Amazon.com, Inc. (NASDAQ: AMZN) agreed to pay more than $61.7 million to settle a complaint filed by the Federal Trade Commission (FTC) alleging that it pocketed customers’ tips for Amazon Flex drivers.
Under the terms of the settlement agreement, the FTC will use that amount to compensate Flex drivers who did not receive 100% of the tips paid to them by customers.
Amazon will be prohibited from misrepresenting Flex drivers’ likely income or rate of pay. Also, the company will be prohibited from making any changes to how it uses tips for drivers. It must obtain drivers’ express informed consent before using tips as compensation.
In a statement, FTC Bureau of Consumer Protection Acting Director Daniel Kaufman said, “Rather than passing along 100 percent of customers’ tips to drivers, as it had promised to do, Amazon used the money itself. Our action today returns to drivers the tens of millions of dollars in tips that Amazon misappropriated, and requires Amazon to get drivers’ permission before changing its treatment of tips in the future.”
Details of the FTC complaint against Amazon
On Tuesday, the FTC disclosed its administrative complaint against Amazon.com and its subsidiary, Amazon Logistics.
In the complaint, the Commission noted that Amazon Logistics’ advertisement claimed that drivers under its Amazon Flex program will be paid $18 to $25 per hour for delivering orders to customers. Its advertisements also stated that drivers “will receive100% of the tips” they earn while delivering with Amazon Flex.
Amazon classifies drivers under the Amazon Flex program as independent contractors. They can make deliveries using their personal vehicles. Under the program, drivers deliver goods and groceries ordered through the Prime Now and AmazonFresh programs, which allows customers to give them tips. The e-commerce giant assured customers that 100% of the tips they paid will be given to drivers.
The FTC alleged that Amazon lowered its hourly rate for Flex drivers in late 2016. The e-commerce giant allegedly did not notify drivers that they will no longer receive the promised $18 to $25 per hour hourly rate.
Additionally, the Commission alleged that Amazon used customer tips to make up the difference between the promised rate and the new lower hourly rate. In other words, the e-commerce giant allegedly ripped off Flex drivers more than $61.7 million in tips.
Furthermore, the FTC alleged that Amazon took steps to conceal to Flex drivers its changes to their hourly rate. The Commission noted that an employee reported to colleagues that Amazon “did not want to communicate any pricing changes to [drivers], so we are only ‘reacting’ to any questions.” Despite the changes, the e-commerce giant allegedly continued promising to customers that 100% of tips will be passed to drivers.
Drivers filed hundreds of complaints to Amazon after noticing that their total earnings decreased. The company sent e-mails falsely telling drivers that it was passing 100% of the tips paid to them by customers.
After receiving a notice from the FTC regarding an investigation into drivers’ complaints, Amazon returned to its original pay model.
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