Amazon will pay $61.7 million to Flex drivers to settle allegations of stolen tips, after an extensive investigation by the US Federal Trade Commission. The figure represents the total amount of allegedly withheld tips over the two and a half years that Amazon Flex’s controversial base pay system was in place. Amazon also agreed to new restrictions on how it communicates wage information to drivers.
“In total, Amazon stole nearly one-third of drivers’ tips to pad its own bottom line,” FTC Commissioner Rohit Chopra said in a statement, accusing Amazon of “expanding its business empire by cheating its workers.”
“In total, Amazon stole nearly one-third of drivers’ tips to pad its own bottom line”
Reached for comment, Amazon rejected the idea that its pay structure had stolen wages, or was otherwise unclear. “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,” a company representative told The Verge.
Instituted in late 2016, the variable base pay system came under scrutiny after reporting by the Los Angeles Times’ Johana Bhuiyan in February 2019. Amazon initially defended the practice, saying drivers still received 100 percent of the tips sent by customers, even in instances when those tips displaced base pay that would otherwise have been provided by Amazon.
According to the FTC complaint, Amazon used this ambiguity to recruit drivers with promises of high base wages and the potential for significant tips — then pad its own bottom line by using tipped income to make up much of the paid base wage.
In hiring materials materials, workers were told they would keep 100% of their tips, and separately guaranteed a base wage between $18 and $25 per hour. The drivers were not informed that the tips would sometimes be used to reimburse the base wage, resulting in some of the tipped amount going to Amazon rather than the driver.
“Amazon received hundreds of complaints from drivers after enacting the change, as drivers became suspicious when their overall earnings decreased,” the commission said in its official statement. “Drivers who complained received form e-mails falsely claiming that Amazon was continuing to pay drivers 100 percent of tips.”
Amazon became aware of the FTC’s investigation in May of 2019, when the commission issued a civil investigative demand for records relating to the Flex program. Amazon discontinued the practice in August 2019.
The two years during gave Flex an advantage over competing delivery services, allowing the company to recruit a significant base of drivers by advertising the inflated base pay. “By the time this scheme was exposed in late 2019, Amazon Flex was far more established,” wrote Commissioner Chopra. “This conduct raises serious questions about how Amazon amassed and wielded its market power.”
Amazon reported $11.6 billion in profits over the course of 2019, with the Flex program accounting for just a tiny portion of the company’s operations.
DoorDash and Instacart both maintained a similar base-wage system, although neither company is part of today’s settlement. Instacart reversed its policy in February 2019, shortly after the LA Times reporting brought it to light. DoorDash made similar changes the following July.
Notably, the settlement only includes the money that was withheld from drivers, as the FTC does not have legal authority to impose punitive fines on companies that break the law. But in a press conference announcing the settlement, FTC Commissioner Noah Phillips called on Congress to grant the commission greater enforcement powers so that it could institute more severe penalties in the future.
“Prevailing law does not provide for penalties for conduct like this,” said Phillips told reporters. “We’re calling on Congress to give us the authority to go after companies with more tools, specifically penalties and rule-making, so that we can better deter conduct like this from ever occurring in the first place.”
Update 2:22 PM ET: Included comment from Amazon.