Schatz, Senators Urge FTC To Investigate Instacart For Deceptive And Unfair Tipping Practices

WASHINGTON – U.S. Senator Brian Schatz (D-Hawai‘i) led a group of senators in calling on the Federal Trade Commission (FTC) to investigate misleading and unfair tipping practices, known as “tip baiting,” on Instacart and other online delivery services. According to recent reports, delivery workers – who are putting themselves at risk to deliver groceries during this crisis – are being baited with high tips by customers who want their order picked up, only to have their tips unfairly decreased or removed after delivery. In a separate letter, the senators urged Instacart CEO Apoorva Mehta to change the company's tipping policy and stop customers from shortchanging their workers during the coronavirus pandemic.

“Particularly in light of the COVID-19 pandemic and the unique risks that online delivery shoppers are taking, we believe the tipping policy at Instacart and other similar companies deserve scrutiny,” the senators wrote in a letter to FTC Chairman Joseph Simons.

As millions of Americans have been ordered to stay at home due to the pandemic, demand for online delivery services like Instacart has surged. Many Instacart shoppers – gig workers whose income depends on their orders – choose which orders to take based on the expected compensation, which is largely driven by the estimated tip. According to recent news reports, Instacart workers can’t trust they’ll be fairly compensated because tips can be removed or reduced after the groceries are delivered.

“At a time when Instacart shoppers are most vulnerable, Instacart’s service is allowing customers to deceive and shortchange shoppers,” the senators continued. “By permitting customers to 'bait' shoppers with high tips that are then revoked, online delivery services facilitate the deception.”

The senators pointed to the powerful tools the FTC has to investigate “unfair or deceptive acts or practices in or affecting commerce.” They urged Chairman Simons to exercise this authority to ensure Instacart is being fair and transparent with its workers.

In recent years, online delivery companies have faced scrutiny over compensating workers. In February 2019, Instacart changed its compensation policy following public backlash that they (and other delivery companies) used customer tips to offset their contribution to workers’ pay.

In addition to Schatz, the letters were signed by U.S. Senators Sherrod Brown (D-Ohio), Chris Van Hollen (D-Md.), and Elizabeth Warren (D-Mass.).

The full text of the letter to FTC Chairman Simmons can be found below and is available here. The letter to Instacart CEO Mehta is available here.

 

Dear Chairman Simons:

We are writing to request that the Federal Trade Commission examine recent reports of potentially unfair and misleading tipping practices on Instacart and other online delivery services. Specifically, we are troubled by reports that online delivery services allow customers to “tip bait”—to offer a high tip to induce a shopper to accept an order and then unfairly reduce or zero-out the tip after the order has been completed, sometimes days later. People are facing unprecedented economic hardship because of the COVID-19 pandemic and so it is more important than ever that we protect people from unfair and deceptive practices.

Shoppers risk their health and safety in order to deliver groceries and other goods to people who are sheltering in place—they should be able to count on reasonable compensation for that risk. However, some customers are deceiving shoppers by promising a large tip, only to unfairly reduce it or zero it out completely after the order is complete. Shoppers choose which orders to take based on the expected compensation, which is largely driven by the estimated tip. By permitting customers to “bait” shoppers with high tips that are then revoked, online delivery services facilitate the deception.

Section 5(a) of the Federal Trade Commission Act (FTC Act) prohibits “unfair or deceptive acts or practices in or affecting commerce.” Congress intentionally provided broad authority in Section 5(a) so that the FTC could address new and emerging market practices that may constitute unfair and deceptive practices. Instacart is one of several online delivery service companies that rely exclusively on workers who the company classifies as independent contractors—a classification that these workers have disagreed with and is being challenged in court. Instacart treats these workers as though they are independent contractors who do not have the rights of employees under the Fair Labor Standards Act (29 U.S.C. 203 et seq.) and limits their legal rights through mandatory arbitration requirements in its terms of service. It is therefore particularly important that the FTC exercise its Section 5(a) authority to ensure these online companies are being fair and transparent with their workers.

This is not the first time that online delivery companies have faced public backlash over their methods of compensating workers on their platforms. In fact, in February 2019, Instacart announced several changes to how it compensates its workers in response to public outrage that they (and other delivery companies) used customer tips to offset workers’ compensation from the delivery company. In making these changes, Instacart founder and CEO Apoorva Mehta said the company was “putting [Instacart’s] shoppers more at the forefront of [the company’s] decision making.” Yet, at a time when Instacart shoppers are most vulnerable, Instacart’s service is allowing customers to deceive and shortchange shoppers.

We appreciate the FTC’s focus to date on unlawful conduct and consumer protection issues arising from the gig economy. Particularly in light of the COVID-19 pandemic and the unique risks that online delivery shoppers are taking, we believe the tipping policy at Instacart and other similar companies deserve scrutiny under Section 5(a).

Sincerely,

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