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Online ordering platform Grubhub has caused restaurants to lose tens of millions of dollars through fees on phone calls that often don’t result in food orders, alleges a new proposed class action lawsuit.
The lawsuit was filed this week in Illinois federal court by lead plaintiff Zay Toon Inc, which owns and operates Zaytoon Restaurant & Market in Las Vegas. It alleges Grubhub Holdings Inc. had been withholding payments owed to restaurants by improperly deducting “commissions” for “sham telephone food orders,” affecting more than 300,000 restaurants over nine years.
The lawsuit states the restaurants were charged commissions between 10 and 20 percent on all calls lasting more than 45 seconds, regardless of whether a food order was placed. That is despite Grubhub allegedly saying it would only charge for calls resulting in a food order in its standard form contract.
To track phone orders, the Chicago-based technology company creates a local telephone number for restaurants and lists that number on the restaurant’s microsite and Grubhub platform without the restaurant being made aware, the lawsuit states.
When a customer calls the restaurant on that number, the call is rerouted to the restaurant without any interface from Grubhub staff and without any monitoring of whether a food order was placed. The lawsuit states the Grubhub listed phone number is often the first number shown in online searches and is subsequently saved by diners, resulting in Grubhub receiving commissions for calls it had nothing to do with.
“Moreover, because the restaurant, rather than Grubhub, handles the telephone calls, Grubhub does not know whether the call actually results in a food order or whether it was another type of phone call. Because Grubhub is not privy to these phone calls as they are taking place, Grubhub simply assumes that any conversation longer than 45 seconds is a food order and charges a commission without verifying whether an order for food was actually placed,” the lawsuit states.
Zaytoon Restaurant owner Saam Naghdi said he initially contracted with Eat24.com in 2011 and the contract did not include a commission for phone orders taken and placed by the restaurant staff. Grubhub acquired Eat24 in 2017 and agreed to honor the previous contract rather than writing a new one, the lawsuit says.
In 2018, Zaytoon became aware of the commissions it was being charged for phone calls through a lawsuit filed against Grubhub.
That lawsuit cited transcripts of phone calls where restaurants were charged for a number of calls that did result in a food order. One transcript of a call allegedly said: “Hi, um I just placed an order through Grubhub but I didn’t get a confirmation text or email but I just wanted to make sure it went through.”
The lawsuit includes media reports of restaurants in New York being charged a minimum of $3 for calls lasting less than 30 seconds and up to $7 for longer calls.
On discovering the scheme, a representative for Zaytoon allegedly tested the system and found “that any call over a certain amount of time was automatically treated like an actual food order on the Grubhub ledger for the restaurant,” the lawsuit states.
“For example, he dialed the Grubhub-issued phone number, had the restaurant place the call on hold for 2 minutes, and then hang up. Just minutes later, this call had been recorded by Grubhub as a legitimate food order for which a commission was assessed,” says the class action.
The representative also discovered calls made to ask questions about the restaurant’s menu were charged a commission by Grubhub, as was the food order the customer placed on Grubhub.com shortly afterward.
The lawsuit states Grubhub went to “extraordinary lengths to conceal its telephone scheme,” and did not alert restaurants that employees were being recorded in these telephone calls.
Recording the telephone calls without first notifying and seeking consent from the employee participating in the call is illegal in at least eleven states across the country, including Illinois — where Grubhub is based, the lawsuit states.
In 2020, Zaytoon ended its contract with Grubhub, but was still financially impacted by Grubhub’s interference, with some customers thinking the restaurant had closed down because the Grubhub listed phone number had been disconnected, the lawsuit says.
Zaytoon is suing on behalf of a proposed class of all U.S. restaurants that were improperly charged a commission for a telephone food order. The lawsuit includes a subclass of restaurants improperly charged commissions that don’t have arbitration agreements with Grubhub.
The lawsuit is seeking claims for breach of contract, conversion, violations of the Illinois Consumer Fraud and Deceptive Business Practices Act, and violations of the Nevada Deceptive Trade Practices Act.
Zaytoon is seeking class action certification, injunctive relief, damages, legal fees, and a jury trial.
Did you know Grubhub charged restaurants fees on phone orders? Let us know in the comments!
The plaintiff is represented by Paul D. Malmfeldt of Blau & Malmfeldt, Steven A. Schwartz and Zachary P. Beatty of Chimicles Schwartz Kriner & Donaldson-Smith LLP, and James J. Rosemergy of Carey Danis & Lowe.
The Grubhub Phone Fees Class Action Lawsuit is Zay Toon Inc. v. Grubhub Holdings Inc., Case No. 1:21-cv-01590, in the U.S. District Court for the Northern District of Illinois.
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