Consumers Bring DoorDash Lawsuit over Stolen Tips

San Francisco, CADoorDash customers, Jennifer Peter and Karson Theiss, have filed a class action lawsuit in the Northern District of California alleging that DoorDash’s practice of pocketing tips intended for delivery drivers is an unfair business practice that misleads those who use the delivery service. Many who follow the litigation surrounding DoorDash may already be familiar with California labor lawsuits that claim that DoorDash drivers are misclassified as independent contractors.

Peter v. DoorDash, Inc is the other side of the coin. It argues that, to the extent the practice cheats the workers, it also deceives the customers who had no intention of participating in a shady scheme. Not surprisingly, it suggests a shared interest between those who eat and those who work.
 

The scheme

DoorDash, somewhat like Uber or Lyft, describes itself as a “technology company.” Rather than delivering people, however, it facilitates door-to-door food delivery. Using DoorDash’s website or app, a consumer can place a food delivery order from participating restaurants that one of DoorDash’s drivers (often bicyclists) delivers to the consumer. A consumer who places an order through DoorDash is given the option to add a tip for his or her delivery person (called a “Dasher”) before he or she completes the order online.

DoorDash also guarantees Dashers a certain minimum payment per delivery. The in-app tip, however, is credited toward the guaranteed minimum. The Dasher does not get anything extra.

For example, if the Dasher is promised a guaranteed minimum payment of $7.00 and the consumer gives no tip, DoorDash pays the Dasher $7.00. But if the consumer leaves a $3.00 tip, DoorDash uses this $3.00 toward the guaranteed $7.00 minimum payment and only pays $4.00 of its own money. Either way, the Dasher makes $7.00. That guaranteed minimum payment is also a maximum.
 

California’s Unfair Competition Law

The named plaintiffs in the lawsuit are residents of Missouri and Illinois, so the Complaint cites violations of the Missouri Merchandising Practices Act and the Illinois Consumer Fraud Act in addition to the California Unfair Competition Law. DoorDash has its principal place of business in California. This is the statute that is of particular relevance to the nationwide class of plaintiffs.

California’s UCL prohibits false advertising and illegal business practices. The law describes “unfair competition” as any unlawful, unfair, or fraudulent business act or practice, or false, deceptive, or misleading advertising. To succeed in a UCL claim, plaintiffs must show: first, that the practice was likely to deceive a reasonable customer and secondly, that they suffered a loss. The loss issue, although it may be small if it refers only to the amount of the tip, may be the easier of the two.
 

What would a reasonable consumer believe?

What is likely to deceive a reasonable customer? A curious customer who wanted to learn about DoorDash’s tipping policy would likely go straight to the section on a DoorDash webpage entitled “Tips.” That section states, “Whether and how much to tip is up to you, and you always have the option to tip more or less than the suggested amount.” Nothing in this section, however, tells consumers that their tips are being used by DoorDash to subsidize the Dasher’s guaranteed minimum payment and in most cases provide no financial benefit to the Dasher.

Under the section entitled “The Dasher Pay Model” the webpage further states: “We guarantee Dashers will earn a minimum amount, including tips, for completing each delivery. This ‘guaranteed minimum’—which Dashers see before accepting any delivery—is based on the estimated time and effort required to complete that delivery.” Even if a consumer were to read this, it would not clearly inform him or her that in most cases their tips merely subsidize part of DoorDash’s guaranteed minimum payments and provide no additional compensation to the Dasher.

To demonstrate that DoorDash’s practice of using the in-app tip to decrease its own financial outlay is deceptive, the Complaint additionally relies on descriptions of acceptable business practices as set forth by the Direct Marketing Association.
 

DoorDash’s response

In apparent response to negative news coverage of DoorDash’s tip policy in media outlets like The New York Times and the Washington Post in late July, DoorDash CEO Tony Xu promised to change the practice so that Dasher tips would be added to the guaranteed minimum.

As reported by Business Insider, however, that practice did not appear to have changed as of late August.
 

What’s next?

Dashers should certainly beware. Customers may want to tip in cash, where possible, to ensure that the Dasher actually sees the benefit of the tip.

In the longer run, though, workers and consumers may want to give further thought about the degree to which their interests are aligned. The price-of-labor/cost-to-consumer equation is not a simple one, since most people play both roles. This is especially true as more and more jobs move to the independent contractor economy where wage and hour protections are weak.