Third-party delivery company Grubhub will pay $25 million to settle a lawsuit brought by the Federal Trade Commission (FTC) and Illinois’ attorney general that accused the company of misleading customers about the costs of delivery, among other deceptive practices.
According to the lawsuit, Chicago-based Grubhub tacked on service fees for customers that could more than double the price they were advertised. It also promised free delivery through its Grubhub+ subscription service, but still charged delivery fees, and made it difficult to cancel the subscription, the FTC said.
The suit, the result of a years-long investigation, also alleged that Grubhub listed restaurants on its marketplace without their permission and misled prospective delivery workers about how much they could earn with Grubhub.
Grubhub was ordered to pay $140 million, but the penalty was reduced to $25 million after the company said it was unable to pay the full amount. The money will be largely used to refund consumers, the agencies said.
The $140 million figure appeared to be one of the largest penalties ever levied against a food delivery service, and it was the FTC's biggest judgement in years.
In a statement, Grubhub denied the FTC’s allegations, saying many of them are wrong, misleading or no longer applicable. However, “we believe settling this matter is in the best interest of Grubhub and allows us to move forward,” it said.
As part of the settlement, Grubhub will have to make some changes, including disclosing the full costs of delivery up front and making it easier to cancel a Grubhub+ subscription. It was also ordered to stop listing unaffiliated restaurants on its app and to ensure that the earnings it advertises to drivers are accurate.
The suit took aim at so-called junk fees, which refers to fees and other charges that appear just before a customer is about to pay for something. The fees have faced increased scrutiny under the Biden administration.
According to the suit, Grubhub would advertise one price for a delivery, then slip in additional service fees that were really just “delivery fees in disguise.”
The result is a harsh blow for Grubhub, which has struggled relative to competitors DoorDash and Uber Eats in recent years. Last month, parent company Just Eat Takeaway.com agreed to sell Grubhub to food hall/delivery chain Wonder for $650 million, which was more than 90% less than what Just Eat paid to acquire Grubhub in 2020.
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