Dive Brief:

• District of Columbia Attorney General Karl Racine on Thursday announced a lawsuit against Instacart claiming that during an 18-month period the company deceived customers into thinking an optional service fee was used to tip delivery workers even though it allegedly went to the company instead.
• The suit also claims that Instacart violated D.C. tax law by failing to collect sales tax on delivery and service fees it collected. Racine is seeking restitution for customers that paid the allegedly deceptive fees and wants to collect taxes that are owed to D.C., along with interest, penalties and costs. 
• “Instacart tricked District consumers into believing they were tipping grocery delivery workers when, in fact, the company was charging them extra fees and pocketing the money,” Racine said in a statement. “Instacart used these deceptive fees to cover its operating costs while simultaneously failing to pay D.C. sales taxes. We filed suit to force Instacart to honor its legal obligations, pay D.C. the taxes it owes, and return millions of dollars to District consumers the company deceived."

Dive Insight:

According to the press release from the D.C. attorney general's office, prior to 2016 Instacart offered customers the option to tip at checkout with a default of 10% that they could adjust. However, the attorney general claims that from September 2016 through April 2018 Instacart replaced the default tip with an optional service fee that also had an adjustable 10% default rate, confusing shoppers into thinking it was the same as the previous adjustable tip. 

The lawsuit says Instacart did not clearly tell customers the service fee was optional and that it would cover Instacart’s delivery and operational costs, not their shoppers’ time and effort. 

However, Instacart does not agree with these claims. 

“In our product, we disclose to customers that tips are always separate from and in addition to any service fees, and we clearly indicate that service fees go towards our operations,” Instacart said in a statement. “Additionally, 100% of customer tips always go to Instacart shoppers who are providing an important essential service for customers. We believe the accusations made in this complaint are without merit. We’re disappointed with today’s action by D.C. Attorney General Racine’s office and we welcome the opportunity to continue an open dialogue on these matters.”

In 2018, after pressure from the D.C. attorney general’s office and the media, Instacart changed its practices. But once again, in 2019, the company modified its tipping policy and shopper pay after outcry from workers and workers’ rights groups. 

The company had been including customer tips in its $10 minimum compensation for workers, also called “shoppers." For example, one shopper received a $10 tip from a customer and received a “batch payment” from Instacart of $0.80, bringing the total to $10.80. The company then modified its policy so its shoppers’ tips would be separate from the company’s contributions. 

Although the D.C. lawsuit is based on actions that occurred several years ago, the pandemic has piqued interest in the treatment of gig workers such as those used by Instacart. In March, Instacart shoppers organized a strike to demand better pay and personal protective equipment. Instacart responded to the strike threat with a stronger pay and benefits package, but workers responded with further pushback.