DoorDash Sued by DC Attorney General
DoorDash, in another blow to the gig economy, is facing scrutiny from the District of Columbia Attorney General Karl Racine over accusations that the company was offsetting their gig workers’ pay based on the tips given by the customers. In a civil suit dated today, the AG alleges that the company was engaged in deceptive trade practices from July 2017 until September 2019 by misleading customers regarding the tip the customers left for workers delivering their food. Instead of the tips going to the workers directly, it is alleged that the company was instead using the tips to subsidize DoorDash’s agreed upon payment to the worker instead of increasing the amount of compensation the workers received.
According to the court filings, the AG claims: “Any reasonable consumer would have expected that the ''tip" they added to the delivery charge through the DoorDash checkout screenflow would be provided to the Dasher on top of the payment promised by DoorDash for the delivery. But during the relevant time period, that was not the case. Instead, DoorDash used consumer tips to subsidize the Guaranteed Amount of payment it promised to Dashers.” This is part of a long set of bad news for the company which previously had to contend with this year as it has seen drivers accused of eating customers food, and previous reports regarding the tipping policy that was brought to light earlier this year.
On November 12, 2019, according to the DoorDash blog, the company released a statement about an updated pay model that it enacted starting September 2019 with the new model being rolled out to all Dashers, as the company calls them, by October 1st. The new changes worked to boost the pay for their employees which, based on their internal numbers, increased by about 12.5% on average. The company also increased the ways that customers could tip the Dashers and the Dasher would have the ability to see the earnings breakdowns in the app.
The spate of bad news for the company which is seeking an IPO in 2020 could work to turn off investors that have already been burned by other recent IPO’s and missed evaluations. The company is currently valued at $13 billion after its last round of funding and will be on the hook for a sizable payment if found in violation in a court ruling as well as the DA seeking civil penalties against the company. In a statement published by CNBC DoorDash responded in part, “We strongly disagree with and are disappointed by the action taken today…We’ve also worked with an independent third party to verify that we have always paid 100% of tips to Dashers.”
Now this statement itself is very interesting and it also follows the previous information that, according to the civil complaint, the company was engaging in deceptive practices, not that they were not giving the tips to the Dashers. The point was that DoorDash was offsetting the amount they were paying by the amount of tip the customer was paying. So, if the delivery cost $10 and the customer gave a $3 dollar tip then the company would pay the Dasher $10, $3 of which was the tip and $7 of which came from the company. If the customer left no tip, then the company would need to pay the Dasher $10. The claim by the spokesperson here is not even especially relevant to the case, considering that it is about misleading the customers and the company lowering its costs.