Contractors working for Amazon Inc. Flex loads packages into vehicles to deliver to customers in San Francisco.
David Paul Morris | Bloomberg | Getty Images
Amazon will pay $ 61.7 million to address the Federal Trade Commission’s allegations that it failed to pay Flex delivery drivers the full amount of customer advice.
The Commission voted 4-0 in favor of the solution, which was announced on Tuesday. In the complaint, the FTC claims that Amazon in 2016 went from paying drivers at the promised rate of $ 18 to $ 25 per hour, plus tips, to paying drivers with a lower hourly rate.
Amazon “intentionally failed” to notify drivers of this change and used the tips to make up for the difference between the promised rate and the new lower hourly rate, according to the FTC.
“Instead of passing 100% of customer advice to drivers, as it promised to do, Amazon used the money itself,” Daniel Kaufman, acting director of the FTC’s Consumer Protection Bureau, said in a statement. “Our action today returns tens of millions of dollars to drivers in advice that Amazon has misappropriated and asks Amazon to get drivers’ permission before changing its treatment with advice in the future.
Amazon spokeswoman Rena Lunak told CNBC in a statement that the company did not agree with the FTC’s assertion that the driver payment model was unclear.
“While we do not agree that the historical way in which we have reported payment to drivers has been unclear, we have added additional clarity in 2019 and we are excited to leave this issue behind,” Lunak said. “Amazon Flex 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, with contracted delivery drivers taking over-demand shifts to deliver Amazon packages or Whole Foods orders to customer doors. The service, launched in 2015, uses drivers to deliver packages from their own vehicles and operates in more than 50 US cities
In its complaint, the FTC further claims that Amazon tried to hide the change in driver policy after receiving hundreds of complaints from drivers who became suspicious that their overall revenue had fallen.
Amazon employees seemed to recognize the risks of how the company handled the change, referring to it as “an Amazon reputation box” and “a huge public relations risk for Amazon,” the FTC said.
Amazon continued to use the new pricing model until August 2019, following the launch of the FTC investigation. The company has returned to a payment model in which it pays Flex drivers a base rate, plus 100% tips, according to the FTC.
As part of the settlement, Amazon is required to pay more than $ 61.7 million to the FTC, which will be used by the agency to compensate Flex drivers. The agreement also prohibits Amazon from misrepresenting the probable income or payment rate of any driver, how much of their advice will be paid to them, and whether the amount paid by a customer is a tip. Amazon is also prohibited from making any changes to the manner in which a driver’s advice is used as compensation without the prior consent of the drivers.
The deal comes as DoorDash and Instacart on-demand delivery services have also attracted public scrutiny for their tipping practices.
In November last year, DoorDash reached a $ 2.5 million settlement with the District Attorney General of the District of Columbia over allegations that it misled consumers and pocketed workers’ advice. Washington, D.C. Attorney General Karl Racine announced charges against DoorDash after his office found that the company used customer advice to compensate for the minimum pay due to workers. DoorDash said in 2019 that it changed its tipping model.
Similarly, in August last year, Racine filed a lawsuit against Instacart, claiming that the company had misled customers into believing that an optional service charge would be collected as advice for workers and would have pocketed it for itself.