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GrubHub is subject to two "matters of controversy" that have likely become common knowledge to business owners.

The first is an allegation through a class action lawsuit that GrubHub is charging for "fake" restaurant orders due to a faulty algorithm. Because the algorithm is based on length of call, location of call, etc., Grubhub has charged restaurants for orders that were never orders at all. Maybe the calls were just reservations or questions that took longer than usual to answer.

The second controversy is that GrubHub's client agreements allow the registration of "microsites" using the name or similar name of their restaurant clients. This causes issues for organic traffic leads and has led to some restaurant owners wanting out of their not-so-friendly arrangement with the food delivery app.

We think these claims have more weight than the Harvard professor who filed claim against an eatery over a $4 charge. Still, it will be interesting to see how the GrubHub controversies play out.

Below you'll find the transcript from Pasha Law's most recent podcast where Nasir and Matt discuss GrubHub's recent woes.

Full Podcast Transcript

NASIR: Welcome! My name is Nasir Pasha.

MATT: And I’m Matt Staub. We’re two attorneys practicing in California, Texas, New York and Illinois.

NASIR: And this is where we cover business in the news and add our legal twist to that news. And today we’re talking about Grubhub and their food delivery service and the legal implications that they’ve kind of run into. So Matt, have you ever actually used any of these food delivery services? There’s a ton of them; Grabhub, UberEats and…

MATT: Yeah. Yeah, I was thinking about it. I don’t think — so I’ve definitely used UberEats. I know that. Because I was one of the test people for the San Diego market. And I’ve used it sporadically since then. Grubhub, I don’t think I have? But yeah, I guess I would have had the app on my phone at some point so I guess I definitely have it. But I have used UberEats.

NASIR: It seems to come up with me when I’m traveling. Like if you’re in a hotel and it’s like even if you have a car available to you, or you don’t, it’s just like for some reason, that’s come up. But then also, lately, when I’m at the office, I’ve been doing that. But it’s such a waste of money. Because, I mean, they add on so many fees to it. And we’re going to talk about how they’re adding fees for the restaurant too, but you know, just even for the consumer. Like there’s a flat fee, a delivery fee, then they get a percentage of this, and there’s tip involved, of course.

MATT: Yeah.

NASIR: And so…

MATT: Yeah, yeah.

NASIR: It adds up pretty quick. I mean, for a single serving, it’s kind of tough to justify the cost sometimes.

MATT: Yeah, and I’m — I mean, I don’t know if you’re the same way, but I mean, I — well, a couple of things. One, I basically — if I eat, if we have food at a restaurant, it’s very rarely sitting down at this point.

NASIR: Right.

MATT: But if we go pick it up, I mean I actually kind of enjoy that. Because, one, I don’t mind driving and doing all that. And I guess you can confirm if everything’s correct as well, but it’s a nice little break to get out of — you know, get out of the house and not have a ton of responsibility. From a parenting perspective, at least.

NASIR: [Laughs] Exactly.

MATT: [Laughs]

NASIR: So I’ve been using DoorDash lately. I even signed up for their monthly fee. Somehow, you’re supposed to save money. I don’t know if I did. But honestly, in preparation for this podcast, I just felt compelled to just cancel my membership. I forwarded you the screenshot of the email I got.

MATT: Oh, that was from you? [Laughs]

NASIR: That was from me. Yeah, I just showed you a — yeah, [02:42 Unclear] there’d be the details that actually had my name in there. Because like, I don’t know what it was. It just feels like, look, if I want some food, a lot of these places have delivery services already. First of all, eating out so often is not that healthy anyway. And if I have 15 minutes to eat, or 20 minutes to eat, then I have another 5 or 10 to go get something, you know, around the corner or what have you. Well, it probably takes a little more time than that, but I mean, that’s the main thing. That’s why I end up ordering something; is because I feel like I don’t have time but…

MATT: Yeah.

NASIR: I just have to make time for it.

MATT: And we’ll get to the actual substance of this episode but you…

NASIR: Eventually.

