GrubHub (GRUB) 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 on Wednesday in the form of a settlement with New York Attorney General Eric Schneiderman, ending a yearlong 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 startup’s 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 more than 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 gratuity. 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.
Regardless of whether tips have ever been a major problem for GrubHub, the food-delivery startup isn’t the only tech service facing questions about its handling of gratuities. Uber drivers have sued the company, claiming it misleads customers into thinking part of their fares count as tips and then takes 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, including 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 company as a partner of sorts to the restaurants, 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.”
GrubHub welcomes that characterization. In a statement, the food-delivery service 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 remains to be seen whether GrubHub sees these changes as necessary or simply as a way to appease a single law enforcement official. A spokesperson for the company declined to say if the settlement would lead to changes in the way GrubHub handles tips outside Schneiderman’s jurisdiction.