Grubhub has agreed to pay $25 million and put an end to practices that included misleading customers over the costs of using the food delivery service and listing restaurants without their consent under a proposed settlement with the Federal Trade Commission and Illinois Attorney General Kwame Raoul’s office, the agencies said on Tuesday.
Most of the money from the $25 million settlement with the Chicago-based company is to be returned to customers, drivers and affected businesses nationally, FTC Midwest Region Director Jason Adler said.
The settlement is “the culmination of a multiyear investigation into deceptive and illegal business practices,” Raoul said at a news conference in Chicago.
FTC Chair Lina Khan zeroed in on Grubhub’s claims of low or nonexistent delivery fees for users including Grubhub Plus subscribers. She said such pitches were misleading because the company often charged an additional “service fee” at checkout.
Restaurants complained that they were listed on Grubhub without their consent, causing issues as customers sometimes ordered off incorrect or outdated menus or during the wrong hours, Khan said. That ended up damaging the reputations of businesses that were unable to fulfill Grubhub orders, she said.
Grubhub also deceived drivers over how much money they’d make, according to the FTC. A Chicago ad campaign said drivers could earn up to $26 an hour but the median pay for drivers was actually $11 an hour and “less than 2% of drivers made the advertised amount,” the FTC said. In New York City, only 1 in 1,000 drivers made $40 an hour, which was the amount advertised in an ad campaign there, according to the agency.
Under the proposed settlement, which needs approval from a federal judge, the company would be required to disclose “the true cost of delivery and stop adding junk fees.” It would also have to remove any unaffiliated restaurant from its platform and only add restaurants with their consent in the future, Adler said. Any claims about potential earnings for drivers would have to be backed with evidence, the FTC said.
Anyone determined to be eligible for compensation from the settlement will be contacted by the FTC, Adler said.
Khan said the case offers an example of the protections needed for workers and consumers under the gig economy that flourished during the pandemic.
“This case is the latest installment of the FTC’s efforts to ensure that all of our markets are fair, honest and competitive, including in the gig economy, where workers can face greater precarity,” Khan said.
A Grubhub spokesperson denied the FTC’s allegations but said the settlement was the company’s best option.
“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,” the spokesperson said.
It could be one of the last actions that Khan takes as head of the FTC, as President-elect Donald Trump has announced plans to replace her following aggressive antitrust and consumer protection moves by the Biden administration.
FTC Commissioner Andrew Ferguson, Trump’s pick to lead the FTC in his administration, issued a statement in which he said that he agreed with some of the agency’s claims against Grubhub but not all of them. He specifically took issue with the inclusion of a count that alleged Grubhub engaged in unfair competition by listing restaurants without their consent.
The complaint and proposed settlement were filed in federal court in the Northern District of Illinois on Tuesday, Adler said. It won’t be final until the court reviews it and signs off, he said.
Grubhub still faces a lawsuit filed by the city of Chicago over similar issues. The city is also suing DoorDash, another food delivery company. A city spokesperson said Tuesday that the parties are in the discovery process and declined to comment further.
Grubhub, which was founded in Chicago in 2004, is being sold to Wonder Group, a New York-based food delivery startup, for $650 million in a transaction that’s expected to close in the first quarter of next year.
Khan in her role leading the FTC has made taking on tech and gig work giants a major part of her work and legacy. She said the process leading up to the settlement announced Tuesday included many staff members based in the city who looked at platforms systemically.
“In recent years, the FTC has brought enforcement action against a slew of gig firms,” she said, “making clear that there is no gig firm exemption for the laws on the books.”
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