Instacart, an online food delivery service, must pay $2.5 million after the company failed to pay required sales taxes and misled consumers in Washington, D.C., by charging service fees that were disguised as tips for workers but were actually pocketed by the app to cover operating costs.
The settlement stems from a 2020 lawsuit filed by D.C. Attorney General Karl Racine that alleged the company misled consumers to believe the app’s service fees were going directly to delivery workers to increase their wages. As a result, Instacart will be required to pay $1.8 million in legal fees, as well as another $739,057 for refusing to pay sales taxes required under district law.
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“D.C. consumers expect their tips to go to workers — not the c-suite,” Racine said. “Any business operating in the District must provide consumers with truthful information, pay workers the wages and tips they have earned, and pay the sales taxes that they owe. Today’s settlement with Instacart sends a clear message: any company that attempts to dodge their obligations to workers and consumers will be held accountable.”
Instacart said it “strongly” denied Racine’s claims.
“While we strongly deny the District’s allegations, we are pleased to put this matter behind us after phasing out the waivable service fee more than four years ago. We believe our communications with customers are highly transparent and we have industry-leading tip protections in place for our shopper community. We’re proud to support the D.C. community and families across North America as we help ensure they have access to the food they love and more time to enjoy it together,” the company told the Washington Examiner.
Beginning in 2016, Instacart changed its user interface to include an adjustable service fee on each purchase that “led consumers to believe” they were “tips that would increase worker pay.” Instead, the additional charge was collected by Instacart to subsidize operating expenses, according to the attorney general.
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Instacart later discontinued its practices of using misleading service fees in April 2018 after reports emerged of the misconduct, but the company failed to provide refunds to consumers, according to the settlement.
The $1.8 million settlement with the D.C. Attorney General’s Office will go toward resolving consumer protection claims, providing restitution to affected workers, and covering litigation costs. Instacart will also be required to update its app to ensure all tips go directly to workers and that the app “no longer displays fees or tips on its platform in a misleading manner.”
