D.C. Attorney General Karl Racine sued grocery delivery company Instacart on Thursday for allegedly deceiving customers into thinking a service fee was a tip, and then pocketing the money for its own operating costs as well as failing to pay hundreds of thousands of dollars in sales taxes to the city.
The lawsuit says Instacart changed its checkout policy in 2016, replacing a dedicated tip option to a “service” charge.
Between September 2016 until at least April 2018, the lawsuit says reasonable customers may have thought the service fee was a tip, “but unlike a tip, the service fee went to Instacart and did not change the wages or commissions that the Company paid its shoppers.”
The lawsuit said Instacart never disclosed to consumers on the main check-out screen that service fee “was entirely optional, banking on the prospect that many consumers would not discover that the service fee could be waived or would continue to confuse the purpose of this fee and a tip.”
Instacart also didn’t collect local sales taxes on the revenue it received from its service and delivery fees, the lawsuit alleges.
The lawsuit asks for Instacart to pay back taxes and provide restitution to customers who were misled.
In a statement, Instacart said “the accusations made in this complaint are without merit” and that it discloses to customers that “tips are always separate from and in addition to any service fees, and we clearly indicate that service fees go towards our operations.”
“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,” Racine said in a statement. “Instacart used these deceptive fees to cover its operating costs while simultaneously failing to pay D.C. sales taxes.”
Gig companies have faced years of criticism for their tipping policies. Instacart, Amazon Flex and Doordash came under fire last year for using tips to subsidize drivers’ base pay. All three eventually reversed course after public outcry. Uber resisted calls to include a tipping option for years, and only introduced the feature in 2017 after former CEO Travis Kalanick resigned.
Read the full lawsuit here.