Many people use food delivery apps due to their convenience and the variety of options they offer. These apps allow people to order food easily and have it delivered to their doorstep without needing to leave the comfort of their own homes.
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For those with hectic lives, delivery apps have become a saving grace since they make it easy to have meals on demand without interrupting their day.
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Like Uber Eats or DoorDash, Grubhub is a food delivery service that helps customers find restaurants and order food through its platform, which can be delivered wherever they are.
The FTC filed a complaint against Grubhub for violating the law
On Tuesday, the Federal Trade Commission (FTC) and the Illinois Attorney General took legal action against Grubhub for allegedly charging junk fees and violating consumer protection and competition laws, which harms diners, workers, and small businesses.
Illinois Attorney General Kwame Raoul revealed that the illegal business practices were discovered after conducting a multi-year investigation into Grubhub.
The FTC claims that, based on its investigation, Grubhub had at least 325,000 unaffiliated restaurants on its platform, representing more than half of its overall available dining locations.
Grubhub also promoted its services on search engines when customers looked up a restaurant's name, blocking market competition since customers would pay delivery fees to Grubhub instead of the restaurant directly.
Grubhub delivery drivers also bombarded the restaurants with orders, some requesting food that the restaurants didn't serve. Upon receiving the order, the drivers would pay with Grubhub credit cards, which would often get declined due to insufficient funds.
When restaurants asked Grubhub to remove them from the platform, the company made it incredibly difficult. Instead, it sold them memberships and only removed restaurants if they threatened to take legal action against the company.
As for pricing, Grubhub would offer customers a much lower cost but then add multiple junk fees, often doubling the final price.
If customers wanted to "save" money by subscribing to Grubhub+, the company would advertise free delivery yet would still charge subscribers for it. When they wanted to unsubscribe, Grubhub would make canceling extremely difficult.
Grubhub also blocked accounts with large gift card balances, preventing customers from accessing their money.
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Not only were customers unsatisfied with Grubhub's service, but delivery drivers were also unhappy with their salaries, as the company advertised inflated hourly rates above the actual pay. However, this was not the first time Grubhub infringed the law regarding this matter.
In 2021, Grubhub and a group of other companies received a Notice of Penalty Offenses from the FTC for making deceptive earnings claims. Still, the company chose to ignore the notice and made no changes.
Grubhub agrees to settle with the FTC over deceiving business practices
According to the settlement, Grubhub will have to pay $25 million to settle all charges. Additionally, Grubhub must change all unlawful practices across its business by offering upfront delivery costs, accurately paying drivers, and obtaining restaurants' consent before listing on its platform.
“Today’s action holds Grubhub to account, putting an end to these illegal practices and securing nearly $25 million for the people cheated by Grubhub’s tactics. There is no ‘gig platform’ exemption to the laws on the books,” said FTC Chair Lina M. Khan.
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The settlement was initially $140 million but was partially suspended because Grubhub couldn't pay the full amount. The agreed-upon $25 million will be used to refund those harmed by the company's deceitful practices. However, if it's revealed that Grubhub has misrepresented its financial status, the full amount must be paid immediately.
“At Grubhub, we're committed to transparency so that every single day diners, restaurants and drivers can make well-informed choices to do business with us. 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," responded a Grubhub spokesperson to TheStreet's request for comment.
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