Anthony DiResta: Good day and welcome to another podcast of Clearly Conspicuous. As we noted in previous sessions, our goal in these podcasts is to make you succeed in this current regulatory and government environment, make you aware of what's going on with the state and federal consumer protection agencies and give you practical tips for success. It's a privilege to be with you today.
FTC and Illinois Attorney General Reach $25 Million Settlement with Grubhub
Today we discuss an action by the Federal Trade Commission and the Illinois attorney general against Grubhub. Grubhub will pay $25 million to settle charges from the FTC and the Illinois AG that the food delivery firm engaged in an array of alleged unlawful practices, including deceiving diners about their delivery costs and blocking their access to their accounts and funds, deceiving workers about how much money they would make in delivering food, and unfairly and deceptively listing restaurants on this platform without their permission. Under the proposed settlement, the company must make substantial changes in its operations across a number of areas, including telling consumers the full cost of delivering, honestly advertising pay for drivers and listing restaurants on its platform only with their consent.
Allegations Concerning Fake Restaurant Affiliations
First, let's talk about fake restaurant affiliation. Since at least 2019, Grubhub has added unaffiliated restaurants to its platform, allegedly 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 the Grubhub failures as they experienced damaged reputations and lost revenue. According to the complaint, Grubhub has had as many as 325,000 unaffiliated restaurants on this platform, more than half of all the available restaurants on Grubhub. The scale, combined with the chaotic ordering system and outdated menus, caused significant harm to the unaffiliated restaurants and diners alike. The complaint details how these practices have given Grubhub an unfair competitive advantage in an online marketplace where network influence how quickly a platform grows, and using unfair practices to reach a massive scale and create a formidable advantage affectively blocking off the market to competition.
Allegations Concerning Delivery Costs and Account Access
Then there are allegations of 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 the former executive called, quote, "a pricing show game," close quote. Grubhub has advertised that diners will pay a single low-cost amount for Grubhub services in connection with the 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, the FTC says. The complaint also charges that Grubhub regularly blocks diners' accounts, who have large balances of gift card funds, without warning, leaving families, those facing healthcare challenges and others who may have received the large amount of a gift card funds for food delivery, without access to their funds.
Allegations Concerning Driver Earnings
Finally, there are charges of 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 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 an hour when the actual median pay for drivers in the area was around $10 an hour and only 1 in 1000 drivers made $40 an hour. Similarly, an ad campaign in Chicago promised earnings of up to $26 an hour, when the median was only about $11 an hour and less than 2 percent of drivers made the advertised amount.
Settlement Terms
So under the terms of the proposed settlement with the FTC in Illinois, Grubhub will be required to:
- disclose the true cost of delivery and stop adding junk fees to their 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 were 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 earning 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, though, to pay $25 million, nearly half of which will be used to refund consumers harmed by the company's conduct. The commission vote to authorize the staff to file the complaint and stipulated final order was 5 to 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 four, unfair methods of competition, and nine, violations of prior commission determinations known to defendants.
Key Takeaways
So here's the key takeaway. In 2021, Grubhub, along with hundreds of other companies, received a notice of penalty offensives from the FTC, warning it against making deceptive earning claims, but the complaint charges that Grubhub continued making those claims after receiving the notice. So be aware — be very aware — of FTC warning letters. They serve as precedent and notice of potential wrongdoing. So please stay tuned for further programs as we identify and address the key issues, the developments and provide strategies for success in 2025. I wish you continued success and a meaningful day. Thank you.
