GrubHub has been enjoying a honeymoon period since it went public earlier this month, with its stock price up almost 50 percent. The company got more good news Wednesday in the form of a settlement with New York Attorney General Eric Schneiderman, ending a year-long investigation into whether the delivery workers who carry GrubHub orders to its smartphone-toting customers were being ripped off on tips.
The tipping question is a part of the single persistently negative aspect of GrubHub’s story: Have the startups commission fees been squeezing the very restaurants it claims to be serving? GrubHub takes a cut of each order, and the commissions can be well north of 10 percent depending on whether a restaurant wants to pay for preferential placement in online listings. That commission is assessed on the entire bill, including the tips. But it’s illegal for restaurants to pass the cost along to employees, and Schneiderman became concerned that restaurants weren’t paying out the full amount of the tips.
It’s not clear whether tips have ever been a major problem. But the food-delivery startup isn’t the only tech service facing questions about its handling of gratuities. Uber drivers have sued the company claiming that it misleads customers into thinking part of their fares count as tips, then taking a commission from the entire cost of the ride.
In its settlement, GrubHub agrees to exclude tips from its fee calculations in future contracts. The company also has to transition restaurants with existing contracts into new agreements and remind all the restaurants to pay the full amount of tips to its workers. Future contracts will also include a portion requiring restaurants to obey other labor laws, like the minimum wage. It’s not clear what would happen to a restaurant caught underpaying workers—would an offender be banned from GrubHub?
In a statement announcing the settlement, Schneiderman described the the company as a partner of sorts, rather than a party to any unlawful behavior that had been perpetrated. “This agreement will leave no doubt among the thousands of restaurants doing business through GrubHub about what their legal obligations are–not only with regard to tips, but also for all laws that protect the rights of workers.”
The company welcomes that characterization. In a statement GrubHub said it was happy to have the issue resolved and stressed that it was “committed to always acting with integrity and conducting business in an ethical and legal manner.” It’s not clear whether GrubHub sees these changes as necessary, or just a way to appease a single law-enforcement official. A spokesperson for the company declined to say whether the settlement would lead to changes in the way it handles tips outside of Schneiderman’s jurisdiction.
