Amazon To Pay $61.7 Million FTC Settlement Over Witheld Driver Tips

Dani Alexis Ryskamp, J.D.

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— Updated on January 7, 2022

Amazon To Pay $61.7 Million FTC Settlement Over Witheld Driver Tips

Amazon recently entered a settlement agreement with the Federal Trade Commission to resolve claims of improper driver compensation. Under the terms of the agreement, Amazon will pay nearly $62 million to settle charges that it failed to pay its Amazon Flex drivers the full amount tipped by customers.

Charges Against Amazon

In 2015, Amazon launched its Amazon Flex program. The program allowed gig workers to make money by delivering Amazon packages, working as independent contractors. It also allowed customers receiving packages to pay a tip to their Amazon Flex drivers. According to the Federal Trade Commission (FTC) complaint, Amazon represented to the public that drivers participating in the Amazon Flex program would receive 100% of all tips received.

As part of their onboarding, Amazon Flex drivers were required to install the Amazon Flex app on their phones and agree to its Terms of Service. The original Terms of Service stated that “Amazon will provide you with any tips you earn.” The app also offered access to a Frequently Asked Questions (FAQ) page, specifying that the driver “will receive 100% of the tips you earn while delivering with Amazon Flex,” per the FTC complaint. Amazon’s ads recruiting drivers for the Flex program also claimed that drivers would earn tips, both in the text of the ads and in testimonials from Flex drivers presented as part of the larger ad campaign.

Despite these representations, Amazon Flex drivers did not receive 100% of the tips they earned. “In fact, for a period of two and a half years, without consumers’ permission, Amazon secretly used nearly a third of customer tips to subsidize its own pay to drivers,” the FTC alleges in its complaint. The FTC further claims that Amazon continued this practice despite multiple driver complaints, media reports criticizing the practice, and internal discussions about the public relations problems such a course of action might cause.

To pull this off, the FTC alleges, Amazon hid the actual amount of tips that drivers had earned. Then, Amazon utilized an algorithm to calculate a minimum pay rate and used the tips to make up the difference between that pay rate and the hourly rate promised to drivers. For instance, if the app promised a driver would make $18 per hour but a delivery paid $12 plus a $6 tip, Amazon used the tip to bring the overall pay to the $18 minimum, instead of paying the $18 and then the $6 on top of it. Thus, claims the FTC, Amazon used drivers’ tips to subsidize its payments to drivers.

The Settlement and The Consequences

According to the FTC, Amazon only changed its practices regarding tips for the Amazon Flex program after the company became aware of the FTC’s investigation. Specifically, the FTC notes that on August 22, 2019, Amazon announced an “updated earnings experience” for its drivers and began displaying their tips earned as a separate line item in the app.

The settlement requires Amazon to pay more than $61.7 million, the amount of money the FTC claims Amazon withheld from driver tips in order to subsidize driver pay. In exchange, Amazon waives further procedural steps in the FTC complaint, an issuance of findings of fact and law from the Federal Trade Commission, and the right to seek judicial review of the settlement agreement.

The settlement amount allows for the repayment of tips to drivers that earned them. Amazon drivers can learn more about the tip refund process through the FTC’s website.

The Future of Gig Economy Workforces

Many companies relying on contract workers have accelerated growth and success by taking advantage of this new business model. And given the novelty of the gig economy, existing laws and regulations have not always been able to fully address this employment classification. The FTC’s complaint against Amazon, however, indicates the agency’s willingness to hold gig economy companies accountable under existing laws, such as those governing misrepresentation and fraud.

Other gig economy companies have already faced similar actions from the Federal Trade Commission. In November 2020, for example, food delivery company DoorDash agreed to pay $2.5 million to settle allegations that it misled Washington D.C. customers to believe their tips were paid to delivery drivers in full, when in fact, the company was taking a cut.

A case against Instacart, also filed by the District of Columbia attorney general, claims that the company told customers that an “optional service fee” would be paid to drivers as a tip. The D.C. AG alleges that Instacart actually withheld this fee for its own use. That case is currently pending.

These cases indicate ongoing interest by the FTC in workers’ interests, their treatment by contract employers, and the representations these companies make to gig workers and to customers who might use the services. For gig economy companies, this trend is likely to spur renewed attention to accurate advertising and adherence to the terms the companies set.

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