MATT: One thing you’ll enjoy, because you just mentioned the healthy piece, I’m pretty sure the last time I used any of the — used UberEats was to go get one of your favorites, and your wife’s favorites, Café Gratitude.

NASIR: Oh yes. Very good.

MATT: So give them a shout out.

NASIR: Well, let’s see if they actually — I wonder if they actually like these food delivery services. It really depends. I mean, that’s the bottom line. In preparing for this, it seems like there’s a good fit for some restaurants, and maybe not others. In particular, where this kind of came up was a lot of websites are experiencing commissions being paid for phone orders that didn’t actually occur. And there’s actually a pretty hefty class action lawsuit — or they want to make it into a class action lawsuit — going on in Pennsylvania.

MATT: Yeah. And it’s — I mean, I think it was recently discovered, but it’s dating back for years and years. It’s kind of a — you know, we’ll get into the specifics, but Grubhub allegedly has some sort of — I don’t know if you even want to call it an algorithm because based on the allegations, though it seemed like there’s much of anything, but they have some process in place or algorithm that can determine when somebody, when a customer has called in to a restaurant and places an order. And when that order should then be — a cut of that should be given to Grubhub as a result of the customer finding the restaurant, if that makes sense. I mean, the main reason being, that I wasn’t aware of until I was reading this, is that Grubhub has set up a bunch of different — allegedly — has set up a bunch of different domains for restaurants. And then also, they use separate phone numbers, which, you know, that’s not uncommon for businesses. Even for businesses that set up to see where inbounding calls are coming from. But it’s the way that Grubhub is going about it that’s obviously the problem here.

NASIR: Yeah, exactly. And you mentioned the algorithm and you’re right. Even how the founder described it, it doesn’t seem — he left some things hidden. But it doesn’t seem there’s much to it. What they do is they set up a site or it’s through the site as well. Set up a unique number. It’s routed through there. They actually record the calls and somehow they determine whether or not an order was placed. And I bet you frankly the algorithm is like — has something to do with the location of the call or the calling number. And in combination with also the length of the actual recording, and things of that nature. Since they record it, they may even transcribe and use voice recognition technology. But I wonder that because what the lawsuit says is that restaurants are being charged for orders that don’t occur, including calls where the — you know, a customer could just be asking a question or making a reservation, and these kinds of things which are obviously not things that Grubhub is supposed to be charging. And of course, Grubhub’s response — they have a response — they seem to be saying that’s putting ownership on the restaurant because they have the ability to listen to these recordings and challenge it accordingly. But you know, it’s — well, what are they supposed to do? Listen to every single recording? It doesn’t make sense.

MATT: Yeah. I mean, that’s the whole point. Well, not the whole point, but one of the main points of even using a service like this for the restaurant, is to take something — no pun intended here — take something off their plate and not have to deal with that. I mean, obviously, it’s also beneficial to drive-in customers where they might not have had some before but — and the whole point is you take this portion of it, which is from the time of the customer decides they want to eat there to when they get their food, Grubhub’s taking a portion of that. And that’s the time when the person actually places the order, and that can alleviate one of the employees at the restaurant then to do something else, or I guess even have one less employee. I mean, it’s kind of counterproductive to require the restaurant then to do their own audit on the phone calls to determine when orders are made and then match it up. I mean, that would honestly take longer than not even using Grubhub to begin with.

NASIR: Right. By the way, you mentioned no pun intended. I don’t think there’s any pun on this show, especially coming from you, that’s not intended. Just making a side note there.

MATT: It was intended, in a sense. It wasn’t intended when I first thought of it, but then once I did, I guess it was intended. So however you want to classify it.

