[co-author: Stephanie Kozol]*
On January 12, Massachusetts Attorney General (AG) Andrea Joy Campbell announced a settlement with Grubhub Holdings Inc. and Grubhub, Inc., (Grubhub) for repeatedly violating a statutory limit on the fees that third-party delivery companies could charge during the COVID-19 state of emergency.
On January 14, 2021, in response to the ongoing COVID-19 pandemic and related restrictions on indoor dining in Massachusetts, the Commonwealth enacted temporary legislation that prohibited third-party delivery service platforms from charging restaurants with less than 25 locations in the state, more than 15% of the restaurant menu price of an order in fees. This fee cap remained in place until June 15, 2021, when Massachusetts lifted the COVID-19 state of emergency.
In response to the statute, Grubhub reduced its commission to 15% of the order price. However, the AG alleged that Grubhub continued to charge a credit card processing fee of approximately 3% on top of the 15% commission. In a lawsuit against Grubhub that was filed in July 2021, the AG contended that the delivery platform engaged in repeated violations of the statute because the cost of the processing fee brought their total fees charged to 18% or more, resulting in financial harm to restaurants through increased operating costs — sometimes by thousands of dollars. The complaint asserted that Grubhub’s conduct was a knowing violation of the fee cap statute, as well as a violation of Massachusetts’ Consumer Protection Law. Grubhub argued that the processing charge was a pass-through fee outside of the statutory limit, and also asserted constitutional challenges to the statute itself. However, in March 2023, the Suffolk Superior Court rejected Grubhub’s arguments, ruling in favor of the state and granting summary judgment on liability. Under the terms of the settlement, Grubhub will be required to pay a combined total of more than $3.5 million in restitution to affected restaurants, as well as $125,000 to the Commonwealth.
Why It Matters
This settlement is the latest in a series of regulatory activity focused on price gouging and “junk fees” at both the state and federal levels. State AGs have targeted “junk fees” and price gouging for quite some time now by bringing enforcement actions under their respective unfair and deceptive trade practices statutes. This area is also now under the scrutiny of federal regulators. The FTC announced a proposed rule on junk and hidden fees last October, and to avoid scrutiny from state or federal regulators, companies should be mindful of activity that triggers price gouging statutes in the states in which they operate. They should also review their fee and pricing practices now to prepare for the likely expansion of FTC authority to bring enforcement actions in this space and ongoing regulatory attention from state AGs.
*Senior Government Relations Manager
