April 16, 2014 / 6:41 PM / 6 years ago

GrubHub agrees to tip-free restaurant fees with NY Attorney General

People dressed in food-themed costumes give away donuts to people headed to the floor of the New York Stock Exchange to celebrate the IPO of GrubHub, in New York April 4, 2014. REUTERS/Lucas Jackson

NEW YORK (Reuters) - Online food delivery service GrubHub settled a probe by the New York state attorney general on Wednesday by agreeing to not to charge fees that would allow it to make money off customers’ tips.

The agreement with the state attorney general requires GrubHub Inc to make sure that the fees it charges restaurants for its service, which allows customers to order meals online, does not sap tips from delivery people or other workers.

“Our settlement with GrubHub changes a billing formula that may have been used by restaurants to shortchange workers out of their hard-earned tips,” New York Attorney General Eric Schneiderman said in a statement. GrubHub’s current and past contracts may have affected thousands of delivery workers, he said.

The agreement emerged from a February 2013 investigation launched into Seamless, a former competitor to GrubHub before the two merged last year. The investigation found that the company charged restaurants a fee not just on the costs of food and drink but also on how much customers tipped.

New York labor laws ban restaurants or other related companies from keeping any portion of a worker’s extra pay, but Seamless’ billing arrangement potentially encouraged restaurants not to pay workers their full tips, the statement said.

Wednesday’s agreement will require all future GrubHub contracts to use a tip-free fee schedule.

“We are happy that this matter has been resolved and view this as an opportunity to expand on our contribution to the New York independent restaurant community,” GrubHub said in a statement.

Reporting By Curtis Skinner; Editing by Scott Malone and Jonathan Oatis

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