Amazon has reached a settlement of $3.95 million following allegations that it improperly used customer tips intended for its delivery drivers to offset its labor costs. The lawsuit, announced by D.C. Attorney General Brian L. Schwalb, claimed that from 2016 to 2019, Amazon misled customers by stating that all tips would go directly to its Flex drivers, who deliver packages using their personal vehicles.
According to Schwalb, Amazon's practice of diverting these tips allowed the company to reduce its operational expenses and enhance its profits. The attorney general emphasized the need for companies to be transparent with consumers regarding their practices, particularly when such actions could harm both employees and customers.
In response, Amazon has denied the allegations, asserting that its Flex program has evolved over the years and that the practices in question were changed more than five years ago. The company stated that it is pleased to resolve the matter and focus on supporting its delivery partners and customers moving forward.
The lawsuit also highlighted a payment model change that occurred shortly after the Flex program's launch in 2015. Initially, tips were intended to supplement drivers' pay; however, the company allegedly began using these tips to cover base wages instead, without informing drivers or consumers. This practice continued until 2019, when Amazon became aware of a Federal Trade Commission (FTC) investigation.
As part of the settlement, Amazon will pay civil penalties and costs, and it has committed to clearer disclosures about its tipping practices in the future. The settlement aims to ensure that customers are accurately informed about how their tips are utilized.