Contractors working on the Amazon Inc. program Flex load packages into vehicles to deliver to San Francisco customers.
David Paul Morris | Bloomberg | Getty Images
Amazon will pay $ 61.7 million to resolve complaints from the Federal Trade Commission that it did not pay Flex delivery drivers the full amount of advice received from customers.
The commission voted 4-0 in favor of the deal, which was announced Tuesday. In the complaint, the FTC alleges that Amazon in 2016 went from paying drivers the promised rate of $ 18 to $ 25 per hour, plus tips, to paying drivers a lower hourly rate.
Amazon “intentionally” did not notify drivers of this change and used the tips to make up for the difference between the promised fare and the new lower hourly fare, according to the FTC.
“Instead of conveying 100% of customer advice to drivers, as it had promised to do, Amazon used the money,” said Daniel Kaufman, acting director of the FTC’s Office of Consumer Protection, in a communiqué. “Our action today returns drivers tens of millions of dollars in advice that Amazon misappropriated and requires Amazon to obtain drivers’ permission before changing its tip treatment in the future.”
Amazon spokeswoman 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 with the fact that the historical way we reported payment to drivers was not clear, we added more clarity in 2019 and we are pleased to leave this issue behind,” Lunak said. “Amazon Flex’s delivery partners play an important role in serving customers every day, which is why they earn among the best in the industry at over $ 25 an hour on average.”
Amazon Flex works similarly to Uber, as contracted delivery drivers pick up on-demand shifts to deliver packages or orders from Whole Foods to customers ’doors. The service, launched in 2015, uses drivers to deliver packages from their own vehicles and operates in more than 50 U.S. cities.
In its complaint, the FTC further alleges that Amazon tried to hide the change in driver policy, after receiving hundreds of complaints from drivers who had suspected that their overall revenue was declining.
Amazon employees seemed to recognize the risks of how the company handled the change, referring to it as “Amazon’s reputation box” and “a huge public relations risk for Amazon,” the FTC.
Amazon continued to use the new pricing model until August 2019, following the launch of the FTC investigation. The company returned to a payment model where it pays Flex drivers a base fee, plus 100% tips, according to the FTC.
As part of the liquidation, Amazon has to pay more than $ 61.7 million to the FTC, which the agency will use to compensate Flex drivers. The agreement also prohibits Amazon from misrepresenting any driver’s likely revenue or payment rate, the amount of their tips that will be paid to them, as well as whether the amount a customer pays is tipped. Amazon is also prohibited from making changes to the way a driver’s advice is used as compensation without first having to receive drivers ’consent.
The deal comes as DoorDash and Instacart on-demand delivery services have also attracted public scrutiny for their tipping practices.
Last November, DoorDash reached a $ 2.5 million deal with the District of Columbia Attorney General for claims that misled consumers and pocketed workers ’advice. Washington, DC Attorney General Karl Racine announced the charges against DoorDash after his office found that the company used customer advice to offset the minimum payment owed to workers. DoorDash said in 2019 that it had changed its tip model.
Similarly, Racine, in August last year, filed a lawsuit against Instacart, claiming that the company deceived customers into thinking it would charge an optional service fee as a tip for workers and he pocketed it for himself.