NASIR: I’m pretty sure that once the intention is there, it’s there. And here’s the thing though, especially people that are in the business, they know that these restaurants can have a very thin margin sometimes. Especially in markets where if you have a retail location that has a pretty high rent. A particular example we are reading — in fact, it was a story done by The New Food They did a nice, little survey of this particular issue and they interviewed a restaurant owner where they were being charged $8,000 per month for Grubhub and their monthly rent was $7,000. So it was basically paying another rental; a monthly rental for them. And so, it gives you an idea that — those of you who are not participating in this business or, you know, understand the economics of it — the fees can get pretty high. And again, this is on top of the fees that the customers are paying as well.

MATT: Yeah. And it’s pretty common knowledge — oh, I guess I shouldn’t say that, but it’s somewhat well-known that a lot of times, restaurants usually don’t make too much money on the actual food itself, especially the ones that have alcohol. I mean, that’s typically a way for restaurants to, you know, really profit. Or, if not, then you have restaurants at multiple locations. My point is it’s very difficult for a single restaurant that doesn’t serve alcohol to really just to make it. I mean, that’s why most restaurants fail within — I don’t know the statistics. It’s like 80% or 90% fail within 5 years or something like that.

NASIR: Yeah. It’s an incredibly hard business. But anyway, so Grubhub is getting into trouble in that area. But another area of complaint, which is also related to this phone number business and Matt touched on it, is that they are creating what are called — what they call “microsites.” And to such an extent. I mean, literally thousands of domains they’ve been registering. And there’s actually a list that people have procured, and I’m just looking through here. It just goes on. 22,000 domains was the last count about a month ago. And basically, there’s different anecdotal conversations about, anecdotal evidence from different restaurant owners where even just talking to Grubhub, Grubhub will actually register a domain similar to them that will be rerouted to their own website. And then, when they actually sign up, within their agreement itself — and we’ve only seen snippets. I haven’t actually seen the actual whole agreement. It might be a confidential document, but we haven’t been able to get our hands on it. But within the actual agreement, it allows Grubhub to register what they call these microsites, including using domain names that are similar or exact to the restaurant name.

MATT: Yeah, it’s interesting. I’ve never really thought about that before, but it makes sense. And, you know, it’s not an uncommon thing for — just in general for online businesses. Because I know, for example, if there’s some sort of directory — like let’s take the example of a law firm. So there’s legal directories. And if you click on what appears to be so and so’s name or picture or what have you, it gets redirected to — it directs you or it links you to a site that looks like the attorney’s site, but it’s not. It’s one that’s just a very barebones website that’s been put in place, and that’s how these referral networks can track that and then charge the firm. So that concept in and of itself is nothing strange, but I guess from what it appears, at least in the complaint, I don’t think these businesses were aware of this or — I mean, I don’t know if “consent” is the right word because if it’s in the agreement, then maybe they did consent to it, but it’s clearly something that seems a little bit deceptive.

NASIR: Yeah. And that’s kind of the problem with people that are complaining about this, is that if you sign this agreement, it’s relatively clear. I mean, if I was the lawyer drafting it, I’d probably make it a little bit more clear. I mean, again, we only have the snippet. In fact, let me just read it out to you. It says, “GH (Grubhub) may create, maintain and operate a microsite and obtain the URL for such microsite on restaurant’s behalf, which restaurant grants Grubhub the right to do.” And I’m just wondering. I bet you there’s something else in there that talks about using the restaurant’s name and marketing and so forth…

MATT: Sure.

NASIR: And in combination of both, it allows them to do this. But if you sign this agreement, then it’s kind of hard for you to really push for anything. But otherwise, it could be definitely construed as trademark infringement. There’s also this concept that it’s kind of nice to talk about in theory, but in practical circumstances, rarely occurs too often, which is a concept called “cybersquatting.” I should take that back. It does happen quite often. It’s just something that usually is resolved through a mediation process, an arbitration process, through the — what is it called? The DNS service. I forgot what it’s called. So we don’t actually end up getting involved in that too often, but the point is is that if a third party registers a domain name that matches your trademark, it would be construed as a trademark infringement or is somehow registered in a way that is designed to be done in bad faith; somehow intend to profit from it or divert customers from you, etcetera, then you can actually get that domain name transferred, under the law, to you and actually be able to sue for damages possibly as well.

