(Bloomberg) -- Amazon.com Inc. will pay $61.7 million to settle a U.S. Federal Trade Commission finding that the company withheld tips meant for Flex delivery drivers for more than two years.
Despite pledging to drivers and shoppers that Flex drivers would receive 100% of the value of tips, the world's largest online retailer used a portion of the gratuities to pay the basic hourly rate for the on-demand package delivery program, the regulator said on Tuesday.
“The conduct alleged in the complaint is outrageous,” FTC Acting Chairwoman Rebecca Kelly Slaughter and Commissioner Noah Phillips said in a statement. Platform companies that operate in the gig economy, they said, “must treat their workers fairly and non-deceptively.”
Flex, launched in 2015, invites independent contractors to deliver packages from their own vehicles. Amazon promised drivers a pay rate of $18 to $25 an hour and the full value of their tips.
But in late 2016, without disclosing the change to drivers or shoppers, the company started paying drivers a lower rate and using the tips to make up the difference.
After drivers began wondering why their overall pay had decreased, hundreds complained to the company, according to the FTC, which said employees described Amazon's handling of the change as a “reputation tinderbox” and “huge PR risk.”
Amazon diverted almost a third of customer tips to driver wages, stopping the practice only after becoming aware of the FTC probe in August 2019, the agency said. Under the terms of the settlement, the FTC will use the $61.7 million to compensate drivers who lost tips. Drivers can sign up for email updates on the refund process at the FTC's website.
“While we disagree that the historical way we reported pay to drivers was unclear, we added additional clarity in 2019 and are pleased to put this matter behind us,” Amazon spokesperson Rena Lunak said in an emailed statement. “Amazon Flex delivery partners play an important role in serving customers every day, which is why they earn among the best in the industry at over $25 per hour on average.”
Under the settlement, Amazon will be prohibited from misrepresenting to drivers details about their pay rate and tips.
In consumer deception cases, the FTC can force companies to disgorge ill-gotten gains but it doesn't have authority under existing law to impose a financial penalty on first-time offenders like Amazon. The company would be subject to a penalty only if it violates the FTC settlement.
Slaughter and Phillips called on Congress to give the agency the power to impose penalties for first-time offenses.
“Penalties can a have meaningful deterrent effect,” Slaughter said. “If you know you have to pay back more than you made, then that can help keep you from engaging in wrongdoing to begin with.”
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