Grubhub Settles for $25 Million Over Allegations of Misleading Customers and Drivers

Grubhub Settlement: A Comprehensive Overview

Grubhub has recently agreed to a substantial $25 million settlement concerning a Federal Trade Commission (FTC) lawsuit accusing the food delivery service of misleading its customers and drivers while harming restaurants’ reputations. This settlement demands major changes in Grubhub's operations, primarily focusing on transparency in delivery costs.

Key Allegations Against Grubhub

The FTC’s lawsuit highlighted several critical issues regarding Grubhub’s business practices:

• Inflated Pay Rate Advertisements: The FTC claimed that Grubhub promoted inflated hourly pay rates for its drivers, which did not accurately reflect their earnings.
• Hidden Delivery Costs: Starting from 2019, Grubhub allegedly began advertising lower delivery fees to attract customers, only to later add a “service” fee that increased the total cost of orders.
• Misleading Grubhub Plus Membership: Customers who subscribed to Grubhub Plus were reportedly misled into thinking delivery was free, while, in reality, they were often charged for delivery services.
• Additions of Unaffiliated Restaurants: The FTC accused Grubhub of including up to 325,000 unaffiliated restaurants on its platform, leading to confusion and negative experiences for customers.

New Changes Post-Settlement

As part of the settlement, Grubhub must implement several changes to improve customer transparency and service integrity:

• Display the full cost of delivery upfront to customers placing orders.
• Abolition of “junk fees” that previously inflated order totals.
• Ban on listing unaffiliated restaurants on the platform.
• Require evidence to back claims regarding driver earnings.
• Establish a protocol to notify customers when they are banned and offer an appeals process for such decisions.
• Make the process of canceling Grubhub Plus membership simpler for users.

Grubhub's Response to Allegations

Despite the allegations, Grubhub's spokesperson Najy Kamal asserted that the company categorically denies many of the claims made by the FTC. In a statement to The Verge, Kamal emphasized that settling the matter was in the best interest of Grubhub, allowing them to focus on future business operations. The company also released a statement on their website regarding the settlement.

Financial Impact and Future Implications

Initially ordered to pay $140 million, the settlement was reduced based on Grubhub’s financial situation. The $25 million settlement will primarily go towards refunding affected customers. However, the FTC warned that if Grubhub is found to have misrepresented its financial status, the full judgment amount will be due immediately.

Conclusion

The legal troubles faced by Grubhub highlight the importance of transparency and ethical business practices in the food delivery industry. With these new changes, customers can expect a more straightforward pricing structure and improved service reliability from the platform.