MATT: Yeah. That last point was the critical one, and I think that’s what Grubhub is relying on. At least I assume so. Is that, “Yeah, we did this, but you know, we set up the site [related 14:00] to the trademark for the business, but we didn’t do so in bad faith. I mean, if anything, they agreed to it by what’s in this contract.” So I don’t know how fruitful that argument is going to be, but it is out there. And again, it just kind of depends on what these different restaurants agreed to.

NASIR: Right. And if you look at — going back to the beginning of the topic about this class action lawsuit — that’s one thing that they hit on quite a bit, if you notice in their language. They keep coming back to the contract language in referring it to as their form contract. And what I think they’re trying to get at is that they have this contract that is designed in a way that is hard to read. People that are — you know, laymen who are signing this agreement, which I’m sure it’s in electronic form, don’t actually know exactly what they’re signing. But unfortunately, this isn’t even a consumer contract.

MATT: Yeah.

NASIR: I think in the class action, they did try to rely on some kind of statutory — some kind of deceptive business practice and consumer fraud…

MATT: Yeah.

NASIR: But I just wonder if that actually applies in this case because we’re not talking about consumers here. We’re talking about business owners or restaurant owners that are signing this agreement. And so, it’s not like you can just say, “Well, I didn’t know what I was signing.” In some ways, that’s no longer an excuse where maybe for a consumer-based contract.

MATT: And you’re right. So what you’re referring to is they’re alleging the violation of the Illinois Consumer Fraud and Deceptive Business Practices Act, or as some people call it, the CFDP… — no.

NASIR: I don’t call it that.

MATT: [Laughs] Yeah. I’m going through it now. I mean, it’s basically they’re saying that it’s in violation because it’s failing to — Grubhub is failing to disclose its standard form contracts of restaurants, misrepresenting the commissions they charge. So I mean nothing — it’s pretty — you know, stuff you would expect I guess to see at an [SF 16:02]. I mean, basically the deceptive piece is the one that is — the “deceptive” is the keyword in this, both in the statute and what they’re alleging.

NASIR: Right. And a lot of times, these kinds of deceptive business practices — and every state pretty much has them. “Unfair competition” sometimes it’s called in some states. A lot of times, they’re throw-ins. You know, it’s the third count on the list. Not that that’s determinative, but the point being is that you really got to know what you’re signing. And even if it’s, for example — I mean, how many of our clients, they’ll sign these standard so-called form contracts and with big companies. And a lot of times on one hand, you don’t really have the negotiating room. But on the other hand, sometimes you do. And more often, you do — you actually do more often than you think. And then second is at least be aware of the issues so that you can protect yourself against it.

MATT: Yeah.

NASIR: And maybe it might be enough to not even engage in that kind of contract. And I’m talking about every contract from dealing with credit card merchants to software licenses to — again, things that are relatively common for all businesses to sign, yet they don’t necessarily have their attorney review it because they think of it, “Oh, this is a standard form contract.”

MATT: Yeah. And I think the bottom line is there are always going to be risks in contracts. It comes down to identifying what the risks are. And then, accepting — you know, either changing them or accepting the possible outcomes of those risks. So if I had to guess with these — I mean, these contracts for these restaurants. You know, again, [like what 17:45] we said earlier, restaurants are pretty busy to begin with. And so, I imagine they aren’t going to spend their — or restaurant owners, I should say; the decision-makers. They’re not going to spend their time reading these contracts, especially when their competitors might be doing it too. And so, it’s like, “Well, we need to get in the game as well ‘cause we need to be on equal footing.” So they get this. They might scan through it. Might. But yeah. I mean, it’s probably a situation too where, you know, if they went back to Grubhub with any significant charity or any material changes outside of like pricing or something like that, I can imagine Grubhub — well, I shouldn’t say that. Grubhub probably would just say, “No. We don’t need your business I could be wrong”

NASIR: Right. Yeah. So what do you think? I mean, should I keep using these food delivery guys? I honestly don’t know much about — just talking about Grubhub. I assume they’re all the same. I mean, they all have to get their, you know, commission somehow.

