AG Racine Announces Instacart Must Pay $2.54 Million for Misrepresenting that Consumer Tips Would Go to Workers & Failing to Pay Sales Taxes

Settlement Requires Instacart to Pay $1.8 Million to DC to Resolve Consumer Deception Claims, Release $739K in Formerly-Disputed Tax Payments

WASHINGTON, DC – Attorney General Karl A. Racine today announced a $2.54 million settlement with Instacart, an online delivery company, resolving a lawsuit alleging that the company misled DC consumers, used tips left for workers to boost the company’s bottom line, and failed to pay required sales taxes. 

In a 2020 lawsuit, the Office of the Attorney General (OAG) alleged that from 2016 until 2018, Instacart falsely led consumers to believe that “service fees” charged on orders were tips that went directly to delivery workers—but instead, the fees went to Instacart and the company used them to subsidize operating expenses. As part of the settlement, Instacart will pay $1.8 million to the District, which can be used to provide restitution to delivery workers and consumers and cover litigation costs. The company will also be required to abandon claims that it should not have to pay District sales taxes and release $739,057 in previously-disputed tax payments.  

“DC consumers expect their tips to go to workers—not the c-suite,” said AG Racine. “Any business operating in the District must provide consumers with truthful information, pay workers the wages and tips they have earned, and pay the sales taxes that they owe. Today’s settlement with Instacart sends a clear message: any company that attempts to dodge their obligations to workers and consumers will be held accountable.”

OAG filed suit against Instacart in August 2020, after public reporting  prompted an OAG investigation. In its lawsuit, OAG alleged that Instacart violated DC’s consumer protection laws by charging deceptive “service fees,” and led consumers to believe that these fees were tips that would increase worker pay—when in reality, the fees went to Instacart and were used to cover operating expenses. Prior to 2016, Instacart’s checkout screen included an option to tip workers, set as a default 10 percent of the consumer’s subtotal for groceries that users could adjust. In 2016, Instacart replaced the tip option with a service fee, which was also set to a default 10 percent and could be adjusted. Consumers paid the new, misleading service fee believing they were tipping the workers who delivered their grocery orders. In reality, the service fee was an additional charge—on top of a delivery fee—that was collected by Instacart.

While Instacart changed its misleading service fee practices on April 23, 2018—following media reports and contact by OAG about the fees—the company never provided  refunds to all District consumers who were misled. Instacart also failed to collect and pay District sales tax on the revenue it received from its service and delivery fees from 2014 through 2020.

Under the terms of this settlement, Instacart will be required to:

  • Pay $1.8 million to the District: Instacart will pay $1.8 million to the District to resolve consumer protection claims around its deceptive service fee practices. The District may use these funds to provide restitution to affected workers and consumers, and to cover costs of pursuing this litigation. 
      
  • Release $739,057 in disputed tax payments and acknowledge that it must pay District sales taxes: For years, Instacart incorrectly claimed that its business model was not covered by DC’s tax laws and that it did not have to pay sales tax. Now, the company correctly acknowledges that it has a legal obligation to collect and remit sales taxes. Previously, Instacart paid $739,057 in sales taxes under protest—meaning that it disputed that it owed the taxes and actively attempted to have those payments refunded. Now, Instacart will be required to end the dispute and release those funds to the District.
     
  • Ensure tips go directly to workers: Instacart must comply with District law, not deceive consumers, and ensure that it no longer displays fees or tips on its platform in a misleading manner, including by obscuring the purposes of those fees.

A copy of the consent order is available here.

AG Racine’s Efforts to Stop Abuses by Big Tech

This lawsuit builds on AG Racine’s efforts to hold big tech companies and their executives accountable for their deceptive, predatory practices and to stand up for District residents when they are harmed. Among many other actions, AG Racine filed a lawsuit against Facebook for failing to protect the data of its users when Cambridge Analytica acquired and used that data to manipulate the 2016 election. He filed an antitrust lawsuit against Amazon to stop anticompetitive and unlawful behavior that controls prices across the entire online market. He sued Google for deceiving and manipulating consumers to gain access to their location data, including making it nearly impossible for users to stop their location from being tracked. He introduced legislation before the DC Council – which passed in 2020 – to modernize the District’s data breach law, strengthen protections for residents’ personal information, and prevent identity theft. AG Racine has also worked to make sure gig economy companies – like DoorDash, GrubHub, and Getaround – follow the same laws as brick-and-mortar businesses, including wage and hour laws.

How to Report Unfair Business Practices
To report scams, fraud, or unfair business practices, contact OAG’s Office of Consumer Protection by calling (202) 442-9828, emailing consumer.protection@dc.gov, or submit a complaint online.