FTC Settles With Amazon Over Wage Theft

The FTC and Amazon settle claims the company was stealing drivers’ tips to subsidize wages. 

The Federal Trade Commission (FTC) and Amazon reached a settlement over the FTC’s allegations that the tech giant was stealing tips promised to the drivers in its attempt to compete with UPS and FedEx in order to subsidize the wages of all drives. In essence, the FTC’s claim boils down to Amazon taking tips customers intended for drivers to have so that the company would have to pay less of the drivers’ regular wages. It appears the settlement is forcing Amazon to turn over all the tips it stole from drivers. And while this investigation likely commenced under the former FTC chair Joseph Simons, this may be indicative of the new approach the agency will take towards large companies, especially technology companies, for it has long been alleged the FTC has gone easy on firms with the resources to wage a long legal battle.

Additionally, it is surely a coincidence the same day the FTC announced this settlement with Amazon over wage theft, CEO Jeff Bezos made public his decision to step down. Amazon Web Services (AWS) head Andy Jassy has been tapped to succeed Bezos who explained in a memorandum to employees he will assume the position of Executive Chairman of the Board. Bezos asserted “[a]s Exec Chair I will stay engaged in important Amazon initiatives but also have the time and energy I need to focus on the Day 1 Fund, the Bezos Earth Fund, Blue Origin, The Washington Post, and my other passions.”

It bears note the FTC was unanimous in accepting the consent decree with the two Republican commissioners voting with the acting chair and the other Democratic member.

In the complaint, the FTC asserted Amazon’s stealing of tips they had said drivers would receive violated Section 5 of the FTC Act’s bar against unfair and deceptive practices:

  • In numerous instances in connection with the Amazon Flex delivery service, Respondents have represented, directly or indirectly, expressly or by implication, that Amazon would give drivers 100% of customer tips in addition to the pay Amazon offered.
  • In fact, in numerous instances in which Respondents have made this representation, Amazon has not given drivers 100% of customer tips in addition to the pay Amazon offered. Therefore, the representation is false or misleading.

The FTC explained the background of the case:

  • In 2015, Amazon launched Amazon Flex, a service through which consumers can sign up as drivers to deliver products to Amazon customers. Amazon pays drivers for making deliveries, and for some deliveries, allows customers to tip their drivers.
  • Amazon consistently has represented both to Amazon Flex drivers and to customers that it will pass on 100% of tips to drivers. In fact, for a period of over two and a half years, without consumers’ permission, Amazon secretly used nearly a third of customer tips to subsidize its own pay to drivers.
  • Amazon continued to divert drivers’ tips during this time despite hundreds of driver complaints about the practice, critical media reports, and internal recognition that its conduct was a “reputation tinderbox.” Through these practices, Amazon ultimately pocketed over $61 million in tips meant for drivers.

The FTC provided more detail:

  • Contrary to Amazon’s representations to its drivers and customers that it would provide drivers 100% of customer tips, Amazon used tens of millions of dollars in customer tips to subsidize its payments to drivers. Amazon concealed from drivers the amount that customers had tipped for their deliveries.
  • At the outset of the Amazon Flex program, from 2015 through late 2016, Amazon paid drivers at least $18 per hour plus 100% of customer tips, as represented to drivers at the time of enrollment. During that period, Amazon also displayed to drivers the amount they had been tipped.
  • Beginning in late 2016, however, Amazon made changes to the program to reduce its costs. At that point, Amazon implemented what it called “variable base pay” for Amazon Flex drivers on a rolling basis in various locations across the country. Under the variable base pay approach, for over two and a half years, Amazon secretly reduced its own contribution to drivers’ pay to an algorithmically set, internal “base rate” using data it collected about average tips in the area. The base rate varied by location and sometimes varied within the same market. But this algorithmically set “base rate” often was below the $18-$25 per hour range that Amazon had promised at the time of drivers’ enrollment and in specific block offers.

The FTC detailed Amazon’s internal discussions and efforts to steal drivers’ tips to subsidize pay and thereby reduce the amount Amazon was actually paying for wages:

  • When it instituted variable base pay, Amazon decided not to seek drivers’ consent or otherwise notify them that it was changing its compensation practices. Amazon did not inform drivers or the media about the changes. At the same time, Amazon also did not change the earnings claims it had been making to drivers since the inception of the Amazon Flex program, nor did it adjust its promises to customers or drivers that 100% of customer tips would be passed on to drivers.
  • In planning for the transition to variable base pay, Amazon discussed internally how to handle the change to variable base pay with drivers and “what level of detail about earnings to show” drivers. Amazon considered different versions of earnings display screens that showed or concealed the breakdown between Amazon’s “base rate” and tips.
  • Ultimately, when it implemented variable base pay, Amazon decided to obscure from drivers that it was reducing their pay, and began reporting their earnings as a single lump sum that hid any distinction between customer tips and pay from Amazon. Based on the information Amazon provided, drivers could not tell whether Amazon had contributed its minimum for the delivery block or a lesser amount, nor could drivers tell the amount of any customer tip.

