Amazon has agreed to pay nearly $4 million to settle charges that the e-commerce company subsidized its labor costs by taking tips its delivery drivers received from customers, District of Columbia Attorney General Brian L. Schwalb said Friday.
The settlement came four years after Amazon forked over $61.7 million to resolve a complaint the Federal Trade Commission brought over similar accusations.
In 2022, the office of DC's attorney general at the time followed up with a lawsuit alleging Amazon violated the District’s consumer protection laws by misleading residents about how tips paid digitally were used.
According to the lawsuit, the affected drivers were part of Amazon’s Flex business, which allows people to deliver Amazon packages with their own cars.
DC’s lawsuit said that after launching the program in 2015, the company represented to consumers that all tips added during check-out for Amazon Flex orders would go to drivers.
But both the District and the FTC alleged that Amazon changed its payment model in late 2016 to lower its costs but did not disclose the switch to either customers or drivers.
In particular, the FTC's previous complaint alleged the company algorithmically reduced its own wages for drivers in different locations using data it collected about average tips in a specific area. Amazon then used the tips to make up the difference between its new base pay and the $18-25 per hour it had promised drivers, the complaint said.
The FTC said Amazon didn’t stop taking the tips until 2019, when the company found out about the agency's investigation into the issue.
Amazon has denied the allegations and did not admit to wrongdoing as part of the settlement announced Friday.
“Like any successful program, Amazon Flex has evolved over time, and this lawsuit relates to a practice we changed more than five years ago,” Amazon spokesperson Steve Kelly said in a statement.
Under the terms of the settlement, the company will pay $2.45 million in penalties plus $1.5 million in legal fees. It must also disclose on its website and app how tips impact driver earnings.
