Massachusetts court says Grubhub overcharged restaurants

Grubhub works with 8,450 restaurants in Massachusetts, according to the Superior Court. / Photograph: Shutterstock

A Massachusetts Superior Court ruled Thursday that Grubhub had overcharged for its delivery services early in the pandemic by tacking a credit-card processing fees onto the maximum commission permitted by the state on to-go orders.

The decision came in a lawsuit filed against Grubhub by the Massachusetts attorney general’s office in July 2021. The action asked that restaurants charged the illegal fees be compensated for what they overpaid.

Last week’s ruling decided only a dispute over one contention of the lawsuit, and not the case as a whole. The litigation will now proceed.

“We look forward to continuing with our case to hold the company accountable and refund restaurants for the fees they were illegally charged,” Massachusetts Attorney General Andrea Campbell said in a statement.

Grubhub suggested that it will seek subsequent action.  “We disagree with the court’s decision and are considering our next steps,” it said in a prepared statement.

After restaurant closings sparked a boom in delivery during the pandemic, Massachusetts set a limit in Jan. 2021 on what third party services could charge restaurants for the delivery of a meals. Grubhub and its competitors were forbidden from charging the establishments any more than 15% of what customers paid for the order.

Grubhub complied by capping commissions at 15%, according to the Superior Court ruling. But the documents indicate the service continued to assess an additional fee of 3.5% on orders paid with a credit card, along with a fixed charge to the source restaurant of 30 cents per order.

State officials argued that the service was charging more than 18% in fees and commissions, or well above the 15% cap.

Grubhub argued that it was merely passing along the processing fee levied on credit orders, just as some restaurants bake those fees into their menu prices.

But the office of the Massachusetts attorney general ordered GrubHub to cease and desist levying the processing fees, saying the state-set 15% cap applied to the sum of a third party’s charges, not just the sales commission.

Grubhub countered that the state was exceeding its constitutional authority with the cap and denied the limit’s legality. The dispute shifted to the state’s court system.  

Both parties sought a summary judgment on the point of dispute.

Third-party delivery services have been striving as the disruptions of the pandemic fade to scuttle the fee caps that were set by a number of cities during the health crisis to protect restaurants and consumers.

In New York City, for instance, a debate is raging over a City Council proposal to scrap a 15% cap on delivery commissions and a 5% limit on all other fees.

San Francisco recently loosened its fee restrictions under heavy pressure from the services.

While third-party services were a boon to many restaurants while dining rooms were fully or partially closed during the pandemic, their aggressive pricing has fostered a love-hate relationship with operators. According to the National Restaurant Association, 13% of restaurants that relied on the services have severed the relationship.

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