The FTC explained that not even numerous driver complaints about the theft and news articles could get Amazon to honor the promises it made when many of the Flex drivers were hired. Rather, Amazon relented only after the FTC made it known that it was launching an investigation:

  • Amazon changed its practices only after learning it was under investigation by the FTC. On May 23, 2019, the FTC issued a civil investigative demand (“CID”) to Amazon seeking information and records relating to Amazon Flex, including Amazon’s representation that Amazon Flex drivers receive 100% of their tips. The CID informed Amazon that the FTC was investigating whether Amazon had “deceived consumers regarding compensation of Amazon Flex Drivers, in violation of the FTC Act, 15 U.S.C. § 45, and whether Commission action to obtain monetary relief would be in the public interest.”
  • On August 22, 2019, Amazon announced to its current drivers an “Updated Earnings Experience,” which was similar to the original compensation program that had been in effect from 2015 through late 2016 at the start of the Amazon Flex program. After the August 2019 announcement, Amazon began separately displaying in the App the amount it would pay drivers and the tips for each delivery block. According to Amazon, it now pays drivers the full amount offered in a delivery block and, separately, passes on customer tips. In announcing the change, Amazon stated that, “For deliveries that give customers the option to tip, you always receive 100% of the tips.”

The FTC and Amazon have entered into an agreement with a consent order that has a by now standard length of 20 years. Amazon is barred from making misrepresentations about wages and tips to any of its drivers, prohibited from using tips in an unauthorized fashion, and will pay $61,710,583 for the drivers the company cheated. Hereafter, Amazon must compliance reports for ten years and keep records for the same timeframe. Amazon must also respond expeditiously to FTC’s efforts to monitor compliance. And, of course, any failure of Amazon to comply could result in the FTC seeking civil penalties in federal court in a contempt proceeding. Of course, Amazon does not admit any guilt or culpability except what is necessary to establish the jurisdiction of the FTC.

Acting FTC Chair Rebecca Kelly Slaughter and Commissioner Noah Joshua Phillips issued a rare joint statement, and if this is not the first time they have done so, it is one of the very few times they have. Kelly Slaughter and Phillips remarked:

  • The impact of the internet-enabled gig economy on workers is a matter of robust debate in Congress, state legislatures, popular referenda, academia, and elsewhere. The two authors of this joint statement may not agree on every aspect of this debate, including whether this novel business model is, on net, beneficial for consumers and workers.
  • Where we do agree—and what this case reflects—is that the platforms that facilitate this gig economy must treat their workers fairly and non-deceptively, just as they must consumers, and that the Federal Trade Commission should work to ensure that they do. That is why this case resolving our investigation into Amazon.com, Inc. and its subsidiary Amazon Logistics, Inc.’s (collectively, “Amazon”) treatment of delivery drivers is so important.

Kelly Slaughter and Phillips also called for Congress to simply the FTC’s rulemaking authority and to provide the power to more aggressively police these sorts of abuses:

  • we believe that, given the importance of candor and fairness to workers in the gig economy, our current authorities could be improved. Congress can give us direct penalty authority to deter deception aimed at workers in the internet-enabled gig economy and rulemaking authority under the Administrative Procedure Act to address systemic and unfair practices that harm those workers.
  • Clear rules and the threat of substantial civil penalties can deter wrongdoing. The authors of this statement do not always agree on the proper scope of rulemaking and penalty authority, but we do agree here. Authorizing the FTC to assess penalties to deter similar lawbreaking will help gig workers and make labor markets more efficient. The internet-enabled gig economy is new, innovative,  and growing. We believe that the modest reforms we propose here can help gig workers have a fairer shake at getting their benefit of the bargain from that growth, too.

Commissioner (and Consumer Financial Protection Bureau Director-designate) Rohit Chopra published a separate statement. He largely agreed with Kelly Slaughter and Phillips but called for the FTC to use some dormant authority to be in a position to more strongly punish wrongdoers:

  • This conduct raises serious questions about how Amazon amassed and wielded its market power. Fortunately, today’s action to redress the company’s victims does not prevent the FTC or state attorneys general from assessing whether Amazon has engaged in a broader pattern of unfair practices in violation of the antitrust laws.
  • Today’s order provides substantial redress to the families victimized by Amazon’s anticompetitive deception. However, this cannot be the only action we take to protect workers and families from dominant middlemen. The FTC will also need to carefully examine whether tech platforms are engaging in anticompetitive conduct that hoodwinks workers and crushes law-abiding competitors.
  • The Commission has historically taken a lax approach to worker abuse, entering no-consequences settlements even in naked wage-fixing matters that are criminal in nature. Despite broad pronouncements about a commitment to policing markets for anticompetitive conduct that harms workers, the FTC has done little.
  • I hope that today’s action turns the page on this era of inaction. I also agree with Acting Chairwoman Slaughter and Commissioner Phillips that preying on workers justifies punitive measures far beyond the restitution provided here, and I believe the FTC should act now to deploy dormant authorities to trigger civil penalties and other relief in cases like this one.

© Michael Kans, Michael Kans Blog and michaelkans.blog, 2019-2021. Unauthorized use and/or duplication of this material without express and written permission from this site’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Michael Kans, Michael Kans Blog, and michaelkans.blog with appropriate and specific direction to the original content.

Image by Maciej Górnicki from Pixabay

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