DC Attorney General Accuses Amazon of Misleading Customers and Drivers
Amazon has agreed to pay nearly $4 million to settle allegations that it secretly used customer tips to subsidize its labor costs rather than passing them on to delivery drivers, according to District of Columbia Attorney General Brian L. Schwalb. The settlement follows a similar case in 2021, when Amazon paid $61.7 million to resolve a complaint by the Federal Trade Commission (FTC) over the same issue.
Amazon Misled Customers About Driver Tips
The lawsuit, filed by DC’s attorney general in 2022, alleged that Amazon violated consumer protection laws by misleading customers who believed their digital tips went directly to drivers. The affected drivers were part of Amazon Flex, a program that allows individuals to use their personal vehicles to deliver Amazon packages.
According to the lawsuit, when the program launched in 2015, Amazon assured customers that any tips added at checkout would go directly to drivers. However, officials allege that by late 2016, Amazon quietly altered its payment structure without informing customers or drivers to reduce its own labor costs.
Amazon Used Algorithm to Pocket Tips
The FTC’s earlier investigation found that Amazon used an algorithm to determine average tip amounts in different locations and then lowered its own wage payments accordingly. The company allegedly used customer tips to cover the gap between its new base pay and the $18-$25 per hour it had originally promised drivers. Amazon continued the practice until 2019, when it learned of the FTC’s investigation.
Amazon Denies Wrongdoing but Agrees to Settlement
Despite agreeing to the settlement, Amazon denies any wrongdoing and claims it voluntarily changed its tipping practices years ago. A company spokesperson, Steve Kelly, stated that Amazon Flex has evolved over time and that the lawsuit relates to a practice the company stopped more than five years ago.
Terms of the Settlement
Under the terms of the settlement, Amazon will pay $2.45 million in penalties and $1.5 million in legal fees. The company is also required to disclose on its website and app how customer tips impact driver earnings. This case underscores ongoing concerns about transparency in gig economy payment models and how companies handle worker compensation.
