[co-authors: Stephanie Kozol*, Nick Gouverneur**]
On December 17, 2024, the Federal Trade Commission (FTC) and Illinois Attorney General (AG) Kwame Raoul settled their lawsuit against Grubhub for $140 million (Grubhub will only have to pay $25 million, with the balance suspended due to Grubhub’s inability to pay).
The settlement announcement was preceded by an 11-count lawsuit that brought claims under Section 5(a) of the FCT Act, the Impersonation of Government and Business Rule, the Illinois Consumer Fraud and Deceptive Business Practices Act, and the Uniform Deceptive Trade Practices Act in connection with the sale of food ordering and delivery services. The lawsuit stems from the FTC’s war against alleged “junk fees.”
The FTC and Illinois contended that Grubhub’s practices were knowingly unethical and aimed at increasing profitability at the expense of consumers, restaurants, and drivers. In 2021, the FTC placed Grubhub on notice that it perceived these actions as unfair and deceptive. Specifically, regulators allege that Grubhub engaged in the following prohibited practices:
Consumers:
- Pricing Shell Games: Displaying a low-cost (or no cost) delivery charge initially, then presenting a much higher delivery cost, including undisclosed or “hidden” fees, at checkout.
- Deceptive Subscriptions: Locking diners into “Grubhub+” subscriptions with “$0” delivery promises while still subjecting diners to many other undisclosed fees and making it significantly more difficult to cancel the subscription than to sign up.
- Account and Gift Card Issues: Blocking accounts with high gift card balances, preventing diners from using their gift card balances or other credits, thereby taking consumer money without any corresponding good or service.
Unauthorized Listing of Restaurants: Listing restaurants on its platform without their knowledge or consent, leading to canceled, incorrect, or untimely orders, which Grubhub then blamed on the restaurants. As many as 320,000 (or half) of the restaurants listed on Grubhub’s site were unaffiliated. Grubhub would only remove these listings if threatened with legal action.
Misleading Earnings Claims for Drivers: Advertising potential earnings of up to $40 per hour, while the median earnings were $11 per hour, with only the top 2% earning the advertised amount.
Grubhub agreed to pay at least $25 million as a fine/penalty, which was reduced from $140 million due to the company’s alleged inability to pay. This balance will become due immediately if regulators discover that Grubhub misrepresented its assets during settlement negotiations. Additionally, Grubhub will undertake the following actions:
- Clearly and conspicuously disclose all service or other fees to consumers/diners.
- Clearly disclose and obtain consent for any negative option transactions.
- Notify consumers immediately if their accounts are locked out and provide a mechanism to quickly unlock the account.
- Refrain from offering for sale any food or goods from unaffiliated vendors.
- Avoid representing that delivery workers will earn a set hourly rate or even provide estimates for the rate of pay.
- Ensure that any representations regarding earnings, whether express or implied, are supported by competent and reliable substantiation evidence at the time the statement is made.
- Provide a simple cancellation mechanism for the negative option feature.
- Present the settlement agreement to all owners, members, managers, principals, officers, directors, etc., of Grubhub for the next 15 years.
Why It Matters
This settlement demonstrates a joint effort by the FTC and the Illinois AG (where the company is headquartered). Increasingly, state and federal regulators are joining forces to bring resources and expertise to enforcement and litigation matters. The resolution serves at least two key purposes for regulators: (1) halt perceived unfair and deceptive business practices; (2) make changes that will be popular with the Illinois AG’s constituents.
Additionally, some of the conduct that these regulators found to be allegedly egregious was the company’s allegedly knowing perpetuation of business practices it had reason to know harmed diners, businesses, and drivers. To mitigate regulatory risk, companies must contemplate how business practices impact the broader community and try to understand whether such conduct could pique the interest of regulators.
*Senior Government Relations Manager
**Associate
