FTC, Illinois AG take action against Grubhub

Harms to diners, workers, and small businesses

Company to pay $25 million, end junk fees and back up earnings claims to resolve charges of consumer protection and competition law violations

Grubhub will pay $25 million to settle charges from the Federal Trade Commission and the Illinois Attorney General that the food delivery firm engaged in an array of unlawful practices including deceiving diners about delivery costs and blocking their access to their accounts and funds, deceiving workers about how much money they would make delivering food, and unfairly and deceptively listing restaurants on its platform without their permission.

Under the proposed settlement, the company must make substantial changes to its operations across a number of areas, including telling consumers the full cost of delivery, honestly advertising pay for drivers, and listing restaurants on its platform only with their consent.

“Our investigation found that Grubhub tricked its customers, deceived its drivers, and unfairly damaged the reputation and revenues of restaurants that did not partner with Grubhub—all in order to drive scale and accelerate growth,” said FTC Chair Lina M. Khan. “Today’s action holds Grubhub to account, putting an end to these illegal practices and securing nearly $25 million for the people cheated by Grubhub’s tactics. There is no ‘gig platform’ exemption to the laws on the books.”

“This settlement is the culmination of a multi-year investigation into deceptive and illegal business practices perpetrated by Grubhub,” said Illinois Attorney General Kwame Raoul. “I thank FTC Chair Lina Khan for another successful partnership between our offices that has resulted in relief for Illinois consumers, and I remain committed to holding businesses like Grubhub accountable for their deceptive business practices.”

Fake Restaurant Affiliations

Since at least 2019, Grubhub has added unaffiliated restaurants to its platform without their permission. The complaint alleges Grubhub did this to drive growth—the more restaurants that appeared to be available on a platform, the more likely consumers are to use it. As the complaint charges, however, that growth happened at the expense of diners, who paid more in fees for these orders and experienced numerous ordering problems, and restaurants, who bore the brunt of diners’ ire for Grubhub’s failures and experienced damaged reputations and lost revenue.

According to the complaint, Grubhub has had as many as 325,000 unaffiliated restaurants on its platform—more than half of all of the available restaurants on Grubhub. This scale, combined with a chaotic ordering system and outdated menus, caused significant harm to the unaffiliated restaurants and diners alike.

First, the complaint notes that when diners searched for these restaurants online, the initial search results would often point to Grubhub, diverting diners from ordering directly from the restaurant and from paying the restaurants directly for delivery.

Second, without any integration with Grubhub’s ordering system, these restaurants were bombarded with orders directly from Grubhub drivers, including for food the restaurants did not serve. Moreover, drivers could only pay using Grubhub credit cards that were sometimes declined for insufficient funds. This left restaurants unpaid for food they had already prepared.

Third, the complaint charges that when Grubhub’s drivers delivered food from unaffiliated restaurants late or in poor condition, frustrated diners blamed the restaurants for Grubhub’s shortcomings.

When restaurants contacted Grubhub demanding to be removed from the platform, the company would try to sell them paid partnerships instead, and often only removed restaurants after they threatened legal action. The company received numerous complaints from restaurants about these practices. Instead of correcting them, Grubhub made their practices even harder for diners and restaurants to detect, according to the complaint.

The complaint details how these practices have given Grubhub an unfair competitive advantage in an online marketplace where network effects influence how quickly a platform grows. Using unfair practices to reach a massive scale can create a formidable advantage, effectively blocking off the market to competition.

The competitive harms, according to the complaint, also extend to the restaurants themselves, with Grubhub’s service deceptively luring diners away from the restaurants’ own delivery services.

Deceiving Consumers About Delivery Costs and Locking Accounts

The complaint charges that for years, Grubhub has hidden the true cost of its delivery services—a tactic that a former executive called a “pricing shell game.” Grubhub has advertised that diners will pay a single, low-cost amount for Grubhub’s services in connection with a delivery order. In reality, Grubhub tacks on junk fees, resulting in a final price that is often more than double what it originally advertised.

