Allegedly Harming Diners

A person speaks to a delivery worker outside of restaurant that uses app deliveries in New York City, on July 7, 2023. Spencer Platt/Getty Images

Food delivery company Grubhub settled a complaint filed by the U.S. Federal Trade Commission (FTC) that accused the business of “an array of unlawful practices” that harmed customers, employees, and restaurants.

Grubhub engaged in “deceiving diners about delivery costs and blocking their access to their accounts and funds, deceiving workers about how much money they would make delivering food, and unfairly and deceptively listing restaurants on its platform without their permission,” the federal agency said in a Dec. 17 statement.

Grubhub agreed to pay $25 million to settle the charges.

The food delivery service also pledged to make several major changes to its operations, including communicating the full cost of delivery to customers, listing restaurants on their platform only after obtaining consent, and making honest claims in advertising about driver earnings.

FTC chair Lina M. Khan said Grubhub committed the unfair acts “in order to drive scale and accelerate growth.”

The company said “we categorically deny the allegations made by the FTC.” Many of the agency’s claims were “wrong, misleading, or no longer applicable to our business,” Grubhub said.

However, Grubhub said it agreed to settle in the “best interest” of the company.

“We’re committed to transparency so that every single day diners, restaurants, and drivers can make well-informed choices to do business with us,” it said.

The FTC accused the company of hiding the true cost of its services from users. Grubhub added junk fees over the “single, low-cost amount” it promised to diners, which led to a “final price that is often more than double what it originally advertised.”

The company also promised “free” delivery for users who paid for Grubhub+ subscriptions, but still ended up charging them.

There were also concerns regarding the “roadblocks” faced by users wishing to cancel Grubhub+ subscriptions.

With regard to drivers, Grubhub is alleged to have made “deceptive earnings claims” through its ads. For instance, the company said drivers in the New York area could make up to $40 per hour when the median was roughly $10. Only one in 1,000 drivers had an hourly earnings of $40.

Grubhub said the company “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.”

“Complying with all laws and regulations where we operate is something we have always taken very seriously, and we hold ourselves to the highest standards of ethics and integrity.”

Implications for Restaurants

Meanwhile, restaurants were also negatively affected by Grubhub’s practices as the company listed them without permission, the FTC said.

The FTC said some restaurants were bombarded with orders; others were left unpaid as Grubhub drivers only used the company’s credit cards for orders, which sometimes did not work.

And, when drivers delivered food from these unaffiliated restaurants in poor condition or were late in the delivery, diners blamed the outlets, the FTC said.

Restaurants “bore the brunt of diners’ ire for Grubhub’s failures and experienced damaged reputations and lost revenue,” said the agency.

“When restaurants contacted Grubhub demanding to be removed from the platform, the company would try to sell them paid partnerships instead, and often only removed restaurants after they threatened legal action.”

Grubhub received complaints from numerous restaurants regarding its practices. But instead of rectifying the issues, the company “made their practices even harder for diners and restaurants to detect.”

Andrew N. Ferguson, one of the FTC’s commissioners, dissented in part to the Grubhub issue. He specifically raised concerns about agency claims related to Grubhub listing restaurants without approval.

In a statement, Ferguson said the complaint does not give data about the harms suffered by such restaurants. “The Complaint alleges nothing about the nature or volume of business that any unaffiliated restaurant lost because of an unauthorized listing on Grubhub’s platform,” he wrote.

“The Complaint is silent as to whether customers stopped ordering from unaffiliated restaurants through Grubhub, or stopped ordering delivery from those restaurants through all channels.”

This isn’t the first time that Grubhub has been fined by authorities. In 2021, the attorney general of Massachusetts accused the company of overcharging restaurants during the COVID-19 period when a public health emergency was in effect. Grubhub paid more than $3.5 million in settlement.

In 2022, the attorney general of the District of Columbia sued the company, alleging that it charged customers hidden fees and used deceptive tactics to boost profits. Grubhub paid $3.5 million to settle the complaint.