Philly restaurant says Grubhub ‘stole’ millions from eateries by charging for ‘sham’ phone orders

A Philadelphia-area restaurant chain claims that Grubhub, the online food delivery and takeout platform, has “stolen” millions of dollars from small businesses by charging them for “sham telephone orders,” according to a proposed class-action lawsuit.

The suit, filed in federal court by a pair of Tiffin Indian food restaurants, alleges that Grubhub has charged commissions for phone calls that did not generate food orders. The Tiffin chain, founded by Wharton MBA and ex-investment banker Munish Narula, argues that Grubhub’s actions ate into restaurants’ revenues for more than seven years.

Tiffin claims it’s bringing the case on behalf of the roughly 80,000 restaurants that Grubhub works with across the country. The case is seeking unspecified damages and restitution. The lawsuit also wants a judge to bar Grubhub from charging businesses for customer calls that don’t result in food orders.

Grubhub, which declined comment on Monday, filed a motion last week to send the case to arbitration. In court filings, the Chicago-based company has said it did not act deceptively nor breach its contracts with the two Tiffin eateries named as plaintiffs. The two restaurants, located in Elkins Park and Mount Airy, are part of a chain of 10 Tiffin eateries in the region.

Tiffin’s lawyer, Catherine Pratsinakis, declined comment. Narula did not return a request for comment.

Founded in 2004, Grubhub allows customers to find local restaurants and place food orders through its online platform. Restaurants pay a commission, typically a percentage of the order (Tiffin pays 15 percent per order, court documents show). Grubhub, which recently expanded its Philadelphia presence with a Center City tech hub, competes with other food delivery services such as UberEats, and DoorDash.

Grubhub generated $1 billion in revenue in 2018, an increase of more than 46 percent from the $683.1 million collected in 2017. The company says it serves 17.7 million active diners.

According to the lawsuit, reported by Philadelphia Magazine in January, Grubhub also charges businesses when customers place orders using unique phone numbers found on its online platform. Grubhub tracks the calls and bills the restaurants accordingly, imposing a fee based on a monthly average of previous commissions charged to the restaurant, according to the complaint filed in December in the U.S. District Court for the Eastern District of Pennsylvania.

But Grubhub does not verify whether the calls actually result in food orders and relies solely on the length of the phone call to justify charging commissions, the suit says. Tiffin cited examples of customers calling to ask about ingredients, existing orders, and hours of operation – calls that the eatery said resulted in charges from Grubhub.

In one case last year, a woman called a Tiffin restaurant through the phone number listed on Grubhub’s platform, asking questions about the menu because she had food allergies, the complaint says. She proceeded to place an order through Grubhub’s website, and Grubhub charged Tiffin twice for both the call and online order.

According to the complaint, a Grubhub worker told Narula, the Tiffin founder and president, that the platform charges commissions for calls that exceed 45 seconds, regardless of whether a customer places a food order.

In a 2013 post on Quora, Grubhub founder Mike Evans wrote that there are a “few key indicators” that show whether a call is an order.

“Among them are time of call (during business hours), duration of call, exclusion of multiple call from same number, etc.,” Evans wrote at the time. “It turns out to be possible to predict with a high degree of accuracy which calls are orders or not.”

Making matters worse for small businesses, Tiffin argues, is that customers often place calls through Grubhub because an internet search for restaurants using Google could list Grubhub’s ad before the restaurant’s website.

Tiffin said Grubhub orders make up nearly 15 percent of the Indian chain’s revenues.

Last week, Grubhub’s lawyer asked a judge to send the case to arbitration, noting its contracts with the Tiffin eateries contain an arbitration clause with a class-action waiver. Tiffin’s lawyers have not yet responded to the motion.