Amazon will pay $61.7 million to settle allegations by the Federal Trade Commission that it failed to pay Flex delivery drivers the full amount of tips received from customers.
The commission voted 4-0 in favor of the settlement, which was announced Tuesday. In the complaint, the FTC alleges that Amazon in 2016 shifted from paying drivers the promised rate of $18 to $25 per hour, plus tips, to paying drivers a lower hourly rate.
Amazon “intentionally failed” to notify drivers of this change and used the tips to make up the difference between the promised rate and the new lower hourly rate, according to the FTC.
“Rather than passing along 100% of customers’ tips to drivers, as it had promised to do, Amazon used the money itself,” said Daniel Kaufman, acting director of the FTC’s Bureau of Consumer Protection, in a statement. “Our action today returns to drivers the tens of millions of dollars in tips that Amazon misappropriated, and requires Amazon to get drivers’ permission before changing its treatment of tips in the future.”
Amazon spokesperson Rena Lunak told CNBC in a statement that the company disagrees with the FTC’s claim that the pay model for drivers was unclear.
“While we disagree that the historical way we reported pay to drivers was unclear, we added additional clarity in 2019 and are pleased to put this matter behind us,” Lunak said. “Amazon Flex delivery partners play an important role in serving customers every day, which is why they earn among the best in the industry at over $25 per hour on average.”
Amazon Flex operates similarly to Uber, in that contracted delivery drivers pick up shifts on demand to deliver Amazon packages or Whole Foods orders to customers’ doorsteps. The service, launched in 2015, uses drivers to deliver packages from their own vehicles and operates in more than 50 cities across the U.S.
In its complaint, the FTC further alleges that Amazon sought to obscure the change in policy from drivers, after it received hundreds of complaints from drivers who had become suspicious that their overall earnings decreased.
Employees at Amazon appeared to recognize the risks of how the company handled the change, referring to it as an “Amazon reputation tinderbox” and “a huge PR risk to Amazon,” the FTC said.
Amazon continued using the new pricing model until August 2019, following the launch of the FTC’s investigation. The company returned to a pay model where it pays Flex drivers a base rate, plus 100% of tips, according to the FTC.
As part of the settlement, Amazon is required to pay more than $61.7 million to the FTC, which will be used by the agency to compensate Flex drivers. The settlement also prohibits Amazon from misrepresenting any driver’s likely income or rate of pay, how much of their tips will be paid to them, as well as whether the amount paid by a customer is a tip. Amazon is also prohibited from making any changes to how a driver’s tips are used as compensation without first getting consent from drivers.
The settlement comes as on-demand delivery services DoorDash and Instacart have also attracted public scrutiny for their tipping practices.
Last November, DoorDash reached a $2.5 million settlement with the attorney general of the District of Columbia over claims it misled consumers and pocketed workers’ tips. Washington, D.C. Attorney General Karl Racine announced charges against DoorDash after his office found the company used customers’ tips to offset the minimum payment owed to workers. DoorDash said in 2019 it had changed its tipping model.
Similarly, Racine in August of last year filed a lawsuit against Instacart, claiming the company deceived customers into thinking an optional service fee would be collected as a tip for workers and pocketed it for itself instead.
