Lessons for E-Commerce and Retail From the FTC and Illinois AG’s Proposed $140 Million Settlement Against Grubhub

On December 17, 2024, the Federal Trade Commission (“FTC”) and the Illinois Attorney General (“AG”) announced a $140 million settlement with Grubhub to resolve charges involving an array of allegedly unlawful and deceptive business practices. Even though the FTC’s proposed final rule on junk fees (also announced on December 17, 2024) is limited to hotels, live events, and short-term rentals, this settlement demonstrates that the FTC will use its broad enforcement powers to pursue companies imposing junk fees online, and that both federal and state consumer protection regulators will formulate 2025 enforcement priorities with junk fees and click-to-cancel in mind. Indeed, this $140 million settlement, of which Grubhub will pay $25 million based on its demonstrated inability to pay the full amount, is the first of its kind in that it is a joint action by the FTC and state regulators to pursue both junk fees and click-to-cancel violations.

The FTC and Illinois AG allege a slew of unlawful and deceptive business practices, harming nearly everyone involved on Grubhub’s platform, some of which include:

• Deceptively Advertising Delivery Costs: Grubhub deceives customers about the cost of its services, advertising low- or no-cost delivery charges to attract customers to its platform. While these delivery charges are advertised on its landing, search, and ordering pages (leading customers to believe they will only pay a single, low-cost amount for delivery) Grubhub tacks on hidden “service” or “small order” fees on the checkout page. According to the complaint, Grubhub knows its advertised fees are deceptive, and a former executive has described the tactic as a “pricing shell game.”
• Deceptive Enrollment & Cancellation Tactics: Grubhub advertises unlimited free delivery to Grubhub+ subscribers, without clearly disclosing that subscribers are still subject to hidden service fees. In addition, free deliveries only apply for orders from participating restaurants. On the backend, Grubhub makes it difficult for subscribers to cancel their subscriptions.
• Locking Customer Accounts: Grubhub’s fraud detection system blocks customers with multiple or high gift card balances from placing orders, without providing a way for those customers to verify their account balances. Grubhub freezes these accounts without notifying customers, effectively pocketing any legitimate funds. These customers may also continue to be charged for Grubhub+ subscriptions, even while their accounts are blocked.
• Unaffiliated Restaurant Listings: Since at least 2019, Grubhub has listed restaurants on its platform without their knowledge or consent. Inflating the number of restaurants on Grubhub’s platform leads to more customers using Grubhub, thus accelerating Grubhub’s growth. This practice harms all involved by (1) driving business away from restaurants’ own delivery services; (2) creating issues when unaffiliated restaurants have incompatible ordering or payment processes; (3) damaging restaurants’ reputations when customers complain about incorrect orders or slow deliveries; and (4) requiring more effort from drivers, who may need to manually place orders or pay restaurants from their own pockets.

Proposed Settlement Terms:  To resolve the case, Grubhub will pay $25 million of the total $140 million judgment, which will primarily go towards refunding customers harmed by the unlawful conduct. In addition to the $25 million payment, Grubhub has also agreed to make a number of significant changes to its business operations. Under the proposed settlement, Grubhub will be required to:

• Disclose all mandatory delivery costs to customers and stop adding junk fees to orders;
• Notify customers if their account has been blocked and the reasons for the block, while also creating an appeals process. If the block is not appropriate, Grubhub must restore access to the account and all funds within 12 hours;
• Stop listing unaffiliated restaurants on its platform;
• Stop promoting misleading driver earnings claims; and
• Create a simple cancellation process for Grubhub+ subscriptions, along with annual reminders.

Takeaways for Businesses

Given regulators’ increased interest in junk fees and click-to-cancel regulations, businesses should:

• Review and ensure compliance with any and all “all in pricing” laws which now exist in several states, including New York, Tennessee, Connecticut, California, Maryland, Colorado, North Carolina, and Minnesota; this means that the total price must be the advertised or published price (see Turning up the Heat on Junk Fees and Drip Pricing: Federal and State Regulations Require Increased Transparency into Pricing and Contract Cancellation | Crowell & Moring LLP). The FTC’s new rule on junk fees only extends to hotels, ticket sales, and short-term rentals, but (as demonstrated by the Grubhub settlement) the FTC is likely to use its enforcement powers broadly to enforce what it views as deceptive pricing practices.
• Businesses that offer recurring subscription services should also ensure that material terms are disclosed, and customers have an easy way to stop recurring charges. In addition, businesses should brush up on the FTC’s recent amendments to its Negative Option Rule.