The settlement with the Federal Trade Commission comes after Amazon allegedly used tips to subsidize base pay for independent contractors.
Amazon will pay $61.7 million in a settlement with the Federal Trade Commission (FTC) over allegations that the company used customer tips to subsidize the guaranteed hourly wages of some delivery drivers, after recruiting the gig workers with promises of $18 to $25 hourly pay plus all customer tips. The FTC said the entire settlement is earmarked for affected drivers, but the agency isn’t yet providing details for how drivers can recoup their tips.
The investigation and settlement garnered by the FTC is an important milestone in the wake of years of calls from labor groups and some politicians to stomp out abuses of gig workers. To underscore this moment, two of the FTC’s four current commissioners are also calling on Congress to grant the agency the ability to issue civil penalties to first-time offenders like Amazon to further deter companies from misleading gig workers and consumers.
Under a delivery program called Amazon Flex, Amazon hires independent contractors to handle deliveries of Prime Now and Amazon Fresh orders, and sometimes Amazon.com packages as well. From 2015 to 2016, the company paid these drivers $18 to $25 per hour, plus customer tips. But the FTC alleges that Amazon surreptitiously changed its payment practice in late 2016 and began pocketing some customer tips to subsidize the company’s payments of $18 to $25 per hour, while assuring drivers they were still receiving all their tips.
“In late 2016, the FTC alleges, Amazon shifted from paying drivers the promised rate of $18–25 per hour plus the full amount of customer tips to paying drivers a lower hourly rate, a shift that it did not disclose to drivers. Amazon used the customer tips to make up the difference between the new lower hourly rate and the promised rate. This resulted in drivers’ being shorted more than $61.7 million in tips.”
To make matters worse, the FTC alleges that Amazon “then intentionally failed to notify drivers of the changes to its pay plan and even took steps to make the changes obscure to drivers.”
Amazon said in a statement that it disagrees “that the historical way we reported pay to drivers was unclear” but is “pleased to put this matter behind us.”
On a call with reporters, FTC officials said the $61.7 million represents the full amount owed to drivers, but said it could take weeks or months for the drivers to find out how they can recoup their tips. An FTC spokesperson said Amazon Flex drivers who think they may have been impacted should sign up for email updates here. The settlement also prohibits Amazon from misrepresenting driver earnings and tips, and requires the company to notify drivers before making any future changes to how it handles tips.
The Los Angeles Times first exposed Amazon’s tip-pocketing scheme in early 2019, but the FTC says Amazon continued with the practice until the commission notified the company of its investigation later that year. The newspaper’s report came in the wake of coverage by BuzzFeed News of similar tip-pocketing tactics at meal-delivery company DoorDash and grocery-delivery company Instacart. Both of those companies ended up reversing their practices.
In a joint statement on Tuesday, FTC Acting Commissioner Rebecca Slaughter, a Democrat, and Commissioner Noah Phillips, a Republican, called on Congress to give the FTC the power to create gig-economy rules that more clearly explain what type of behavior is unlawful. The pair also are requesting that Congress give the FTC power to issue large civil penalties to first-time offending businesses as a further deterrent to engaging in schemes like Amazon’s, which FTC commissioners called “outrageous.” Amazon will only open itself to such a civil penalty if it violates the terms of this settlement.
Slaughter said giving the FTC power to issue penalties for first-time offenses would create a powerful “one-two punch,” along with the agency’s existing ability to recoup lost wages for workers.