Amazon to Pay $61.7 Million to Settle FTC Charges of Tip Theft

Washington, DC On February 2, the FTC announced that Amazon will pay $6.17 million to settle Federal Trade Commission charges that the company pocketed tips promised to Amazon Flex drivers. The company allegedly changed its driver compensation structure in 2016 without informing drivers. Pending California labor lawsuits against Amazon, those, like lawsuits in Massachusetts and other states can be expected to continue. Although the settlement has no precedential value for these lawsuits, it builds a larger picture of worker mistreatment and widespread disregard for the requirements of wage and hour and consumer protection laws.

Driver suspicions grow 

Amazon Flex is a program in which drivers, classified by Amazon as independent contractors, can agree to make deliveries using their personal vehicles. Deliveries that involve goods ordered through the Prime Now and AmazonFresh programs allow customers to give the drivers a tip. Drivers were assured through widely disseminated advertisements, websites, and the Amazon Flex app, that for these deliveries “[y]ou will receive 100% of the tips you earn while delivering with Amazon Flex.” Amazon also assured its customers that 100 percent of any tips they paid through the app would go to the driver. Drivers were prohibited from taking cash tips.

In late 2016, according to the FTC complaint, Amazon stopped paying drivers the promised rate of $18–25 per hour plus the full amount of customer tips. Instead, it began to pay a lower variable rate in order to cut its own costs. Amazon used the customer tips to “top up" the difference between the new lower hourly rate and the promised rate. Amazon secretly used nearly a third of customer tips to subsidize its own pay to drivers. None of this was disclosed to the drivers.

Amazon received hundreds of complaints after enacting the change. Drivers became suspicious when their overall earnings decreased. In one case, a driver who was assigned to deliver an order to his own home reportedly tipped himself $12. The driver received $30 in compensation for the order, which the company said included 100 percent of the tip. Simple subtraction shows that Amazon contributed only $18. Amazon continued using the new pricing model until August 2019, after the company received notice of the FTC’s investigation.

The FTC complaint further alleges that Amazon harmed both its drivers and its customers. Drivers received less than the amount promised and customers paid over $61 million in tips meant for drivers that Amazon instead diverted to subsidize its own labor costs, leading to the FTC’s charge of “unfair or deceptive acts or practices in or affecting commerce in violation of Section 5(a) of the Federal Trade Commission Act.”

Under the terms of the settlement, Amazon must pay $61,710,583, which will be used by the FTC to compensate Flex drivers. In addition, Amazon is prohibited from misrepresenting any driver’s likely income or rate of pay, how much of their tips will be paid to them, as well as whether the amount paid by a customer is a tip. Amazon also will be prohibited from making any changes to how a driver’s tips are used as compensation without first obtaining the driver’s express informed consent.

State lawsuits continue; FTC promises vigilance 

Sullivan v. Amazon, filed in Massachusetts Suffolk County Court six days after the FTC settlement was announced, claims that the e-commerce giant took delivery tips promised to Massachusetts Flex drivers. The proposed class action lawsuit closely tracks the FTC complaint and alleges that Amazon broke state wage laws, breached its contract with drivers and unjustly enriched itself by withholding the tips. It seeks restitution of the tips plus triple damages and attorney fees and costs. Additional lawsuits claiming violations of state wage laws may soon follow.

Amazon has been embroiled in many California labor lawsuits over the past several years, alleging violations of law that include:

• Disregard of COVID safety protocols that put the lives and health of Amazon workers in jeopardy;
• Misclassification of employees as independent contractors not entitled to the protections of California labor law;
• Failure to pay minimum wage and/or overtime as required by California law;
• Failure to permit meal and rest breaks; and
• Failure to pay for time spent going through mandatory security checks.

This is only a segment of the worker litigation that affects the gig industry universe, including Lyft, Uber, GrubHub and DoorDash, as well as Amazon. FTC Commissioner Rohit Chopra has promised that the FTC will continue to examine “whether tech platforms are engaging in anticompetitive conduct that hoodwinks workers and crushes law-abiding competitors.”