Gig Economy

DC Attorney General Sues Instacart Over Fees Customers Thought Were Tips

DC AG: Instacart Pocketed Funds Meant For Tips

The attorney general for the District of Columbia alleges in a lawsuit filed on Thursday (Aug. 27) that Instacart made substantial sums in the city by tricking customers into thinking voluntary payments they added to food delivery bills were tips for drivers.

“Instacart tricked District consumers into believing they were tipping grocery delivery workers when, in fact, the company was charging them extra fees and pocketing the money,” the district's Attorney General Karl Racine said in a prepared statement released in conjunction with the filing of the lawsuit. “Instacart used these deceptive fees to cover its operating costs while simultaneously failing to pay D.C. sales taxes. We filed suit to force Instacart to honor its legal obligations, pay D.C. the taxes it owes and return millions of dollars to District consumers the company deceived.”

The lawsuit, filed in Superior Court for the District of Columbia, alleges that Instacart engaged in the practice from September 2016 through approximately April 2018.

The suit states: "Instacart charged its District consumers a default 10 percent ‘service’ fee in connection with the sale of its grocery delivery services. To a reasonable consumer, this service fee looked like a tip: The amount was set as a default percentage of the order total, and consumers had the option to increase or decrease the percentage or waive the amount entirely. But unlike a tip, the service fee went to Instacart and did not change the wages or commissions that the Company paid its shoppers. District consumers’ confusion about the true nature of the service fee was compounded by Instacart’s ambiguous, confusing and shifting explanations of the service fee."

The practice only ended after it was highlighted in media reports, the suit states. The lawsuit also accuses Instacart of failing to collect required sales taxes in the District of Columbia.

According to CNBC's Thursday report on the suit, Instacart was not immediately available for comment.

While Instacart navigates local legal systems – today's D.C. suit is not the first to challenge the company's practices – the San Francisco-based operation continues to expand its operations. In some cities, the company has shown a willingness to play hardball.

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The How We Shop Report, a PYMNTS collaboration with PayPal, aims to understand how consumers of all ages and incomes are shifting to shopping and paying online in the midst of the COVID-19 pandemic. Our research builds on a series of studies conducted since March, surveying more than 16,000 consumers on how their shopping habits and payments preferences are changing as the crisis continues. This report focuses on our latest survey of 2,163 respondents and examines how their increased appetite for online commerce and digital touchless methods, such as QR codes, contactless cards and digital wallets, is poised to shape the post-pandemic economy.

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