Instacart is sued for ‘pocketing hundreds of thousands of dollars given by customers as tips’
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Prosecutors in Washington DC have accused shopping service Instacart of pocketing tips that customers believed were going to the delivery team.
Demand for Instacart’s services soared during the pandemic, with the San Francisco-based start-up announcing in April that it had hired 300,000 extra workers, and the company becoming profitable for the first time since its founding in 2012.
Yet the attorney general of Washington DC, Karl Racine, on Thursday alleged that this was in part due to short-changing the delivery workers.
He accused Instacart of violating DC tax law, and failing to collect ‘hundreds of thousands of dollars in sales taxes.’
Instacart uses gig-economy delivery workers who shop for consumers at supermarkets
The San Francisco-based firm has been accused of short-changing the delivery teams
Racine said the company listed a 10 per cent ‘service fee’ for delivery services on its website, and customers believed they were providing a tip for drivers, as the percentage could be adjusted according to what the customer desired to pay.
No alternate form of payment to the driver appeared to be available on the site, Racine said, in documents obtained by Fox 5.
His office is now suing the company for restitution for consumers, back taxes and interested on taxes owed to DC.
One Instacart user described the system as ‘sneaky’, while another asked Twitter how it worked.
Another described Instacart as a ‘shady business’.
Instacart told DailyMail.com that they were ‘disappointed’ by Racine’s suit, which they described as ‘without merit’, and hope ‘to continue an open dialogue on these matters.’
A spokesman said: ‘Customer transparency is incredibly important to Instacart.
‘In our product, we disclose 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.
‘Additionally, 100 per cent of customer tips always go to Instacart shoppers who are providing an important essential service for customers.
‘We believe the accusations made in this complaint are without merit.’
One Instacart user, confused by the system, asked Twitter for advice on tipping
Another Twitter user described Instacart as having a ‘sneaky’ fee structure
Another Instacart user, responding to Racine’s suit, said the company was a ‘shady business’
Karl Racine, the attorney general of Washington DC, filed the case against Instacart Thursday
Racine accused Instacart of misleading users about the tipping system and ‘service fee’
Instacart’s app and website allow you to shop from 30,000 stores across the U.S. and Canada.
Instead of having a warehouse for the goods, buyers will select what they want from their local store, and then a ‘shopper’ will go to the store, collect the produce, and deliver it in their own car.
Delivery is free for your first order, and you do not need to become a member.
After that same-day delivery starts at $3.99 for orders worth more than $35.
However, if you sign up for the $9.99-a-month service, or $99 a year, you will continue to get free delivery for orders of more than $35.
It is not the first time that workers for the company have complained about the system.
The company changed its tipping policy in April following a report from CNN Business about the practice of ‘tip baiting’, where customers entice shoppers with tips as large as $50 or more – only to change the tip to zero after the order is completed.
The policy change came days after four democratic senators called on the Federal Trade Commission to investigate the practice.
Instacart offers consumer the option of having their groceries delivered from their local store
Racine said that Instacart made it seem like the service fee was going to the delivery workers
On Thursday The Los Angeles Times published an expose of working conditions for Instacart’s delivery teams.
Instacart relies on a combination of in-store hourly employees and contractors; in-store shoppers pick groceries, while contractors can choose to pick and deliver or just deliver.
In-store employees receive minimum wage and work a maximum of 29 hours a week — just under the 30-hour cutoff to qualify for employee healthcare.
‘In the early days of Instacart, we were losing money on every single delivery, and we were growing fast,’ said Apoorva Mehta, chief executive, in an on-stage interview in 2018.
‘That’s not a good combination.’
Instacart expects veteran shoppers to spend no more than 72 seconds — including standing in line at deli or seafood counters — to find an item or an appropriate replacement if it’s out of stock, sources and documents obtained by the paper said.
Before the pandemic, slow shoppers were eventually fired and faster shoppers were assigned more orders, according to two sources, and documents and screenshots detailing company policy and metrics, reviewed by The LA Times.
Natalia Montalvo, the company’s director of shopper engagement and communications, said the in-store shopper role was built on the premise of ‘flexibility, efficiency, innovation and customer service.’
She said: ‘Efficiency and fulfillment of customer orders in a timely manner is important, but it’s just one of many factors we look at in our overall business health and growth.’
She said revenue derived from advertising, and partnering with consumer brands, was also vital to the company’s success.
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