Grubhub, one of the leading food delivery platforms in the United States, has reached a $25 million settlement with the Federal Trade Commission (FTC) and Illinois Attorney General Kwame Raoul.

The settlement comes after allegations of deceptive practices that misled customers, drivers, and restaurants, giving the company an unfair advantage in the competitive food delivery market.

The Allegations

The FTC and Illinois Attorney General accused Grubhub of engaging in a series of deceptive practices over several years.

These practices included:

• Misleading Delivery Fees: Grubhub advertised low or zero-cost delivery options but often added unexpected charges, such as “service fees” and “small order fees,” which significantly increased the final price. These fees were applied even to Grubhub+ subscribers, who were promised “unlimited free delivery.”
• Deceptive Driver Pay Claims: The company falsely advertised driver earnings, claiming that drivers could earn up to $26 per hour. However, the vast majority of drivers earned far less, with a median hourly rate of just $11 in 2023. Only the top 2% of drivers earned the promised rate.
• Unauthorized Restaurant Listings: Grubhub listed up to 325,000 restaurants on its platform without their knowledge or consent, often using outdated menus. This led to delivery delays, canceled orders, and reputational harm to these restaurants. The company also resisted requests from restaurants to be removed from the platform, using the listings as leverage to pressure them into paid partnerships.
• Blocking Customer Accounts: Customers with flagged accounts were often locked out without warning or explanation, losing access to funds stored on gift cards. This included individuals who had received multiple gift cards during difficult times, leaving them unable to use their balances.

The Settlement

Grubhub has agreed to pay $25 million, a reduced amount from an initial judgment of $140 million due to claims of financial hardship.

The majority of the settlement funds will be used to refund affected customers, restaurants, and drivers.

As part of the settlement, Grubhub must also implement significant changes to its business practices, including:

• Disclosing clearly all fees upfront in its pricing.
• Simplifying cancellation processes for Grubhub+ subscriptions.
• Stopping the listing of unaffiliated restaurants on its platform.
• Providing accurate driver pay information.
• Notifying customers if their accounts are blocked and offering a resolution process.

Broader Implications

FTC Chair Lina Khan emphasized that Grubhub’s actions were not isolated but part of a broader pattern of harmful practices in the gig economy.

“For years, Grubhub deliberately and systematically cheated its customers, deceived its drivers, and undermined restaurants that did not partner with Grubhub,” she said in a statement.

— Lina Khan, FTC Chair

The case also highlights the growing scrutiny of “junk fees” in various industries.

Grubhub is the latest company to face action as the FTC and other regulators crack down on hidden costs that frustrate consumers.

This settlement follows similar actions against other gig economy companies like DoorDash and Lyft.

Grubhub’s Response

Grubhub has denied the allegations, calling them “misleading or no longer applicable.”

However, the company stated that settling the case was in its best interest to avoid prolonged litigation.

In a statement, Grubhub claimed the settlement would allow it to focus on its business and improve transparency for its users.

What’s Next?

The $25 million settlement will be distributed based on data provided by Grubhub, with refunds potentially issued as checks or online payments.

However, it remains unclear how the funds will be divided among affected parties.

For consumers, drivers, and restaurants, the case serves as a reminder to scrutinize agreements with third-party platforms.

As for the industry, it’s a clear signal that deceptive practices will not go unchecked.

This landmark settlement is a significant step in ensuring fairness and transparency in the growing gig economy, setting a precedent for other companies operating in similar spaces.