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Amazon Pocketed $62 Million in Delivery Drivers’ Tips, FTC Alleges

A $61.7 million settlement will compensate gig workers whose tips were used to subsidize their hourly wages

Multiple Amazon Prime delivery bags on a doorstep. Photo: marekuliasz/Shutterstock

Amazon has agreed to pay more than $61.7 million to settle Federal Trade Commission (FTC) charges that the e-commerce giant skimmed off customer tips to subsidize delivery drivers’ hourly wages.

“The FTC is sanctioning for expanding its business empire by cheating its workers,” FTC commissioner Rohit Chopra wrote in a statement. “In total, Amazon stole nearly one-third of drivers’ tips to pad its own bottom line.”

Under the Amazon Flex program, which launched in 2015, independent contractors use their own cars to deliver Amazon packages and Amazon Fresh and Whole Foods groceries. The FTC alleges that Amazon lured in recruits for the Flex program by promising they would receive a base hourly wage between $18 and $25, as well as 100 percent of tips left by customers in the app.

But between late 2016 and August 2019, Amazon allegedly lowered its hourly rate and started using tips to make up the difference without informing drivers. Even after drivers started to complain and the media began reporting on the tip pocketing, according to the FTC, the company took steps to “obscure” what was going on, telling drivers that they were still receiving 100 percent of tips, even while Amazon employees privately referred to the situation as an “Amazon reputation tinderbox” and “a huge PR risk to Amazon.” The company allegedly only stopped this new pricing model when the FTC informed Amazon that it was investigating Flex pay practices.

In response to the settlement, an Amazon spokesperson told the Verge that “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.”

The $61.7 million represents the total amount that Amazon allegedly withheld from Amazon Flex drivers, and will be used to compensate those workers. Drivers who think they may have been impacted should sign up for FTC email updates, a spokesperson for the agency told Recode.

Under terms of the settlement, which was announced on the same day that Jeff Bezos revealed he would be stepping down as Amazon CEO for a new role, Amazon has to be transparent about drivers’ pay rates and tips and must obtain express informed consent before making any changes to how tips are used as compensation, going forward.

The gig economy is rife with such tip-pocketing schemes. (Almost like these companies’ business models can only work by exploiting labor?) Delivery startups DoorDash and Instacart reversed similar pay structures after customers threatened to stop using the apps.

But with this latest rebuke of Amazon Flex’s practices, the FTC may finally be moving to deter this behavior across the board. Per Recode:

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.”

“The Commission has historically taken a lax approach to worker abuse,” commissioner Chopra wrote in a statement. “I hope that today’s action turns the page on this era of inaction.”