The US Federal Trade Commission on Friday announced the approval a consent order against Amazon that requires the company to pay $61.7m to resolve charges that for two and a half years it took tips intended for Amazon Flex drivers and concealed the diversion of funds.
The deal was proposed in February but required sign-off from the US trade watchdog. It arises from FTC charges that Amazon misrepresented both to Amazon Flex drivers and to the public what the company would pay for delivery work.
The tech giant launched its Flex service in 2015, promising drivers – which it classified as independent contractors and referred to as "delivery partners" – that it would pay $18-25 per hour for the delivery of goods from Amazon.com, Prime Now (household goods), Amazon Fresh (groceries), and Amazon Restaurant (takeout).
Amazon's ads made promises like, "You will receive 100 per cent of the tips you earn while delivering with Amazon Flex."
However, during the period from late 2016 through August 2019, drivers – who, as independent contractors, paid for their own car, fuel, maintenance, and insurance – saw only a portion of the promised gratuity when customers opted to tip.
That's because Amazon allegedly, without telling its drivers, shifted to a "variable base pay" rate, which varied by location, wasn't disclosed to drivers, and was frequently lower than the promised hourly range.
"Under the variable base pay approach, for over two and a half years, Amazon secretly reduced its own contribution to drivers’ pay to an algorithmically set, internal 'base rate' using data it collected about average tips in the area," the FTC complaint [PDF] explains.
"The base rate varied by location and sometimes varied within the same market. But this algorithmically set 'base rate' often was below the $18-$25 per hour range that Amazon had promised at the time of drivers’ enrollment and in specific block offers."
To make up any difference between the base rate and the advertised minimum, Amazon is said to have used some or all of any tip left by customers to meet its payment commitment. For example, if Amazon set a base rate for a region at $12 and the customer left a tip of $6 via Amazon's electronic tip collection system, then the company paid the driver only $12 and augmented the payment with the $6 tip, instead of paying the $18.
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To conceal this calculation, Amazon displayed driver earnings in its driver app as the combination of its base rate and any tip rather than listing the two amounts separately. As described in the FTC complaint, Amazon did so deliberately and adopted a strategy to avoid communicating to drivers that their earnings had been affected by its pay rate change.
"Amazon employees also acknowledged internally that Amazon was using customer tips to subsidize its minimum payments to drivers, and that these subsidies were saving Amazon millions of dollars at the drivers’ expense," the complaint explains. "In August 2018 emails, Amazon employees referred to the issue as 'a huge PR risk for Amazon' and warned of 'an Amazon reputation tinderbox.'"
When questioned by a reporter about its Flex pay practices in February 2019, Amazon offered a response that ducked the question, the complaint says. In May 2019, the FTC told Amazon it was investigating the company's Flex payment practices. Then in August 2019, Amazon announced an "Updated Earnings Experience," offering terms similar to its initial unfulfilled commitment – to let drivers keep 100 per cent of any tips.
The $61.7m settlement represents the amount of tips that Amazon allegedly withheld from drivers and it forbids Amazon from misrepresenting the likely income of drivers and from changing how tips are used as compensation without prior driver consent. Those requirements will last 20 years and be subject to civil penalties of $43,792 per violation.
The FTC says it will disburse the funds to affected Flex drivers within six months of receiving payment and driver information from Amazon.
Amazon did not respond to a request for comment. ®