MATT: And what I do know, it’s yes and no. So different ones offer different restaurant options, obviously. I’m trying to think. So when I used Uber Eats — I’m trying to think what the — the one I used most frequently was probably The Kebab Shop, which I know you’re a semi-fan of in San Diego. And they’re on Uber Eats, but I don’t know if they’re on Grubhub or the other ones. Because I know some restaurants are on all the apps and some of them are like exclusive to one. Like I know it was a big deal like when McDonalds went on Uber Eats. I think I’m getting that right. So yeah, I mean…

NASIR: And then, there are some that participate in — I don’t know exactly how it works, but there are some that get cooperation with the restaurants and some that do not. In a sense like — I think it was Postmates where it’s just you’re literally just paying the delivery fee and there may not be a commission and they’ll go anywhere for you, practically. Whatever they have in their directory. Something to that effect.

MATT: Right. I think you’re right. I think Postmates is a straight up — well, I guess they’re all third parties, but they’re — I mean, it’s basically like you’re paying somebody to just do the order for you and the restaurant is…

NASIR: Right. They have no idea whether it’s…

MATT: Yeah. Exactly. Yeah, because I know at least with Uber Eats, like they — at least when they were first starting in San Diego. I can’t speak for now, but I know they were like physically going into all the restaurants and getting them to sign up because I know they’re also — that’s why all of their photos looked pretty much kind of the same; having the same look to them. Obviously, with different foods. But it was supposed to be you sign up to see the restaurant and have a photographer come in and take a similar photo because everything had to look the same. But yeah, it’s — I forget what I was saying before. Oh, so different food options, and then — you know, it’s just different options and then different service levels. I mean, I’ve talked to people that have used a bunch of different — I mean, I know people that have, you know, 5 different restaurant delivery things on their phone or apps on their phone and it’s like, “Well, this one is good,” “I use this one for this” and “This one’s usually quicker.” I mean, at the end of the day, it’s probably, you know, marginal difference because…

NASIR: Isn’t it also a little weird for other people to be handling your food. I mean, I know that sounds weird when you’re ordering out, but it’s different when you just have random drivers kind of getting it.

MATT: And it’s sitting in the person’s car.

NASIR: In their car.

MATT: Yeah, I mean…

NASIR: It’s weird, right?

MATT: Yeah. It is [Laughs] I have a couple stories for my office because we’re right next to a restaurant that will frequently use the driveway of our office to park. The Uber Eats people would park there. We’ve had a couple of interesting stories of that and one that was not the most sanitary thing…

NASIR: Ugh. Don’t tell me.

MATT: Yeah, I’m not going to tell you or say it on here. But yeah, you’re exactly right. And so, it’s not like it’s a pizza delivery where they get the pizza — you know, it’s someone who’s affiliated with the restaurant and they put the pizzas in the — I don’t know what are those. The delivery bags and whatever and move on there. So yeah, it’s weird. And from my experience, it’s mostly been — you know, the service hasn’t been too great. I mean, I shouldn’t say that. Yeah, it hasn’t been great, but also like it’s just long times, regardless. It’s just I’ve always found it’s easier for me to just go pick it up myself.

NASIR: That’s what I was saying. Yeah, it’s quite a bit a long time anyway so you have to plan ahead. And that’s my problem. I get so busy I have no idea when I’m going to be able to eat anyway, so it’s like I just end up skipping it because how am I supposed — you know, it’s just going to get cold if it sits here.

MATT: Here’s the pro tip for this episode. If you want to do takeout, what you do is you go to the restaurant, order in person, and they’ll almost always get it for you quicker than if you call it in.

NASIR: Ah. That makes sense.

MATT: Yeah. One of my favorite restaurants — I mean, I discovered that because we’d call in and it would be, you know…

NASIR: Never ready until you get there [Laughs].

