Grubhub to Pay $3.5 Million in Settlement Over Alleged Fee Overcharges in Massachusetts

Manoj Prasad

On Friday, Massachusetts Attorney General Andrea Campbell revealed that her office has successfully reached a settlement of $3.5 million with Grubhub, an online food delivery service. The allegations against the company involve illegal overcharging of fees to Massachusetts restaurants amidst the COVID-19 pandemic.

The settlement resolves a lawsuit filed by Campbell’s office in 2021 accusing Grubhub of violating a state-imposed fee cap that was put in place to provide relief to restaurants struggling under pandemic restrictions.

Settlement Details

Under the terms of the settlement, Grubhub will pay:

  • Over $3.5 million in restitution to impacted Massachusetts restaurants that were allegedly overcharged fees.
  • $125,000 to the state.

In return, the state will drop its lawsuit against the delivery giant.

“Grubhub took unfair advantage and overcharged restaurants during a public health crisis that severely impacted this industry,” Campbell said. “Today’s settlement ensures that restaurants receive financial restitution and sends a strong message that we will hold accountable those who exploit vulnerable small businesses in Massachusetts.”

Background on the Lawsuit

In 2021, Campbell’s office filed a lawsuit against Grubhub, claiming that the company had overcharged restaurants, which was a violation of Massachusetts’ fee cap law.

The law, enacted in 2020 amidst the challenges faced by restaurants due to pandemic-induced closures and restrictions, bars third-party delivery companies from imposing fees that exceed 15% of the menu price per order.

The lawsuit alleged that Grubhub had been imposing extra charges on restaurants, surpassing the 15% commission limit, and employing “deceptive” tactics to circumvent the law.

In a cited example from the lawsuit, Grubhub reportedly imposed a 19.5% fee on a $100 order for a Boston restaurant. This fee was comprised of a 15% “referral fee”, a 3% processing fee, and a 1.5% “Regulatory Response Fee.”

When the lawsuit was filed, Campbell expressed concern about delivery companies such as Grubhub exploiting local restaurants for their own gain, while these restaurants face immense challenges.

The lawsuit aimed to secure refunds for restaurants and impose civil penalties for the alleged violations.

Grubhub’s Response

In a statement, a Grubhub spokesperson did not directly address the allegations but expressed gratitude for Campbell’s “partnership” on the issue.

“We value the collaboration with Attorney General Campbell and are dedicated to assisting local restaurants and facilitating their connection with diners throughout Massachusetts,” the spokesperson stated.

Grubhub asserts that during the pandemic, it has made significant efforts to support restaurants by increasing driver tips and waiving commissions for independent restaurants during shutdowns.

Impact on the Restaurant Industry

Industry groups praised the settlement for offering crucial relief to restaurants that faced the brunt of pandemic hardships.

“This settlement will assist restaurants in recovering from the damages suffered during a challenging public health and economic crisis that severely impacted our industry and our workers,” expressed Bob Luz, President of the Massachusetts Restaurant Association.

The settlement funds will offer concrete financial relief for restaurants that have experienced significant losses and have faced challenges in keeping their doors open during the past two years.

For small independent eateries, the purportedly inflated fees are crucial for generating revenue, especially during a time when every dollar is important. The refunds from Grubhub will assist restaurants in rebuilding and recovering as the industry strives for a post-pandemic revival.

Ongoing Scrutiny of Delivery Platform Fees

The settlement highlights the growing attention that state and local governments are giving to delivery platform fees in the midst of the pandemic.

Amidst dine-in closures, restaurants have been compelled to depend on takeout and delivery services. In response, various jurisdictions in the U.S. have taken steps to limit the commissions imposed by third-party companies such as Grubhub.

Several municipalities have decided to permanently implement their delivery fee ordinances. As an illustration, San Francisco has recently implemented a permanent 15% cap on fees imposed by food delivery companies.

Industry groups assert that implementing caps is crucial in order to deter predatory behavior and prevent delivery giants from undermining struggling restaurants. However, delivery companies argue that the caps result in them operating with a financial deficit.

As jurisdictions debate the extension or repeal of fee restrictions, the issue continues to be a subject of intense debate. There may be more legal challenges on the horizon as cities and states stand up against excessive fees.

Currently, the Grubhub settlement, worth millions of dollars, offers a sense of relief for Massachusetts restaurants as they strive to recover and progress after two challenging years.

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