Grubhub, one of the most popular food delivery services in the U.S., has agreed to a $25 million settlement to resolve a Federal Trade Commission (FTC) lawsuit accusing the company of misleading customers, drivers, and restaurants. The settlement marks a significant shift in how Grubhub will operate moving forward, requiring substantial changes to its platform to ensure transparency and accountability.
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Here’s a detailed look at the case, the accusations, and what this settlement means for customers, drivers, and restaurants.
The FTC’s Allegations Against Grubhub
1. Hidden Fees Misleading Customers
The FTC alleged that Grubhub misled customers by concealing the true cost of its services. While advertising low delivery fees, Grubhub reportedly added hidden “service” fees at checkout, inflating the total cost of orders.
- These deceptive practices began around 2019, according to the FTC.
- Grubhub Plus subscribers, who were promised free or “$0” deliveries, were also charged additional delivery fees, violating the advertised benefits of the subscription.
2. Misleading Pay Claims for Drivers
Grubhub was accused of exaggerating driver earnings in its advertisements, presenting inflated hourly rates that it could not substantiate. This tactic allegedly misled drivers into joining the platform under false pretenses.
3. Unauthorized Restaurant Listings
The lawsuit claimed that Grubhub listed 325,000 unaffiliated restaurants on its platform—more than half of all restaurants available on Grubhub. These restaurants had never agreed to partner with the platform.
- Customers ordering from these unauthorized listings often faced issues, such as incorrect menu items or delayed orders, resulting in negative feedback that damaged the reputations of these restaurants.
4. Complicated Subscription Cancellations
The FTC also highlighted how Grubhub made it easy for users to sign up for the Grubhub Plus subscription but complicated to cancel. Additionally, the company allegedly blocked accounts of users with large gift card balances, creating frustration among customers.
Grubhub’s Settlement: Key Changes and Refunds
To resolve the lawsuit, Grubhub has agreed to the following terms:
1. $25 Million Payout
Grubhub will pay $25 million as part of the settlement, which will be used to refund affected customers. Although the FTC initially sought $140 million, the amount was reduced due to Grubhub’s inability to pay the full sum.
- If the company is found to have misrepresented its financial status, the full $140 million judgment will be due immediately.
2. Transparency in Pricing
Grubhub is now required to display the full cost of delivery upfront, including all fees, to ensure customers are not caught off guard by hidden charges.
3. Banning “Junk Fees”
The company is prohibited from adding unnecessary or unexplained fees to orders, a practice that led to inflated costs for customers.
4. Improved Grubhub Plus Experience
Grubhub must make it easier for users to cancel their Grubhub Plus subscriptions and ensure delivery fees are not charged to subscribers where free delivery is advertised.
5. Clear Driver Earnings Claims
Any claims about driver earnings must now be backed by evidence and provided in writing, ensuring transparency for prospective drivers.
6. No Unauthorized Restaurant Listings
Grubhub is banned from listing restaurants on its platform without their consent, preventing the reputational harm caused by unauthorized listings.
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Grubhub’s Response to the Settlement
Grubhub issued a statement denying the FTC’s allegations, stating that many claims were “wrong, misleading, or no longer applicable” to its business practices. However, the company chose to settle the lawsuit to avoid prolonged litigation.
In a blog post on its website, Grubhub emphasized that the settlement allows the company to focus on improving its platform and delivering better services to customers, drivers, and restaurants.
What This Means for Customers, Drivers, and Restaurants
For Customers
- Expect clearer pricing with no hidden fees.
- Grubhub Plus subscribers should receive free deliveries as promised.
- Refunds from the $25 million settlement may be available to affected users.
For Drivers
- Accurate and transparent information about potential earnings will now be provided.
- The settlement ensures fairer recruitment practices for new drivers.
For Restaurants
- Unauthorized restaurant listings will no longer appear on the platform.
- Restaurants will regain control over their online reputations, with fewer customer complaints caused by platform errors.
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This $25 million settlement represents a turning point for Grubhub, pushing the company to adopt transparent business practices and eliminate deceptive fees. While the settlement resolves longstanding issues, it also signals increased scrutiny from regulatory bodies like the FTC on food delivery platforms.
For customers, drivers, and restaurants, these changes promise a more honest, reliable, and efficient experience on the Grubhub platform. Stay tuned for updates on how the settlement funds will be distributed and how Grubhub’s operations continue to evolve in response to this landmark case.
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