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Instacart says it will stop putting customer tips toward worker pay

Posted: 3:44 PM, Feb 06, 2019
Updated: 2019-02-06 21:44:39Z

After mounting criticism from workers over its payment practices, Instacart has agreed to make some changes.

In a blog post on Wednesday, CEO Apoorva Mehta said the on-demand grocery delivery startup will no longer decrease the amount it contributes to worker base pay based on the size of their tips. He also said the company will reimburse workers who have been impacted by that practice.

"While our intention was to increase the guaranteed payment for small orders, we understand that the inclusion of tips as a part of this guarantee was misguided. We apologize for taking this approach," said Mehta.

Instacart, along with rival DoorDash, has been under fire in recent weeks from workers who say the tips added by customers on orders are being used to subsidize a minimum pay rate, instead of being used as bonuses. This is resulting in lower overall wages, workers say.

Instacart changed its pay structure in November , resulting in a more opaque calculation: Workers get an earning estimate and are guaranteed $10 minimum pay per order. Previously, an algorithm factored in a base pay and per-item fees, along with other considerations.

Under that new structure, some workers said their tips have been counting toward the $10 minimum.

But Instacart, which is valued at nearly $8 billion, has long said that 100% of customer tips go directly to the workers delivering orders. A petition organized by Working Washington, a Washington state labor group, in January argued the company has been "practicing a sneaky form of tip theft by using customers' tips to subsidize their own costs instead of passing those tips directly on to the workers."

Workers said they've seen "dramatic" pay cuts, according to the petition, estimating that wages have lowered by 30% to 40% as a result of the November change. The petition, signed by 1,500 Instacart workers, called on Instacart to be more transparent about its breakdown of pay for workers.

Starting in 2015, Instacart made some of its in-store shoppers W-2 employees . But others, including those who do shopping and delivery or only delivery, remain contract workers. They're the ones impacted by this tipping policy.

In Mehta's post, he said the company will lift the minimum floor payment from Instacart on all orders. It will range from $7 to $10 for those who shop and pick, and is set at $5 for delivery only workers. Instacart said it will retroactively compensate shoppers whose tips were impacted from the November change.

"Instacart shouldn't be paying a shopper $0.80 for [an order]," Mehta wrote. "It doesn't matter that this only happens 1 out of 100,000 times -- it happened to one shopper and that's one time too many."

Working Washington released a statement acknowledging the progress.

"In the space of two weeks, Instacart workers came together, sparked a national media sensation, and transformed the entire pay model of a $7 billion corporation. Instacart finally admitted they've been taking tips. They finally admitted that $0.80 isn't enough," the statement read. "It's not over. Workers continue to call for a transparent pay structure so they can verify that what the company says they're going to do is what they're actually doing."

DoorDash, valued at around $4 billion, has been using a similar practice with its employees.

On DoorDash's website, the company explains it will pay workers at least $1 per order, plus the entire customer tip. DoorDash may pay more depending on the pay guarantee for each order, if the tip itself doesn't help meet that minimum.

Katie Wells, an urban studies foundation post-doctorate student at Georgetown University who researches the social and economic effects of on-demand services, says this is called "a slippery wage."

"These low-wage workers, like so many in platform workplaces, often are veiled --- they can't get a grasp on pay," Wells told CNN Business. "The workers are at an informational disadvantage. It's one thing to choose to work a crappy job, it's a whole other issue when workers can't even get enough information to make decisions about whether a job's conditions are decent enough."

It is hardly the first time these on-demand startups have taken heat over how they pay workers. In February 2018, Instacart apologized for a "bug" that impacted the payout of some tips to shoppers and caused some customers to be overcharged. Previously, Instacart agreed in March 2017 to pay out $4.6 million in a settlement over a class action lawsuit alleging payment issues and misclassification of workers. The company agreed to add transparency around its "service fee" and how it differs from "tips."

Instacart faces another lawsuit filed in late January 2019 from workers over its practice of applying tips against wages.

According to Thomas Kochan, George Maverick Bunker professor at the MIT Sloan School of Management, the situation is "symptomatic of what's happening around the country."

"Employees and independent contractors are using innovative methods like the boycotts, letters to CEOs, petitions, outreach to customers for support to speak up when their pay is being cut or rights are being violated," he told CNN Business. "This is in line with increased teacher protests, the Google walk out, and what we are seeing in our national surveys on workers voice."

Kochan added that these actions point to workers "finding new ways to speak out against unfair behavior and are building coalitions with their customers to make their point."