Operations

L.A. County sues Grubhub for passing along refund charges to restaurants

The delivery service says it's already changed the policy, but the county has a long list of other alleged abuses it wants the company to correct.
Grubhub
Los Angeles County wants more clarity for all of Grubhub's stakeholders, from restaurants to drivers. | Photo: Shutterstock

Los Angeles County is asking a California court to block Grubhub from charging restaurants when customers of the delivery service demand a refund, regardless of which party may be at fault.

The request is part of a lawsuit filed Tuesday that accuses the delivery service of routinely misleading consumers, shaving the income of its drivers and exploiting the restaurants whose meals it delivers.

The suit also asks that Grubhub return any money it collected through the alleged misdeeds, a reimbursement that would likely run into the millions.

The county is asking restaurants and other parties who feel they’ve been victimized by the service to file a formal complaint, a move that suggests the case may be pursued as a class action.

“Our lawsuit seeks to hold Grubhub accountable for their unfair and deceptive business practices that deceive and overcharge consumers, exploit drivers and unfairly short-change restaurants on order refunds,” Los Angeles County Counsel Dawyn Harrison says in announcing the action.

Grubhub is “disappointed” by the suit because “our practices have always complied with applicable law, and in any event, many of the allegations are incorrect or have been discontinued,” a spokesperson told Restaurant Business in an emailed statement.

According to the statement, the delivery service was already addressing concerns that had been raised by the county. “We've sought to engage in a constructive dialogue with the Los Angeles County Counsel’s office to explain our business and identify any areas for improvement,” it reads. “We will aggressively defend our business in court and look forward to continuing to serve L.A. restaurants, diners and drivers.”

A number of the accusations leveled against Grubhub in the lawsuit focus on what the service communicates to consumers. For instance, the action alleges that Grubhub tries to draw customers with a promise of free delivery, when in fact the patrons may be hit with a charge.

Grubhub says that the practice has been discontinued.

Similarly, the service said it has stopped automatically charging restaurants when a customer of the delivery service demands a refund.

It also disagrees with the county’s contention that it leads consumers into thinking they’ll be charged a flat delivery fee but then nickel and dimes them with surcharges like a “driver benefits” add-on.  It maintains that an online orderer was alerted to the possibility of those fees when they signed up to use the service, and that every charge is listed on the patron’s receipt.

“Going forward, we will also add a link to additional fee disclosures on Grubhub menus for Los Angeles restaurants,” the company says.

In the same vein, the delivery specialist denies that users looking for a particular kind of restaurant are routinely steered toward places that pay Grubhub for preferential placement in the search results. It counters that a variety of factors determine the placement. To the contrary, it says, “Marketing commissions only impact search results for restaurants in Los Angeles in certain, limited circumstances.

The county alleges that Grubhub hurts its drivers by leading users of the service to believe a charge listed as a Driver Benefit Fee serves the same purpose as a tip. In fact, the fee is part of the compensation the driver is due under Proposition 22, a California law that promises on-call delivery workers a base wage. It is not a gratuity for the driver.

Grubhub contends that the purpose of the fee is spelled out clearly on a webpage for its drivers.

The county’s action is the latest instance of a jurisdiction attempting to curb third-party delivery practices that have drawn considerable criticism from restaurants, consumer advocates and government officials.

New York City, for instance, has mandated that delivery workers operating within the city receive at least $17.95 from the service employing them for each hour they’re available for a run.  The services can opt instead to pay a minimum of $29.93 for each hour an individual is actually making deliveries.

The commissions charged to restaurants for delivery are also capped.

Similar rules are in effect in Seattle.

Los Angeles County, which encompasses the city of Los Angeles, is the nation’s most populous county, with just under 10 million residents.

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