GrubHub Inc, the owner of popular online food-delivery services GrubHub and Seamless, agreed to restructure its billing formula Wednesday after a year-long investigation by the New York state attorney general found that the company's restaurant partners were withholding tips from their delivery workers.
The company charged a fee to restaurants based on a percentage of the total food and drink, taxes and tips paid by customers. Once the fee was deducted, the remainder was returned to restaurants, according to Attorney General Eric Schneiderman's office.
The investigation found the fee created an incentive for restaurants to not fully distribute tips to their delivery workers.
Restaurants could “shortchange workers out of their hard-earned tips - tips that customers intended for them,” Attorney General Schneiderman said.
Under New York Labor Law, employers are prohibited from keeping portions of an employee’s tips.
In its settlement, GrubHub agreed to exclude tips from fee calculations in future contracts with new restaurants that sign up for the service. All existing restaurants will transition their old contracts to new agreements as soon as they can, according to the attorney general’s office. The new contracts will also require restaurants to obey other labor laws, including wage and hour laws.
The attorney general says these are “laws that protect the rights of workers.”
The investigation began in February 2013 after a lawsuit was filed against Upper West Side restaurant Indus Valley by 12 employees for allegedly failing to fully compensate them for delivering orders to customers from GrubHub and Seamless.
GrubHub Inc. was formed in August 2013 via a merger of Chicago-based GrubHub and New York-based Seamless, and Schneiderman’s investigation initially began with Seamless prior the merger. The company's portfolio also includes online menu guides, MenuPages and Allmenus.
GrubHub is the number one online and mobile food ordering service in the country, CEO Matt Maloney told CNN’s Alison Kosik earlier in month. Nationwide, the company processes more than a billion dollars in food sales from almost 30,000 restaurants in more than 600 cities.
The online food-delivery service went public on April 4. In its first month, the company has been trading well above its offering price of $26 a share.
In a statement, GrubHub said it was happy that this matter has been resolved and stressed that it was “committed to always acting with integrity and conducting business in an ethical and legal manner.”
When asked about fee structure changes in other cities and states, the company declined to comment.
“We are proud of our track record as a responsible corporate citizen and of the strength of our partnerships with restaurants in the state of New York,” the statement said.