AG Schneiderman Announces Agreement with Internet Food-Delivery Company GrubHub

Agreement Ensures that Restaurants Using the Internet Service are Aware the Law Requires Full Tip Goes to Delivery Worker.

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New York, NY - April 16, 2014 - Attorney General Eric T. Schneiderman today announced an agreement with GrubHub Inc., an internet food-delivery company that was created last year when GrubHub Inc. and Seamless North America LLC merged. The agreement requires GrubHub to take steps to ensure that the tips it collects from customers who order via the company’s website will be distributed, in full, to the workers for whom they were intended.
“Our settlement with GrubHub changes a billing formula that may have been used by restaurants to shortchange workers out of their hard-earned tips — tips that customers intended for them,” Attorney General Schneiderman said. “In addition, 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. Today’s agreement addresses a problem that may have affected thousands of delivery workers, and the industry will be better off for it.”
An investigation by the Attorney General’s Labor Bureau into Seamless – which began prior to the merger – found that the company calculated and charged a fee to its restaurant partners based on a percentage of the total food and drink, taxes and tips paid by customers. Once the fee had been taken by Seamless, the remainder was returned to restaurants. New York Labor Law prohibits an employer, the employer's agent, or any person from retaining a portion of an employee's tips and the fee structure used by Seamless potentially created an incentive for restaurants to fail to remit the full portion of tips to delivery employees. 
The Attorney General's investigation began in February 2013 after reports that at least one restaurant was failing to remit all tips to employees in part because of Seamless’ longstanding billing structure. In addition to the fee structure, Seamless contracts with restaurants also did not highlight restaurants’ legal obligation to remit all tips to employees, even as the contracts fully disclosed similar obligations of the restaurants to remit all taxes to the appropriate taxing authorities. 
The agreement requires all future GrubHub Inc. contracts with restaurant partners to use a fee calculation that excludes tips. In addition, GrubHub must make efforts to transition those restaurants which still have the old contracts to new agreements in which the method of fee calculation does not involve tips. 
Beyond changes to the fee structure, the company will send all New York restaurant partners, which number well into the thousands, a notice informing them of their labor law obligations, with particular focus on issues related to delivery workers. The company will also include a new requirement in its standard contract that restaurants must comply with all laws applicable to delivery workers, including wage and hour laws and laws requiring timely and full distribution of tips. Finally, GrubHub will include a new notification in the billing invoices it sends to restaurants, stating that tips are the property of the delivery workers who earn them. 
The case was handled by Assistant Attorney General Haeya Yim, Section Chief Andrew Elmore and Bureau Chief Terri Gerstein, all of Attorney General’s Labor Bureau. The Executive Deputy Attorney General for Social Justice is Alvin Bragg.