Contractors working for the Amazon Inc. Flex program, load packages into vehicles to deliver to customers in San Francisco.
David Paul Morris | Bloomberg | Getty Images
Amazon will pay $ 61.7 million to settle the Federal Trade Commission allegations that it did not pay Flex delivery drivers the full number of tips received from customers.
The committee voted 4-0 in favor of the settlement, which was announced on Tuesday. In the complaint, the FTC alleges that in 2016 Amazon shifted from paying drivers with the promised rate of $ 18 to $ 25 per hour, plus tips, to paying drivers with a lower hourly rate.
Amazon “deliberately failed” to notify drivers of this change and used the tips to make up for the difference between the promised rate and the new lower hourly rate, the FTC said.
“Rather than passing 100% of customer tips to drivers, as promised, Amazon used the money itself,” Daniel Kaufman, acting director of the FTC’s Bureau of Consumer Protection, said in a statement. “Today’s action will earn drivers the tens of millions of dollars in tips that Amazon has embezzled, and requires Amazon to get driver approval before changing its tip treatment in the future.”
Amazon spokesman Rena Lunak told CNBC in a statement that the company disagrees with the FTC’s claim that the payment model for drivers was unclear.
“While we disagree that the historical way we reported payment to drivers was unclear, we added additional clarity in 2019 and we are pleased to leave this issue behind,” said Lunak. “Amazon Flex delivery partners play an important role in serving customers every day, which is why they earn more than $ 25 an hour on average among the best in the industry.”
Amazon Flex works in a similar way to Uber, in that contracted deliverers pick up crews on demand to deliver Amazon packages or Whole Foods orders to the customer’s door. Launched in 2015, the service uses drivers to deliver packages from their own vehicles and operates in more than 50 cities in the US.
In its complaint, the FTC further alleges that Amazon tried to cover up the change in drivers’ policies after receiving hundreds of complaints from drivers suspected that their total earnings had declined.
Amazon employees seemed to recognize the risks of how the company handled the change, calling it an “Amazon reputation blockbox” and “a huge PR risk to Amazon,” the FTC said.
Amazon continued to use the new pricing model until August 2019, after the start of the FTC’s investigation. The company returned to a payment model where Flex drivers pay a base rate, plus 100% tips, the FTC said.
As part of the settlement, Amazon has 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 a driver’s likely income or salary, how much of their tips will be paid to them, and whether the amount paid by a customer is a tip. Amazon is also prohibited from making changes to the way a driver’s tips are used as compensation without first obtaining driver approval.
The settlement comes because on-demand delivery services DoorDash and Instacart have also drawn public attention due to their tipping practices.
Last November, DoorDash reached a $ 2.5 million settlement with the District of Columbia Attorney General over allegations that it was misleading consumers and pocketing employees’ tips. Washington DC Attorney General Karl Racine announced charges against DoorDash after his office discovered that the company was using customers’ tips to offset the minimum payment to employees. DoorDash said in 2019 that it had changed its tipping model.
Likewise, in August last year, Racine filed a lawsuit against Instacart, alleging that the company misled customers into thinking that an optional service charge would be collected as a tip for employees and instead pocketed it for itself.