Grubhub Hit With A $25 Million Settlement

Key Takeaways From The GrubHub Case

Grubhub just settled with the FTC and the State of Illinois for $25 million.

Grubhub is one of the largest online food delivery platforms in the US, operating in over 2,400 cities with millions of diners, restaurants, and drivers using the platform.

Even if you’re not in the food delivery business, Grubhub’s mistakes highlight important lessons for anyone running a digital business or subscription service.

Note: Grubhub denies these allegations. Here is Grubhub’s response to the FTC.

Let’s break down what the FTC says Grubhub did wrong—and what you can learn from it.

#1 – Misleading Pricing

Grubhub displayed low delivery fees upfront but tacked on hidden fees at checkout, such as “service fees” and “small order fees,” which doubled or tripled the original cost.

For example, the FTC noted that Grubhub “artificially lowered its advertised delivery fee” and shifted the actual cost into ambiguous charges described as “other fees.”

These tactics were internally referred to by Grubhub as a “pricing shell game.”

#2 – Earnings Claims

Grubhub made unsubstantiated claims about potential driver earnings, leading drivers to believe they could earn significantly more than was typical.

Grubhub advertised earnings of up to “$26 per hour,” but the median driver earned just $11 per hour in 2023.

Only the top 2% of drivers earned the advertised rate, and the FTC found no SUBSTANTIATION for the claims.

#3 – ROSCA Violations

Grubhub’s subscription service, Grubhub+, violated the Restore Online Shoppers Confidence Act (ROSCA) by making it difficult for customers to cancel their memberships.

Grubhub used a “multi-page, six-click flow” to hide the cancellation option and repeatedly displayed screens urging users to stay subscribed.

The FTC emphasized that the cancellation process was intentionally complex compared to the “one-click” enrollment.

This has been an important area of focus for the FTC recently.

#4 – Fake Restaurant Listings

Grubhub falsely listed over 320,000 restaurants on its platform without their consent, misleading diners into believing the restaurants were affiliated with Grubhub.

The complaint highlighted how Grubhub executives referred to these unauthorized listings as a “mechanism to gain national scale.”

This practice caused significant harm to restaurants, including negative reviews and reputational damage.

#5 – Not Honoring Gift Cards

Grubhub froze user accounts holding large gift card balances without notifying the users or providing a way to regain access to their funds.

The FTC reported that diners frequently lost hundreds or thousands of dollars when their accounts were blocked.

One internal document revealed that “97% of blocked diners during one particular month were never unblocked,” meaning their funds were effectively confiscated.

With all of that said, here are some key lessons for your business…

• Be Transparent With Pricing: Clearly communicate all fees upfront to avoid misleading customers.
• Substantiate Earnings Claims: Back your claims with verifiable data to maintain credibility and compliance.
• Simplify Subscription Cancellation: Make canceling subscriptions as easy as signing up to comply with ROSCA and foster trust.
• Build Ethical Partnerships: Only list or affiliate with partners who have given explicit consent.
• Honor Customer Funds: Ensure customers can access the funds they’ve entrusted to your platform.

Here’s a link to the full complaint.