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Delivery Startups Are Using Tips To Fulfill Pay Promises, And Customers Are Mad

Instacart customers are quitting the service because the company is using customers' predelivery tips to fulfill the base pay minimum it guarantees delivery workers.

Posted on February 5, 2019, at 6:04 p.m. ET

Instacart customers who feel tricked by the grocery delivery company’s tipping policy are threatening to stop using the service.

Last week, customers were surprised to learn that Instacart uses customer tips to cover its guaranteed $10 per delivery minimum payment to drivers, which means that in some cases, the more a customer tips, the less the company has to pay.

@spaulsandhu @dhh @Instacart @Instacart I’d also like an answer. I’ve used the app recently and really enjoyed the experience, but need to know if this is how you’re operating. People assume a tip will be on top of a base pay - and you know that. Please confirm. (Canadian customer)

Instacart confirmed that when its payment algorithm determines a driver should be paid below that guaranteed $10, the company uses the customer’s predelivery, “up front” tip to cover the difference. The “up front” tip is automatically set to 5% on the Instacart app; if the customer removes the tip, and the payout would be below $10, Instacart itself covers the cost. The company said the number of orders where the algorithmically determined payment comes out to under $10 is low, but declined to specify a percentage.

When Instacart rolled out this payment system nationally at the end of last year, drivers complained that it lowered their incomes. But it wasn’t until the Washington state–based labor group Working Washington published a viral blog post about Instacart’s practices that customers realized how their tips were being used.

“I always assumed a tip was ON TOP of the base wage, not ‘a part of,’” Paul Sandhu, an Instacart premium customer who said he uses the service around three times a week, told BuzzFeed News. “Consumers are basically subsidizing a promised minimum payment, and it's extremely deceptive.” Sandhu said he plans to tip his delivery drivers in cash from now on.

“I assumed that tips were just that — not wage replacement."

Brian Clark, a Seattle-based Instacart customer, said Instacart doesn’t explain to customers that in some cases their decision to leave an “up front” tip prior to delivery could lower Instacart’s contribution to the guaranteed $10 per job minimum.

“I assumed that tips were just that — not wage replacement,” Clark told BuzzFeed News. “[Instacart] certainly [doesn’t] message it that way when you are selecting a tip amount at checkout.” In a tweet, Clark said he would stop using Instacart because of their tip policy.

@dhh @Instacart hey if this is true you just lost my family as customers for good. Unethical and immoral. I’ll be sure to let all my neighbors know too. 👎

DoorDash, a startup that delivers food from local restaurants, has also attracted scrutiny for its tipping policy, which is similar to Instacart’s, but uses a sliding scale for its minimum base pay instead of a flat amount. As with Instacart, DoorDash guarantees a minimum payout, but uses the customer’s tip to cover that guarantee when possible. DoorDash said this policy is made clear on its website, but not all customers seem familiar — or comfortable — with the arrangement.

Michael McAllister is a regular DoorDash customer who mostly orders food online because he uses a wheelchair. But because of DoorDash's tipping policy, he doesn't want to continue using the service.

"Base pay should be covered by the service [employer]. Tips should be extra," McAllister told BuzzFeed News. "Having talked to some drivers, I hear that Grubhub, which I also use, does not steal tips. If more restaurants were available on GH, I would prefer to use them as I find their policy to be more ethical." Grubhub did not immediately respond to a request for comment on its tipping policy.

Instacart’s main competitors in the grocery delivery space are Shipt and Amazon Fresh. Like Instacart, those companies guarantee that 100% of the customer’s tip goes to the worker. It’s not clear whether those companies adjust their payout to workers based on the size of the customer’s tip, but neither has been the subject of a campaign organized by workers in the way Instacart has. An Amazon spokesperson said via email that it guarantees its delivery contractors $18 an hour, but didn’t respond to questions about whether customer tips subsidize that guaranteed rate. Shipt did not immediately respond to a request for comment. Postmates, a direct competitor with DoorDash, said in instances where a minimum base pay is in effect, it does not include customer tips in that figure, but instead adds them on top.

“The consumer is misled and deceived.”

Paying employees below minimum wage and using customer tips to account for the rest is a common practice in the restaurant industry. Eight states, however, currently require employers to pay a minimum wage whether the worker is tipped or not, and new legislation to that effect is being debated in statehouses around the country. But because the delivery drivers who work for Instacart and DoorDash are independent contractors, not employees, minimum wage laws and other labor protections don’t apply to them.

“The only way [this] would be legal is if these workers are independent contractors and not employees under the prevailing wage laws of the state,” said University of California Hastings legal professor Veena Dubal via email. “If they are in fact independent contractors … then Instacart can pay them as little as they want.”

Delivery workers seeking employee status have sued both Instacart and DoorDash; Instacart paid out a $4.6 million settlement to workers in a class action suit in 2017, and DoorDash paid $5 million. But the workers’ independent contractor classification didn’t change.

Industry observers, labor advocates, and academics have argued on social media that what Instacart is doing — promising a $10 per-gig wage, but paying out a smaller amount by using customer tips — feels like a form of wage theft. But because the workers are contractors, and because Instacart is technically keeping its promises (all the tip money goes to the worker, who earns the guaranteed rate), the company’s policy on tipping is legal.

While Instacart may be following labor laws, Tim Greaney, also a law professor at UC Hastings College of the Law, said customers are justified in feeling duped. “You can make the argument that [these are] deceptive and misleading tactics and practices on the part of Instacart because … the consumer thinks he or she is making a gift, or a tip, to the worker. … but it’s for work,” Greaney told BuzzFeed News. “The consumer is misled and deceived.”

Instacart didn’t provide a comment regarding its customers who feel misled by the “up front” tip, but said in an email statement that it “provide[s] shoppers with an estimate of what they can expect to earn from all orders they accept, which includes tips,” which it said is “consistent with the practices of other on-demand delivery companies.”

“As a team, we’re deeply committed to fair compensation and welcome the feedback from our dedicated community to create the best possible shopper experience,” the company said.

"As someone who uses Instacart I believe it is a deceptive business practice that should end.” —US Rep. Ro Khanna

Angry customers and Instacart workers have been leveraging social media in an attempt to bring the tipping issue to the attention of progressive politicians, including Rep. Alexandria Ocasio-Cortez, Sen. Elizabeth Warren, and Sen. Bernie Sanders.

Rep. Ro Khanna, a Silicon Valley Democrat, is critical of Instacart's tipping policy. “Instacart advertises that 100% of tips earned go directly to their workers. But they apparently don’t tell consumers that their tips are subsidizing what Instacart should have already paid to the driver," he told BuzzFeed News. "As someone who uses Instacart I believe it is a deceptive business practice that should end.”

Instacart's practices also drew the attention of a member of Rep. Ocasio-Cortez's policy team:

It’s like every tech company “disruption” is a new way to skirt labor laws. This is wage theft. https://t.co/ZtW1brupLa

McAllister, the DoorDash customer who uses a wheelchair, said "because drivers are technically independent contractors, these gig economy services can circumvent basic worker protections," but he hopes "that these newly elected legislators can push a legislative agenda that will adequately address these issues."

Instacart and DoorDash workers say the short-term solution to this problem is to tip them in cash, rather than via the app. But for Brian O’Neill, previously a weekly user of Instacart, the best solution to what he called Instacart’s “deceptive practice” is to stop ordering altogether.

“The whole gig economy is already rough enough on people trying to make a living, being extra shady about it is just wrong,” O’Neill told BuzzFeed News. “They have officially lost a customer.”

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