MATT: No. It would be like they would quote you accurately. It’d be like 30 minutes, 40 minutes. And then, I started going there and ordering in person. And I’m not even joking, it would be like most of the times under 5 minutes.

NASIR: Okay. I’m going to start trying that out.

MATT: Yeah. I mean, there’s one spot where…

NASIR: We should’ve just started that out. That should have been — in fact, we can just edit the entire podcast and just have that advice in there.

MATT: I mean, at worst, it’s the same amount of time, but I would say — obviously, I don’t know for sure, but I would say, you know, 80% of the time, 80%, 90% of the time it’s quicker to do that than to… And then, of course, you’re sitting there just waiting in a restaurant, trying to kill time. So that’s the tradeoff. And I’ve definitely done that too, but I don’t know. That is a little bit quicker.

NASIR: Well, I’m getting hungry so I’m going to go wait at a restaurant somewhere.

MATT: [Laughs] You can do the Uber Eats Dine-In.

NASIR: Oh, that’s right. Yeah, they just — I don’t even understand that. It’s like on a different level of obscurity.

MATT: Yeah. I’ll just say it, mention it real quick. So I wasn’t even aware of it till I was reading about it. Apparently, you go on the Uber Eats app. It’s only in a few cities. You go on there. You select the Dine-In option. They’ll make the food, let you know when it’s ready, and then you go in and eat it in the restaurant. And Uber Eats, I don’t think — they don’t take a cut of anything. I mean, there’s some allegations that they’ve upped the price, some of the prices in the app. And so, maybe indirectly they have, but there’s no…

NASIR: Well, that’s what I was going to say. I feel like the prices are always higher. Anyway, go on.

MATT: Yeah. My point is there’s no like service fee. And if you tip, it goes to the restaurant itself, as it should because you’re eating in the restaurant.

NASIR: Sure.

MATT: I just see a lot of issues with that in general. Just timing everything. I mean, especially busy restaurants. It’s all about turning over tables.

NASIR: Yeah, like getting a seat. Yeah. That seems strange. All these just to get food in our mouths.

MATT: Uber Eats Pool. That was another thing. I’ve actually done that before. It was terrible because it’s a…

NASIR: Uber Eats Pool? Oh yes!

MATT: [Laughs]

NASIR: So like basically, the same concept of — that’s really weird too.

MATT: So they basically pick up — I mean, I think what the idea, the concept they have in mind is like all right, these three people ordered from this restaurant and they all live in the general vicinity of each other. So we’ll go pick it up, deliver to A, then B, then C. But if like what if I was C and I ordered first, so just, you know? I have problems with that too. But again, I haven’t used any of these in…

NASIR: I thought they would do that anyway, but I guess they don’t.

MATT: Actually, now that you say it, I think they actually were doing that. And then, they took some heat for it so they…

NASIR: The people were like, “I don’t want my food mixing in the same backseat of another — someone else’s.”

MATT: [Laughs] Well, it’s just delivery time. I mean, it’s all of it.

NASIR: Right.

MATT: I mean, you can see it when the people drop it off. There’s like multiple different bags. Like, okay. Well, obviously, I’m not the only order here.

NASIR: Yeah.

MATT: I think we’ve complained enough.

NASIR: Yeah [Laughs]. All right. Well, thanks for joining us on a classic episode of Legally Sound Smart Business.

MATT: Yeah. I can’t say when the next episode will be for us. It might be a little bit of time, but we’ll try to make it sometime in the near future. But until then…

NASIR: Oh, we’re not recording at the hospital?

MATT: No [Laughs]. Well, maybe. I don’t know. We can talk about it offline.

NASIR: All right. Very good. All right, man!

MATT: Yup! Keep it sound, keep it smart!

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Legally Sound | Smart Business covers the top business stories with a legal twist. Hosted by attorneys Nasir N. Pasha and Matt Staub of Pasha Law, Legally Sound | Smart Business is a podcast geared towards small business owners.

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