DoorDash has settled a lawsuit over its incredibly shady tipping policy

Tibrina Hobson/Getty Images Entertainment/Getty Images
Impact

DoorDash has reached a settlement with the District of Columbia for allegedly tricking users into believing their tips would add to a delivery driver's base pay. The lawsuit, filed last year by Attorney General Karl Racine, accused the company of "deceiving" and misleading customers. Instead of tips going directly to drivers, the District argued, the company used tips to offset its operational costs by counting them as part of the drivers' base pay. This is in contrast to what most people expect tips to be — extra cash on top of base pay.

Mic's AJ Dellinger wrote about the issue last year to explain the gig economy's tip-taking practice, providing the following example:

"Let's say that a driver expects to be paid $10 on a delivery order from the service they are working for. They complete the delivery and receive a $5 tip. Instead of adding that $5 on top of the $10 earned for the gig, a company might instead count that $5 against the base pay. The driver ends up with $10 total, as expected, but half of it was paid by the customer's tip. The practice steals tips directly from the pockets of workers, and it often isn't made clear to people ordering delivery how their tip is used."

The District said this payment method misled DoorDash customers during its use in 2017 to 2019. The company failed to clearly tell people how the tips are used and failed to transparently inform customers that their tips wouldn't change or improve most drivers' pay.

DoorDash continued to deny it did anything wrong in the settlement consent order. However, as part of the settlement, the company promised to give full tips to drivers and maintain that tip amounts wouldn't affect DoorDash's payment to the driver. It must also be transparent to customers about where their money is going.

The company will pay a total of $2.5 million to the District — which is, frankly, peanuts for a business worth about $12.6 billion. $1.5 million will be used as relief for delivery drivers. $750,000 will go to the District to cover legal costs. And the remaining $250,000 will go to two local charities.

"Today's settlement rights a wrong that deceived D.C. consumers and deprived workers of monies that they should have been paid," Racine told CNBC in a statement.

DoorDash appears happy to reach a settlement as well.

"We're pleased to have this issue behind us, and thank the Office of the Attorney General for DC for its work throughout this process," a DoorDash spokeswoman tells Mic. "Our focus is on continuing to support [drivers], restaurants, and customers in DC and around the country."

DoorDash's pay model eventually changed in September 2019. The current model now includes specific language about tips, stating that drivers will receive 100 percent of all tips "on top of base pay and promotions."

However, workers behind gig services like these still suffer from very low pay, with the average DoorDash driver earning about $1.45 per hour after accounting for mileage and taxes. Restaurant owners have also complained about the service, saying the company's commission fees take too big a bite out of their orders at a time when eateries are struggling for income.