Amazon has settled with the Federal Trade Commission, agreeing to pay back $61.7 million after an investigation uncovered that Amazon was withholding tips from its Flex drivers. Flex drivers are not direct employees of the Amazon Flex Program; rather they are independent contractors who often depend on the tips for adequate compensation.

Amazon Flex Program Application Misleading

The Amazon Flex program advertised a base pay ranging from $18 to $25 per hour for prospective drivers. Additionally, the program also promoted that drivers would get paid a tip on top of their base pay. Throughout the program's marketing, Amazon and the Amazon Flex app continuously advertised that drivers would get 100% of the tips they earn.

After suspicions and complaints that drivers were not getting compensated properly, the FTC filed a complaint to investigate how Amazon paid their drivers.

Amazon Knowingly Witheld Drivers’ Tips

The FTC complaint against Amazon alleges that Amazon Flex drivers did not get the tips they were promised. Instead, it is estimated that the company used roughly one-third of drivers’ tips to cover the driver’s base rate. This allowed Amazon to reduce its contribution to the drivers’ pay, saving the company money but costing drivers the compensation they were entitled to. The complaint alleges that the practice went on for roughly two and a half years without Flex drivers knowing.

The FTC alleges that “Amazon continued to divert drivers’ tips during this time despite hundreds of driver complaints about the practice, critical media reports, and internal recognition that its conduct was a ‘reputation tinderbox.’ Through these practices, Amazon ultimately pocketed over $61 million in tips meant for drivers.”

In Amazon's terms of service that applicants agree to when they first sign up with the program, the fine details read, “Amazon’s customers may be able to provide a tip in connection with the fulfillment of their orders and Amazon will provide you with any tips you earn.”

The complaint also indicates that customers were duped by the company as well. The complaint reads, “Amazon also assures customers who place orders for delivery through the Amazon Flex program that 100% of their tips will be passed on to drivers.” The complaint highlights that customers were told that cash was not allowed to be used as a form of a tip.

Amazon Uses Deceptive Practice of Variable Base Pay

One of the ways in which Amazon was able to deceive drivers was through its “variable base pay” practice. This new payment practice was rolled out in late 2016 and continued for two and a half years, the same duration of time in which the company was altering tip payment for drivers.

Variable base pay essentially reduced the base pay a driver was to receive to an “algorithmically set, internal ‘base rate.’” This new base rate was calculated based on data collected in the drivers' geographic location. Oftentimes, this new base rate was lower than the promised $18-$25 base rate payment. Any tips that drivers received after the implementation of the variable base pay were then used to cover any additional payment needed to make up that minimum base pay of $18 an hour. This practice of variable base pay was a means to keep company overhead down. However, the complaint alleges that drivers were never notified of the details of this new payment structure.

The complaint goes as far as alleging that Amazon knew the implications of its actions. The FTC explains, “When it instituted variable base pay, Amazon decided not to seek drivers’ consent or otherwise notify them that it was changing its compensation practices. Amazon did not inform drivers or the media about the changes. At the same time, Amazon also did not change the earnings claims it had been making to drivers since the inception of the Amazon Flex program, nor did it adjust its promises to customers or drivers that 100% of customer tips would be passed on to drivers.”

The complaint adds, “Amazon decided to obscure from drivers that it was reducing their pay, and began reporting their earnings as a single lump sum that hid any distinction between customer tips and pay from Amazon.”

The FTC highlights the clear deception on the part of Amazon as it secretly pocketed customer tips without regard. The acting director of the FTC’s Bureau of Consumer Protection, Daniel Kaufman, shared of the settlement, “Rather than passing along 100% 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.”