Class Action: Grubhub Overcharged Los Angeles Restaurants to Use Online Delivery Platform Amid Pandemic Despite Fee Cap

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A proposed class action alleges Grubhub has since last June overcharged Los Angeles restaurants and others in the hospitality industry for the use of its platform in violation of a fee-cap ordinance passed by the city to prevent third parties from taking advantage of a restaurant industry badly crippled by the pandemic. 

The 23-page complaint claims the online food-ordering platform, since June 10, 2020, has unlawfully charged Los Angeles restaurants non-delivery commissions and fees in excess of the maximum-allowable five percent of the purchase price of each online order. Grubhub is also alleged in the lawsuit to have charged L.A. eateries combined delivery fees and non-delivery fees and commissions in excess of 20 percent of the purchase price of each online food order. 

The plaintiff, a Michelin star-rated Japanese restaurant and bar, alleges Grubhub has run afoul of a Los Angeles City Council ordinance that, as of June 10, 2020, made it unlawful for third-party food delivery services to charge the city’s restaurants a delivery fee that totals more than 15 percent of the purchase price of each online order. Per the case, the ordinance, No. 186665, also made it unlawful for companies like Grubhub to charge restaurants in Los Angeles any combination of fees, commissions or costs (excluding delivery fees) for the eatery’s use of the platform that is greater than five percent of the purchase price for each online order and charge any combination of fees, commissions or costs (including delivery fees) in excess of 20 percent of an online order’s purchase price. 

On August 14, 2020, the City of Los Angeles’ chief legislative analyst presented to the City Council a report on the impact of the COVID-19 fee cap ordinance, the suit says. The report pointed toward a story published by restaurant industry blog Eater on July 9 that stated numerous restaurants in L.A. were being charged more than what was permissible under the fee-cap ordinance, the case relays. 

According to the lawsuit, a survey conducted to help the city better understand the impact of its fee-cap ordinance on the restaurant industry and its experience with third-party food delivery companies produced data that showed platforms like Grubhub were for the most part scoffing at the city’s new rules. From the complaint:

“Incredibly, the survey results showed that the Delivery Platforms were largely ignoring the COVID-19 Fee Cap: 72.9 percent of restaurants reported being charged more than the 15 percent Delivery Fee; 55.9 percent of restaurants reported being charged more than the 5 percent Additional Benefits Fee; 72.9 percent of restaurants reported that the COVID-19 Fee Cap was beneficial during COVID-19; and 94.9 percent of restaurants wanted the COVID-19 Fee Cap to be extended past August 31, 2020. Additionally, ‘most restaurants’ reported being overcharged by third-party food delivery companies that are failing or refusing to comply with the [COVID-19 Fee Cap.]” 

The plaintiff restaurant claims that while its agreement with Grubhub states it will pay the platform a 15-percent commission on delivery orders and an additional five percent for marketing services, the rates are “not consistent with the commissions and fees Grubhub retained, as detailed on the same account statements.” According to the complaint, the plaintiff was charged for each Grubhub pick-up order between September 2020 and the present commissions and fees in excess of the five percent cap on non-delivery fees, and in excess of the 20 percent cap on delivery and non-delivery fees during the same time period.

The lawsuit looks to represent all restaurants in the City of Los Angeles who Grubhub charged: (a) non-delivery commissions and fees that exceeded the maximum five percent of the purchase price of each online order, or (b) combined delivery fees and non-delivery fees and commissions that exceeded 20 percent of the purchase price of each online order from June 10, 2020 through the present. 

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