Shorting Delivery Drivers’ Tips Will Cost Amazon $61.7M in Settlement

After promising that drivers would collect 100% of any tips, Amazon kept tip amounts secret and dipped into the money to cover drivers’ payments.

(Image by josemiguels from Pixabay via Courthouse News)

WASHINGTON (CN) — Amazon agreed Tuesday to pay more than $61.7 million to settle Federal Trade Commission charges that it failed to pay its delivery drivers the full amount of tips as promised.  

The $61.7 million represents the full amount that the commission says Amazon withheld from drivers in its Flex program between late 2016 and mid-2019.

Amazon did not admit to wrongdoing as part of the deal. “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,” a spokesperson said Tuesday.

Amazon Flex is a program in which drivers, classified by Amazon as independent contractors, can agree to make deliveries using their personal vehicles. Flex drivers deliver goods and groceries ordered through the Prime Now and AmazonFresh programs, through which customers can add a tip for their drivers. 

According to the FTC’s 12-page complaint against the Seattle-based tech giant and its subsidiary, Amazon Logistics, the company regularly marketed that drivers participating in the Flex program would be paid $18–25 per hour for their work making deliveries to customers. The ads, along with other materials provided to Flex drivers, also prominently assured drivers that 100% of their tips will be passed on to drivers.  

As quoted in the complaint, the company promised drivers in the FAQs of the Amazon Flex App: “You will receive 100% of the tips you earn while delivering with Amazon Flex.”

And for a time that was true. But the FTC says Amazon secretly deployed an algorithm in late 2016 that lowered the hourly rate it paid drivers and used up to a third of customers’ tips that amount.

It was only after the FTC began investigating in August 2019 that Amazon reverted to the previous policy. Still in force today, this pay model gives drivers an identified base amount plus 100% of tips, with a clear breakdown between the two. 

Veena Dubal, a law professor at UC Hastings, remarked the $61.7 million settlement may make the drivers whole for the withheld tips, but the FTC agreement lacks any penalties to deter this type of tip stealing conduct in the future. 

“Notably, in this case, the practice is only illegal because Amazon made statements assuring both workers and consumers that one hundred percent of tips would go to the drivers,” Dubal said in a statement Tuesday. “Like other gig economy workers, these Amazon Flex drivers are unfairly — and perhaps illegally — bearing the expenses of the delivery business — paying out of pocket for the vehicle expenses, insurance, phone expenses.

“On top of that, Amazon used the black box of algorithmic payment to obscure that they were skimming tips,” she added.  It’s a practice that has been documented across the gig economy — one that is both greedy and unethical.” 

In recent years, Amazon has been working to deliver most of its packages itself and rely less on UPS, the U.S. Postal Service and other carriers. Besides its fleet of planes, Amazon has also built several package-sorting hubs at airports, opened warehouses closer to where shoppers live and launched a program that lets contractors start businesses as Amazon Delivery Service Partners, delivering packages in Amazon Prime-branded vans. 

In August 2020, the Ninth Circuit ruled 2-1 that drivers who deliver Amazon packages are transportation workers engaged in interstate commerce even if they do not cross state lines. While federal law says workers must resolve labor disputes through private arbitration rather than open court, this ruling affirmed that Amazon drivers are exempt from the requirement.

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