FTC Proposes $61M Settlement with Amazon for Tips Not Paid to Drivers

Amazon allegedly changed the terms of service, using customer tips to offset delivery costs, rather than passing 100% of the tips onto drivers.

The Federal Trade Commission has proposed a $61.7 million settlement to Amazon that would compensate Amazon Flex drivers for tips they were never paid. According to an FTC blog post, Amazon launched the Amazon Flex program in 2015, where drivers could sign up to be delivery drivers, including making deliveries through the Amazon Fresh and Prime Now programs. Classified as independent contractors, drivers were to be paid a flat rate based on how many deliveries they made in a specified amount of time.

On top of that, Amazon agreed to give drivers 100% of the tips paid by customers. In a lawsuit, the FTC said Amazon did not share those tips with drivers for a period of two-and-a-half years, and the agency alleges that Amazon made deceptive tipping claims constituting unfair or deceptive acts or practices, violating Section 5(a) of the Federal Trade Commission Act.

“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. “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.”

Violating a promise

Amazon made the 100% tip promise to drivers in its terms of service, advertisements and in other forms of digital communication, and it shared the same message to customers. Amazon does not allow cash tips at the time of delivery, but customers can tip their drivers when they paid for groceries and products at check-out. The Amazon Flex program began in 2015. By the end of 2016, Amazon made changes to the program without notifying drivers or customers, said the FTC complaint. When those changes went into effect, Amazon kept approximately one-third of each tip to offset the guaranteed minimum Amazon drivers were supposed to be paid.

“The practice contradicted Amazon’s representation to driver and consumers’ expectations that drivers would receive 100% of customer tips on top of their offered pay. Through variable base pay, Amazon harmed both its drivers and its customers. Drivers received less than Amazon promised them for completing delivery blocks, and customers paid over $61 million in tips meant for drivers that Amazon instead diverted to subsidize its own labor costs,” said the FTC in its complaint.

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The FTC also said that when drivers suspected they were not being paid accurately, they complained to Amazon but received a stock response that drivers received 100% of the tips. Drivers went on social media to complain, but Amazon did not change their payment practices until the company was notified that the FTC had opened an investigation in May 2019. In August 2019, Amazon announced an “updated earnings experience” that was similar to the original payment arrangement offered to drivers when the Amazon Flex program launched.

Proposed settlement

The FTC’s proposed settlement of $61.7 million will be used to compensate eligible drivers, and it prohibits Amazon from misrepresenting what it pays drivers, what they are likely to earn when working on behalf of Amazon, and the percentage of tips drivers will actually receive. Also, if Amazon changes their payment policies, they must first notify drivers and get their “express informed consent.”

Insider Take

Amazon Prime members receive free delivery on shipments over a certain amount and discounted or free delivery on Amazon Fresh and Prime Now deliveries. On the Amazon Fresh and Prime Now deliveries, customers can choose to add a tip to their order that supposedly goes to the driver. Amazon even suggests what an appropriate tip might be. For example, a $50 grocery order on Fresh would not include a delivery fee because it exceeds the $35 threshold and a suggested tip would be $5. For a $100 order, the suggested tip would be $7. Fresh customers have up to 24 hours to change the tip amount.

For example, if a delivery driver did an exceptional job, a customer could increase the tip, and if the driver did a poor job, they could decrease or remove the tip altogether. To hear that Amazon was using tips to offset delivery costs is disappointing to say the least, especially as a long-time user of Amazon Fresh delivery services. This is a good lesson for other subscription companies – transparency is critical to a good customer and vendor experience. Shortcuts may work for a while, but they are often found out and the consequences are costly in terms of fines and loyalty.