Food for thought: The FTC’s proposed settlement with Grubhub

So, you’ve developed a technology-driven delivery platform connecting businesses to customers, powered by gig workers doing the driving. Now you need to convince businesses to offer products on your platform, customers to use the platform, and workers to make the deliveries. With so many competitors out there, you may be considering whether there are any creative tactics you can use to gain an edge. Resorting to deceptive advertising claims or unfair business practices isn’t the answer. Consider today’s settlement between food delivery platform Grubhub and the FTC and Illinois Attorney General. The complaint says Grubhub harmed consumers and competition in its push to become a market leader. Here’s what to know.

What happened? To whom?

According to the complaint, Grubhub’s unfair and deceptive business practices hurt almost everyone involved in the platform, including diners, restaurants, and gig workers. When it comes to diners, the complaint says Grubhub advertised zero or low-fee food delivery to lure in customers, but in reality tacked on additional “service” and “small order” fees for delivery. These charges sometimes doubled or tripled diners’ expected delivery costs after they’d already selected their meals and were ready to click “order now.” Grubhub often charged these fees to all diners, including people who subscribed to the Grubhub+ program – a negative option program offering “unlimited free delivery” for $9.99 per month. It turns out “unlimited free delivery” didn’t account for “service” and “small order” fees Grubhub charged for delivery, and didn’t apply to any restaurant “not participating” in the Grubhub+ program. According to the complaint, Grubhub didn’t make that clear to subscribers before they signed up. And after people signed up for Grubhub+, Grubhub made it hard to stop the subscription.

In addition to misleading people about the cost of delivery, the complaint says Grubhub routinely unfairly blocked people’s accounts without notice. According to the complaint, when people added multiple or high-value gift cards to their accounts, Grubhub flagged those accounts for fraud and blocked them without notifying the account holders. A blocked account meant no access to gift cards or other funds stored inside. Diners with blocked accounts – including people who received multiple gift cards to help with stressful or tragic events – were unable to place orders despite, in some cases, thousands of dollars’ worth of stored funds, and Grubhub wouldn’t tell them why or give them a way to unblock the accounts.

Grubhub’s practices also harmed hundreds of thousands of restaurants. According to the complaint, Grubhub regularly listed restaurants on its platform without their knowledge or consent as a self-described “mechanism to gain national scale.” Then, when things went wrong – think delivery delays, order cancellations, mistakes, or extra charges – diners blamed the restaurants, causing reputational and other harm. And when unaffiliated restaurants asked Grubhub to remove them from the platform, the complaint says Grubhub delayed and imposed obstacles to removal. The complaint alleged that this conduct not only hurt affected restaurants, but competition as well.

Grubhub also misled delivery drivers with inflated earning claims. According to the complaint, Grubhub told people that driving for the platform would be lucrative, in some cases promising prospective drivers they’d earn up to $26 per hour. The truth is most people never earned anywhere close. In fact, only the top 2% of drivers earned the promised rates. Grubhub knew this was a problem since at least October 2021, when the FTC sent the company a copy of a Notice of Penalty Offenses explaining misleading earnings claims are illegal. Grubhub made the claims anyway.

To resolve the case, Grubhub agreed to stop the unfair and deceptive practices described in the complaint. For example, Grubhub agreed to tell the truth in its advertisements, disclose all mandatory delivery fees, refrain from blocking accounts without notice, stop misleading people about restaurant affiliations, stop misrepresenting delivery driver earnings, and comply with the Restore Online Shoppers' Confidence Act (ROSCA). Grubhub will also pay $25 million of a $140 million judgment, which was partially suspended based on Grubhub’s inability to pay, but which Grubhub will have to pay immediately if it turns out it lied on sworn financial statements supplied to the FTC during settlement talks.

What can businesses learn from this case?

• Advertising to potential customers? Other businesses? Delivery drivers? Tell the truth. Whoever your audience, good advertising starts with the truth. Don’t exaggerate what your product can do, how much it costs, who you’re affiliated with, or any fact that might be important to someone deciding whether to buy what you’re selling.
• Recruiting gig workers? Don’t inflate potential earnings. When you make claims about how much people will earn, base those claims on typical earnings. Read about the recent case against rideshare operator Lyft for another example of a company that the FTC says promised drivers hourly earnings far in excess of what was typical. Make sure your earnings claims and the basis for your calculations are clear and use prominent disclosures. And if you promise bonuses or other incentives tied to worker performance, take another note from the Lyft case: make sure you’re clearly describing the terms of your offer, and that you deliver what you promise.
• Selling a negative option online? Disclose material terms and provide a simple cancellation method. ROSCA prohibits charging people for goods or services sold online through a negative option unless you: (1) clearly and conspicuously disclose all material terms before obtaining billing information; (2) get express informed consent before charging people; and (3) provide a simple way for people to stop recurring charges. Take this time to do a compliance refresher. And while you’re at it, make sure you’re up to speed on the FTC’s new Click to Cancel Rule.
• Highlighting an association with another business? Don’t misrepresent the connection. The FTC’s Impersonation Rule makes it illegal to pose as a government entity or a business, and it also prohibits misrepresenting an affiliation with, including an endorsement or sponsorship by, a government entity or business. The rule doesn’t just apply to people or businesses lying about associations with big, well-known companies. Misrepresenting an association with a business of any size or scale – including a small, locally-owned restaurant – can be a violation.
• Get a Notice of Penalty Offense? Clean up your act. If the FTC sends you a notice, sit up, pay attention, and do a careful compliance check to make sure you’re not breaking the law. If you receive such a notice and continue to violate the law anyway, you may be liable for civil penalties, like Lyft. Learn more about what Notices of Penalty Offenses could mean for your business and view the list of past Notices of Penalty Offenses and recipients.

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