Grubhub agrees to pay restaurants $7 million in false advertising case

Grubhub agreed to pay $7.1 million to settle a class action lawsuit accusing the company of falsely claiming partnerships with thousands of restaurants.

The restaurants filed a preliminary settlement on Tuesday in federal court in Chicago. It still needs a judge's approval.

The settlement covers about 387,000 businesses that Grubhub listed as partners without their permission. Grubhub didn't have contracts with these restaurants. This legal issue is part of a broader pattern of challenges that ultimately led to Wonder's acquisition of Grubhub for just $650 million—a 91% loss from its 2020 valuation.

The restaurants claimed Grubhub damaged their reputations by putting them on the company's website and other platforms. They said this confused customers and hurt their sales.

I get why the restaurants are upset. Nobody likes having their brand misrepresented. But the settlement also shows accountability working the way it's supposed to: an issue surfaces, a court gets involved, and Grubhub pays for the practice.

Last year, Grubhub paid $25 million to settle a lawsuit from the Federal Trade Commission and Illinois' attorney general. That case accused the company of adding restaurants without permission, misleading customers about fees, and deceiving drivers about pay.

That's two settlements over the same underlying practice, even though Grubhub denies wrongdoing in both.

Grubhub denied any wrongdoing in both settlements.

In a statement, Grubhub said this settlement lets them focus on business operations. The company claimed the practices in the lawsuit "have not been part of our business model for some time."

This pattern of legal challenges, first the FTC case, now restaurant false advertising claims, helps explain why GrubHub's market position deteriorated so dramatically, eventually leading to its acquisition by Wonder for $650 million, a 91% loss from its 2020 valuation. The legal issues weren't just PR problems. They signaled operational dysfunction that made the platform less trustworthy than competitors.

The plaintiffs' lawyers called the settlement "meaningful relief without further risk, delay and expense." They'll ask for up to $2.4 million in legal fees from the settlement fund.

Eligible restaurants get an initial $50 payment. They'll get more based on how long they were listed on Grubhub's sites.

The settlement covers early 2019 through April 2024.

The case is Lynn Scott LLC et al v. Grubhub Inc, U.S. District Court for the Northern District of Illinois, No. 1:20-cv-06334.

Source: Reuters

Two settlements in two years for the same pattern of listing restaurants without permission isn't a learning curve. It's a business model that got expensive.