Amazon will pay over $60 million to settle Federal Trade Commission (FTC) charges that it failed to pay Amazon Flex drivers their full tips from Amazon customers over more than two and a half years.
The agency said the company only stopped its behavior after it became aware of the FTC’s investigation into this matter in 2019.
In the FTC announcement of the settlement, the agency said it would be sending 139,507 checks and 1,621 PayPal payments to Amazon Flex drivers.
Drivers who had more than $5 withheld by Amazon will receive the full amount of their withheld tips, including one single Amazon Flex driver who will receive more than $28,000.
The average payment amount the FTC is sending out is $422.
Amazon Flex drivers whose payments total more than $600, which is 19,980 drivers in total, also will receive an IRS Form 1099 with their payment and should report this income on their tax return, the FTC said.
“Rather than passing along 100 percent of customers’ tips to drivers, as it had promised to do, Amazon used the money itself.”Daniel Kaufman, Acting Director of the FTC’s Bureau of Consumer Protection
“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,” added Kaufman.
According to the FTC complaint, when Amazon started its Amazon Flex program in 2015, it routinely advertised that Flex drivers could make $18 to $25 per hour delivering goods for the company.
The company also advertised that some drivers could earn more with tips on tip-eligible programs such as Amazon Prime Now and AmazonFresh.
And until late 2016, Flex drivers would be paid at least $18 per hour plus 100% of tips received, just as promised.
But in 2016 Amazon changed its payment model to one it called “variable base pay” where it secretly used an algorithm to adjust the base pay based on the average tips in an area.
This scheme reduced the average base pay for most drivers to well below the advertised $18 to $25 per hour and the company tried to fulfill its payment “promise” to drivers by using the tips collected.
In addition to making it more difficult for drivers to understand how their pay was structured, the company never informed drivers of how it changed the calculation of their pay.
Meanwhile, it continued to claim to drivers it was giving them 100% of tips received while also reassuring customers the drivers would receive the full tip given.
The FTC also claimed the company tried to conceal the scheme by making it more difficult for drivers to understand their pay statements and only offered up canned responses to drivers claiming they are receiving their full tips when questioning their pay.
It wasn’t until the FTC opened an investigation into this matter that the company stopped the practice, thereby alleging Amazon cheated drivers out of promised pay for about 2 1/2 years.
FTC Amazon Settlement Conditions
As a result of the settlement with the FTC, Amazon will be required to pay $61,710,583 to the agency which will be used to compensate affected Flex drivers.
In addition, the FTC said, Amazon will be prohibited from misrepresenting any driver’s likely income or rate of pay, how much of their tips will be paid to them, as well as whether the amount paid by a customer is a tip.
Furthermore, Amazon will not be able to make any changes to how a driver’s tips are used as compensation without first obtaining the driver’s express informed consent.
Amazon Flex drivers can learn more details about the settlement on the FTC’s website here.
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