The complaint seeks better transparency and civil penalties for violation of law.
The City of Chicago announced Friday that it filed lawsuits against third-party delivery giants DoorDash and Grubhub for engaging in "deceptive and unfair business practices that harm restaurants and mislead consumers."
The complaint, resulting from a collaborative investigation by Chicago's Law and Business Affairs and Consumer Protection departments, argues that both companies are advertising services from unaffiliated restaurants without their consent, luring consumers into a bait-and-switch with deceptively small delivery fees upfront, but misleading fees at the end of the transaction, and hiding that menu prices on their platforms are often "significantly higher" than prices of directly ordering from the restaurant.
Other allegations are specific to both DoorDash and Grubhub. Chicago claims DoorDash misled customers into believing they were tipping drivers directly, when the tip was instead used to subsidize DoorDash's own payment to its drivers. In 2019, Washington D.C.'s Attorney General's Office filed a lawsuit against the company for the same reason. As a result, DoorDash was required to pay $2.5 million to settle the dispute, including $1.5 million to drivers, $750,000 to Washington, D.C., and a $250,000 donation to two charities.
Additionally, Chicago alleges that DoorDash imposed a misleading "Chicago Fee" on every order, and implied the fee was required by, or paid to, Chicago when DoorDash was the only beneficiary.
As for Grubhub, the city claims the company published deceptive "routing" telephone numbers that it represented as a restaurant's true phone number, and charged commission even when the calls didn't result in an order. Chicago also argues that Grubhub created "imposter websites" that route customers to its platform, that it violated the city's 15 percent cap on delivery fees, and that it launched misleading "save restaurants" campaigns while forcing brands to extend contracts, cover the costs of the promotion, and pay full commission on all orders.
Chicago seeks injunctive relief in the form of greater transparency, restitution for restaurants and consumers, and civil penalties for violations of the law.
"As we stared down a global pandemic that shuttered businesses and drove people indoors, the defendants' meal delivery service apps became a primary way for people to feed themselves and their families, as well as support local restaurants," said Chicago Mayor Lori Lightfoot in a statement. "It is deeply concerning and unfortunate that these companies broke the law during these incredibly difficult times, using unfair and deceptive tactics to take advantage of restaurants and consumers who were struggling to stay afloat.”
With more restaurants turning to delivery amid the pandemic, several operators have complained about fees exceeding 30 percent, which is why jurisdictions across the country introduced temporary caps on fees. San Francisco and New York were the first markets to make the caps permanent. The third-party delivery companies have run into recent legal trouble, as well. In June, Micheli & Shel, parent of the Manhattan-based Michaeli Bakery, filed a lawsuit accusing Grubhub, DoorDash, Uber Eats, and Postmates of using “ambigious” and “deceitful” methods to get around the cap. The company said in court documents that third parties, “proceeded to continue their prior practices of bleeding New York City’s restaurants dry while collecting millions of dollars at their expense in blatant disregard for the laws of the City of New York.”
Grubhub and DoorDash both denied Chicago's allegations. Grubhub said the accusations are "categorically wrong" and that it will "aggressively defend" its business practices. DoorDash said "it has stood with the City of Chicago throughout the pandemic, waiving fees for restaurants, providing $500,000 in direct grants, creating strong earning opportunities, and delivering food and other necessities to communities in need." The company also noted that the lawsuit will "cost taxpayers and deliver nothing."
According to Chicago, at the height of COVID, roughly half of the market's 7,500 restaurants had either closed permanently or temporarily, and roughly 44,000 restaurant workers lost their jobs. Meanwhile, third-party delivery companies thrived off of dine-in restrictions and saw year-over-year orders more than triple from 263 million to 816 million.
Chicago accuses the companies of persisting with their "predatory" practices as their business surged.
“We discovered that Grubhub and DoorDash have been engaging in deceptive and misleading business practices that harm consumers and exploit restaurants. These practices continued unabated during the pandemic when restaurants were struggling to survive,” said Acting BACP Commissioner Kenneth Meyer in a statement “We heard from the hospitality industry and Chicago’s consumers about these unfair practices and this action demonstrates we will hold non-complying businesses accountable.”