Recently, grocery and third party restaurant delivery services have become increasingly common for personal consumers. During the COVID-19 pandemic, the popularity of Instacart, DoorDash, Delivery Dudes and similar apps and online platforms skyrocketed as users experienced the convenience of having groceries and prepared foods delivered to their doorstep. However, many users found themselves hesitating over the checkout screen as they watched their bill increase with each additional fee.
“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.”
DC LAWSUIT & $2.54 SETTLEMENT AGREEMENT
It turns out that the hesitation was well justified and validated when DC Attorney General Karl Racine filed a lawsuit against another third party delivery service company, Instacart. The complaint, filed in 2020, alleged that Instacart’s optional “service fees” were misleading to consumers. Additionally, the lawsuit claimed that Instacart failed to collect District sales tax on its service and delivery fees for the entire time the company had done business in DC.
Last month, in an effort to resolve the lawsuit, Instacart agreed to settle the matter for $2.54 million. Of the settlement amount, $1.8 million is available to provide restitution to impacted workers and consumers, according to Racine’s office.
Also as part of the settlement agreement, Instacart agreed to no longer display fees or tips on the platform in a way that may obscure the purpose of those fees.
AMBIGUOUS, CONFUSING & SHIFTING EXPLANATIONS
The central issue of the lawsuit related to the fact none of the service fee revenue ever went to the shoppers, was a direct contribution to Instacart and was oftentimes made unknowingly. Attorney General Racine stated that Instacart made “numerous misrepresentations, ambiguities, and omissions regarding its service fee,” including the description “100% of the variable service amount is used to pay all shoppers more consistently for each and every delivery…” In direct contrast to Instacart’s description, the service fee was used to pay Instacart’s other operating fees and did not increase any shopper’s pay.
The lawsuit stated that from September 2016 to at least April 2018, Instacart charged consumers with a default 10% service fee that appeared to be a tip for the shopper who accepted the order. The 10% service fee was shown on a sliding scale that could be increased or decreased to 0% by the customer.
Prior to the introduction of the service fee, Instacart consumers tipped on approximately 90% of all orders, but after the creation of the service fee option, shopper tips significantly dropped to about 30% of all orders. This decline in tipping strongly suggests that many consumers believed the default service fee was a tip to the shopper.
SALES TAX VIOLATIONS & VINDICATION
As to the sales tax issue, the complaint alleged Instacart did not pay any sales tax to the District since it began business in DC. Because Instacart is a marketplace facilitator with an online platform, it is responsible for collecting sales tax from its customers on the service and delivery fees. Accordingly, $739,057 of the settlement was released to the District to resolve the disputed sales tax payments.
industry-wide issues
In 2019, Racine filed a similar lawsuit against DoorDash alleging they also misled customers by applying customer tips towards their shoppers’ base pay. As part of its settlement agreement, DoorDash changed its policy in September 2019 and agreed to pay $1.5 million to delivery workers, $750,000 to the District and $250,000 to two DC charities.
PROSPECTIVE EXPECTATIONS
These lawsuits represent and legitimize consumers’ concerns regarding the verity and transparency of fees imposed by delivery platforms. Ultimately, the goal of the lawsuits and settlements is clear – customers should be able to expect clarity with fees they pay to companies with whom they do business, and those same companies should be expected to comply with the law.