August 31, 2021

Following a year-long investigation into food delivery platforms, the city has filed first-of-its-kind lawsuits accusing the platforms of tactics that violate municipal law.

The city of Chicago announced a first-of-its-kind legal challenge against food delivery platforms DoorDash and Grubhub on Friday, accusing the companies of engaging in a host of unfair business practices that it says violate municipal consumer protection laws.

In two separate lawsuits, the city argued the companies use misleading fees and hidden markups to obscure the true cost of ordering food on their platforms, and routinely add unaffiliated restaurants to their systems without permission. In its complaint against Grubhub, the city also alleged that the company flouted pandemic caps on platform fees, and engaged in deceptive marketing tactics, such as requiring restaurants to shoulder the cost of its pandemic promotional campaigns and buying up domain names to set up unauthorized shadow sites. In its complaint against DoorDash, the city said that the company pocketed at least some portion of customer tips instead of paying them out in full to drivers.

“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,” said mayor Lori Lightfoot in a press release announcing the lawsuits.

This isn’t the first time that either company has faced litigation over business practices. Last month, the state of Massachusetts filed a lawsuit against Grubhub for allegedly violating the state’s fee caps, while D.C. sued DoorDash over its tipping policies last November. However, what makes Chicago’s legal challenge unique is its very broad scope, said Betsy Miller, a partner at D.C.-based law firm Cohen Milstein and outside counsel for the city, in an interview.

While previous lawsuits focused on individual alleged violations, the two Chicago complaints lay out multiple claims of unfair practices pertaining to various elements of the food delivery business model, all stemming from a year-long, city-led investigation of the industry.

Totalling well over 200 pages, the complaints detail a long list of alleged violations of Chicago’s municipal code, including prohibitions on deceptive practices and unfair competition. The lawsuits call for restitution for both customers and restaurants. In a request for comment, both DoorDash and Grubhub called the litigation “baseless.” Buckle up—we summarized the topline allegations, and the companies’ responses to each:

1. Opaque fee structures that force customers to cough up more than they bargained for

The city is roundly targeting what it calls a “bait and switch” approach to customer-facing costs. The complaints allege that both Grubhub and Doordash publicly advertise low delivery fees or even free delivery, only to tack on additional, yet ambiguous charges such as “service fees” and “small order fees.” The city of Chicago is arguing that this kind of pricing structure (called a “dark pattern” in the world of e-commerce) is psychologically exploitative, preying on the sunk cost fallacy to nudge customers into placing orders that they otherwise wouldn’t have.

Both companies denied that their fee structures were misleading. In an email, a Grubhub spokesperson defended its delivery, service, and small order fees, claiming that the three have different purposes and are always clearly itemized for users. In an email, a DoorDash spokesperson said that its various fees were crucial to covering the cost of operations.

In addition, the complaint alleges that both Grubhub and DoorDash markup restaurant menu prices on their platforms without disclosing the upcharges to customers. In a pair of screenshots, for example, the city highlighted an instance where a 20-piece jumbo shrimp order was $10 more expensive on DoorDash than on the website of the restaurant that made it. DoorDash didn’t address the allegation in an emailed comment. A Grubhub spokesperson denied that the company marks up menu prices, but said that even if it did, such practices wouldn’t be unlawful.

2. Deceptive pandemic marketing practices

The city is also taking aim at how DoorDash and Grubhub have operated during the pandemic. For example, in November of 2020, the city council passed an ordinance capping third-party platform commissions at 15 percent of net sales. Shortly after, DoorDash implemented what it dubbed a “Chicago fee” of $1.50. The city, in its complaint, argued that the term misled consumers by implying that it was charged by the municipal government. The fee has since been renamed a “regulatory response fee,” according to a search on DoorDash.

In Grubhub’s case, the city of Chicago alleged that the company’s commissions have at times exceeded the cap, a charge Grubhub denies. In an email, a Grubhub spokesperson suggested that fees in excess of 15 percent were due to credit card processing fees, which don’t get funneled to the delivery company.

The city of Chicago is also arguing that Grubhub used deceptive marketing during the onset of the pandemic, by promoting restaurant relief efforts that were anything but. In March of 2020, it launched a “Supper for Support” ad blitz, suggesting that customers could support their favorite restaurants by ordering on the platform. The company even sweetened the deal by offering a $10 discount on most orders—without mentioning that it was restaurants that would have to eat the lost revenue. A spokesperson for Grubhub defended the program, saying that its terms were clearly communicated to the restaurants that participated. As for its marketing to customers, the spokesperson said that Grubhub had never indicated that restaurants wouldn’t bear the cost of the promotion. (Seriously.)

3. Listing restaurants without permission (again)

If this one sounds familiar, it’s because it’s probably one of the most common complaints that customers and restaurants alike have voiced about Grubhub and DoorDash.

In its complaints, the city of Chicago cited testimonies from numerous local restaurants about finding themselves listed on the platforms without their consent. On multiple occasions, restaurants say, this led to headaches for both customers and the businesses themselves.

The complete article can be accessed here.