Chicago is suing DoorDash, Grubhub for alleged buyer fraud

A bicycle courier carries a DoorDash bag during a delivery in New York, Wednesday, December 9, 2020.

Michael Nagel | Bloomberg | Getty Images

The City of Chicago has filed two major lawsuits against DoorDash and Grubhub for alleged misrepresentation of customers and the use of unfair business practices.

The lawsuits reflect long-standing claims by restaurant owners that the platforms advertise delivery services for their businesses without their consent and hide lower prices that restaurants offer directly to their customers outside of the platforms.

The city also claims that both platforms use a “bait-and-switch” approach to attract customers with low delivery fees only to charge extra when they place their order.

In separate statements, both DoorDash and Grubhub described the lawsuits as “baseless”.

A spokesman for DoorDash said the company “stood by the city of Chicago throughout the pandemic, waiving restaurant fees, providing direct grants of $ 500,000, creating strong income opportunities, and providing groceries and other necessities to those in need Communities delivered ”.

In November, DoorDash stopped adding new restaurants to its app that it has no agreements with. It also said restaurants that do not wish to be listed will be removed within 48 hours of notification.

Grubhub similarly says that it will remove entries for non-affiliate restaurants upon request. It is said that only a small percentage of these companies have requested removal. The company said its contracts require restaurants to offer customers prices at least as cheap on its platform as elsewhere, contrary to the city’s claim to hide lower prices on the platform.

“Every single allegation is categorically false and we will aggressively defend our business practices,” a Grubhub spokesman said in a statement. “We look forward to responding in court and are confident that we will prevail.”

The city is trying to end the alleged wrongdoing by mandating more transparency, civil penalties and compensation for consumers and restaurants harmed by the alleged practices.

The lawsuits contain additional claims that are specific to each company.

The city claimed Grubhub deceptively shared phone numbers for customers to connect to restaurants, but would charge restaurants a commission for calls made on those numbers even when they didn’t result in an order. The city also claimed that Grubhub created “scam websites” for restaurants in an attempt to unexpectedly lure customers to its own platform.

Grubhub has claimed that creating websites for restaurants is not against the law, despite the fact that it has ceased the practice. The company also changed its phone routing system on Aug. 23 so calls from customers seeking answers from restaurants that do not respond to an existing order are routed directly to those companies for free.

The lawsuit alleges that Grubhub’s marketing campaigns to promote local restaurants during the pandemic were misleading while allegedly forcing restaurants to renew their contracts and cover advertising costs. It was also alleged that Grubhub violated Chicago’s 15% emergency cap on commissions that delivery platforms could take from restaurants.

Grubhub denied violating the Chicago Emergency Commission’s limit and denied that its pandemic campaign was misleading. The company said more than $ 500,000 raised through the campaign went to restaurants in Chicago.

The city claimed DoorDash misled customers about how their tips were used for drivers. This issue has been the subject of a separate lawsuit from the District of Columbia Attorney General. DoorDash has said it changed its tipping method prior to the DC Attorney General’s lawsuit. A $ 2.5 million settlement was reached with his office in November on these claims.

Chicago also claimed DoorDash misleadingly labeled a $ 1.50 charge for each order the “Chicago Charge”. The city claimed this falsely implied the fee was being requested or paid to Chicago and not DoorDash.

Subscribe to CNBC on YouTube.

WATCH: Delivery workers risk their lives bringing food to people during the coronavirus – so it is for them

Comments are closed.