These surprise fees are often labeled as “service fees” or “small order fees,” but they are simply delivery fees in disguise. Indeed, Grubhub described the “service fee,” according to Grubhub company documents cited in the complaint, as “directly tied to the act of delivering (i.e. it is another form of delivery fee).” And for accounting purposes, Grubhub treats the two fees as part of the same delivery fee, explaining that “delivery fee + service fee = the restaurant’s delivery fee.” One internal message from a former executive said this pricing tactic was “misleading, eroding trust,” and “truly more expensive” for consumers.

The deceptive claims extend to Grubhub’s “Grubhub+” subscription service, according to the complaint. Grubhub often advertised its subscription as providing “free” or $0” delivery, but Grubhub still charged subscribers for delivery. In addition, while the signup process for Grubhub+ is simple, Grubhub has put numerous roadblocks in place to impede diners from canceling, leading to many diner complaints.

The complaint also charges that Grubhub regularly “blocks” diners’ accounts who have large balances of gift card funds without warning, leaving new families, those facing health challenges, and others who may have received a large amount of gift card funds for food delivery without access to their funds. According to the complaint, diners were left with no ability to regain access to their accounts or money. Diners who complained to the company were not told their account was blocked, or if they were told, they were not given any meaningful way to contest the block, and the complaint notes that in one month alone, 97% of locked accounts were never unlocked.

Deceiving Drivers about Potential Earnings

The complaint also charges that Grubhub has relied on deceptive earnings claims in advertisements designed to recruit delivery drivers. Grubhub’s ads used highly inflated hourly pay rates well above what drivers could realistically expect to earn.

For example, the complaint cites advertisements in the New York area claiming drivers could make up to $40/hour when the actual median pay for drivers in the area was around $10/hour, and only one in 1,000 drivers made $40/hour. Similarly, an ad campaign in Chicago promised earnings of up to $26/hour, when the median was only $11/hour and less than 2% of drivers made the advertised amount.

In 2021, Grubhub, along with hundreds of other companies, received a Notice of Penalty Offenses from the FTC warning it against making deceptive earnings claims, but the complaint charges that Grubhub continued making those claims after receiving the notice.

Proposed Order Stops Conduct, Returns Money

Under the terms of a proposed settlement with the FTC and Illinois, Grubhub will be required to:

• Disclose the true cost of delivery and stop adding junk fees on to orders;
• Notify consumers if their account has been blocked, provide a way for consumers to appeal that decision, and quickly provide access to funds if the block is removed;
• Provide a simple cancellation mechanism for Grubhub+ subscriptions, and remind consumers who are subscribed about their subscription and how to cancel at least once a year;
• Stop listing unaffiliated restaurants on the Grubhub platform; and
• Only make driver earnings claims that are not misleading and that it can back up with evidence and in writing.

The settlement includes a monetary judgment of $140 million against Grubhub, which is partially suspended based on the company’s inability to pay the full amount. Grubhub will be required to pay $25 million, nearly all of which will be used to refund consumers harmed by the company’s conduct. If Grubhub is found to have misrepresented its financial status, the full judgment would become immediately due.

The Commission vote authorizing the staff to file the complaint and stipulated final order was 5-0. Commissioner Andrew Ferguson concurred in part and dissented in part, and issued a statement. Commissioner Melissa Holyoak concurs in this matter, but dissents as to Counts IV (Unfair Methods of Competition) and IX (Violations of Prior Commission Determinations Known to Defendants) The FTC filed the complaint and final order/injunction in the U.S. District Court for the Nortern District of Illinois.

NOTE: The Commission files a complaint when it has “reason to believe” that the named defendants are violating or are about to violate the law and it appears to the Commission that a proceeding is in the public interest. Stipulated final injunctions/orders have the force of law when approved and signed by the District Court judge.

The staff attorneys on this matter were Claire Stewart, Lisa Bohl and Katharine Roller of the FTC’s Midwest Region.

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