New York State Attorney General Letitia James announced on the 24th that the food delivery platform DoorDash has agreed to pay a $16.75 million settlement to resolve allegations that it underpaid tens of thousands of delivery drivers. This means that DoorDash did not pass on the full amount of tips that customers gave to the delivery drivers.
According to the investigation by the New York State Attorney General’s Office (OAG), the company only used tips to supplement the base pay of delivery drivers from May 2017 to September 2019, instead of fully passing on the tips to the drivers.
This settlement of around $17 million will compensate approximately 63,000 delivery drivers who worked for DoorDash in New York between May 2017 and September 2019. They will receive compensations ranging from $10 to $14,000.
A third-party settlement administrator appointed by the OAG will handle the distribution of payments, which is expected to begin this year. Qualified delivery drivers will receive notifications via mail, email, or text message with detailed instructions on how to apply for compensation.
The investigation by the Attorney General’s Office found that DoorDash previously employed a guaranteed wage model that allowed drivers to see the “guaranteed earnings” before accepting orders. However, during the checkout process, it claimed that “drivers would receive 100% of the tip,” without clearly explaining the actual use of the tip. This led customers to mistakenly believe that their tip payments would increase the driver’s income, when in reality, the money was used by DoorDash to offset its own wage obligations.
For example, in an order with a guaranteed earning of $10:
1. If the customer did not tip, DoorDash paid $10 to the driver.
2. If the customer tipped $3, DoorDash only paid $7, and the driver’s total income remained $10.
3. If the customer tipped $9, DoorDash only paid $1, and the driver’s income did not increase.
4. Only when the tip exceeded the guaranteed minimum wage promised by DoorDash could the driver receive additional compensation.
This means that DoorDash did not provide additional wage payments to drivers but included customer tips in its wage calculations, reducing the company’s own wage costs. Despite this, DoorDash assured customers during the checkout process that “drivers will receive 100% of the tip.” In reality, the tip did not actually increase the driver’s income, leading to misinformation for both customers and drivers.
In addition to paying compensation, DoorDash also committed to the following actions:
1. Modify wage mechanisms: Ensuring that tips are fully passed on to drivers in the future, without affecting the guaranteed wages paid by DoorDash.
2. Enhance transparency: Clearly disclosing wage calculation methods to customers and drivers, providing drivers with comprehensive wage details including base pay, extra bonuses, and tips.
3. Improve access to delivery records: All delivery drivers (including those who have been suspended) will have access to their delivery records for at least four years.
Mr. Liu, a driver with an account on food delivery platforms like DoorDash, told this publication that he found the issue of platforms absorbing driver tips to be a long-standing problem.
He cited an example where his delivery account showed that the tip amount from each customer was consistent, but in reality, customers were tipping based on 20% to 25% of the purchase amount. For instance, if a customer bought goods worth $100 and the tip should have been $20, the platform would only give $7 per customer. Additionally, while drivers used to receive tips immediately for completed orders, the platform changed it to 27 hours later, indicating that they had time to operate and modify tip amounts.