GrubHub Hit with $25 Million Bill: FTC Mandates End to ‘Junk Fees’

The U.S. Federal Trade Commission (FTC) and Illinois Attorney General Kwame Raoul have reached a significant settlement with GrubHub, requiring the food delivery service to pay $25 million. This decision follows a lengthy investigation into a pattern of misleading business practices that affected customers, drivers, and restaurants alike.

The settlement mandates that GrubHub reform its business practices. Changes will include transparent disclosure of delivery costs, truthful advertising of driver pay, and ensuring that restaurants appear on its platform only with their explicit consent.

FTC Chair Lina Khan emphasized the importance of accountability, stating, “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.” She reinforced that the laws apply equally to gig platforms.

GrubHub’s classification of its delivery drivers as independent contractors has drawn scrutiny. This classification allowed the company to reduce labor costs while quickly adjusting its workforce based on customer demand. The FTC noted a stark contrast between advertised and actual earnings, stating that the median income for GrubHub drivers was only $11 per hour in 2023, significantly lower than the promised $26 per hour.

Moreover, the FTC highlighted GrubHub’s complicated pay structure for drivers. Although drivers are compensated per delivery, a substantial portion of their earnings depends on tips, which can account for 40-60% of their total income.

The FTC’s investigation also revealed that GrubHub misrepresented its service fees to customers. Previously, the company advertised low delivery fees but later combined them with service charges that could nearly double the initial price. A former executive referred to this as a “pricing shell game,” acknowledging the erosion of customer trust.

Additionally, the FTC criticized GrubHub’s subscription service, Grubhub+, which promised unlimited free delivery. In reality, subscribers faced numerous service fees, rendering their orders anything but free.

Furthermore, GrubHub was accused of listing restaurants on its platform without permission. The FTC reported that at one point, more than half of the restaurants on GrubHub—over 320,000—were affiliated without authorization. GrubHub allegedly stalled removal requests and would offer paid partnerships instead.

In response to the allegations, GrubHub claimed to categorically deny many accusations, calling them misleading or outdated. However, the company opted to settle to focus on future operations.

The settlement was approved unanimously by the commission, though Commissioner Andrew Ferguson dissented regarding the unauthorized affiliations. He argued the complaint lacked clarity on the broader implications for competition within the food delivery industry and how consumer behavior might have shifted as a result.