Instacart settles legal dispute over ‘service fee’ with District of Columbia

Dive Brief:

  • Instacart has agreed to a $2.54 million settlement with the government of Washington, D.C., to resolve a 2020 lawsuit alleging that the company misled consumers into thinking the “service fees” it formerly charged customers went to workers as tips, the city’s attorney general announced Friday.
  • As part of the agreement with the District of Columbia, the e-commerce company will pay the city $1.8 million within 30 days and release $739,057 in sales tax payments it had earlier disputed.
  • Although Instacart agreed to a monetary settlement with the city, the company did not admit to doing anything wrong. “Instacart denies all of the District’s allegations and claims, including that it has violated any consumer protection laws … or District sales tax law,” according to the consent order.

Dive Insight:

The settlement lays to rest a dispute between Instacart and the office of District of Columbia Attorney General Karl Racine over how the company handled a variable service fee it collected from customers in the city between September 2016 and April 2018.

The city claimed in its suit, filed in August 2020, that Instacart violated the city’s consumer protection laws by implying that the fee replaced an adjustable tip option it previously had in place, even though it used income from the fee to cover operating expenses.

“Consumers paid the new, misleading service fee believing they were tipping the workers who delivered their grocery orders. In reality, the service fee was an additional charge — on top of a delivery fee — that was collected by Instacart,” Racine’s office said in a press release announcing the settlement.

“Any business operating in the District must provide consumers with truthful information, pay workers the wages and tips they have earned, and pay the sales taxes that they owe. Today’s settlement with Instacart sends a clear message: any company that attempts to dodge their obligations to workers and consumers will be held accountable,” Racine said in a statement.

The District of Columbia said it “may” use the $1.8 million it is collecting from Instacart to “provide restitution to affected workers and consumers, and to cover costs of pursuing this litigation,” but did not commit to doing so. In accordance with the settlement, Instacart must “ensure that it no longer displays fees or tips on its platform in a misleading manner, including by obscuring the purposes of those fees.”

Instacart emphasized in a statement that its settlement with the city was not an acknowledgment that its practices were deceptive. “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. We believe our communications with customers are highly transparent and we have industry-leading tip protections in place for our shopper community,” the company said.

Instacart’s statement pointed to a package of resources the grocery delivery provider rolled out in April to ensure workers will not entirely lose a tip in the event a customer removes it without providing a reason. The company has also started letting workers access tips two hours after delivering an order instead of making them wait for 24 hours to collect gratuity income.

Instacart’s arrangement with the District of Columbia follows a $2.5 million settlement DoorDash reached with the city in late 2020 to set aside claims that it deceived consumers into believing their tips would boost pay for its workers.