AG Racine Announces Settlement with Drizly That Requires Payment of $6 Million For Soliciting Tips That Did Not Go to Delivery Drivers & Failing to Pay Sales Tax

Settlement Includes $1.95 Million in Restitution for Delivery Drivers; Website for Workers to Submit Claims Will Launch by End of 2022

WASHINGTON, D.C. – Attorney General Karl A. Racine today announced that Drizly, an alcohol delivery company, will be required to pay an estimated total of $6.46 million to resolve allegations that it failed to ensure delivery drivers received tips left by consumers and failed to pay required  taxes.

As part of a settlement agreement with the Office of the Attorney General (OAG), Drizly will pay nearly $2 million in restitution to workers who delivered goods ordered through their platform from 2019 through the present. Though Drizly did not divert customer tips to itself, it did not take steps to ensure that tips went to workers. A claims administrator will identify current and former drivers in the next several months and launch a public website where impacted workers can submit claims to receive restitution. Under the terms of the settlement, Drizly will also be required to pay $3.2 million in unpaid taxes and interest, release any claims to $465,833 in taxes it paid to the District during the course of OAG’s investigation, and pay $750,000 to cover costs of the investigation. Under a framework established by the settlement agreement, Drizly may be required to pay additional amounts in both worker restitution and taxes depending on the number of workers who come forward with claims and further calculations on taxes owed. This settlement continues OAG’s work to hold gig economy companies accountable and ensure companies do not pocket tips intended for workers.

“All companies operating in the District must abide by DC law, regardless of the novelty of their business model,” said AG Racine. “The District’s strong consumer protection and workers’ rights laws require businesses to provide clear and truthful information to consumers, pay workers the wages and tips they earn, and pay the taxes that they owe. Today, we’re enforcing those laws to ensure the tips customers left for hardworking delivery drivers are properly returned to workers. I credit Drizly and Uber, which purchased Drizly in 2021, for fully cooperating with the District’s investigation and ensuring that drivers receive restitution, and that all taxes owed to the District are paid. ”

Drizly is a Boston-based beer, wine, and liquor delivery company that has operated in the District since 2014. Consumers place orders through Drizly’s website or mobile app, and local retail partners—usually local beer, wine, and liquor stores—fulfill the orders. Drizly has dozens of retail partners in the District, and each year thousands of local consumers place tens of thousands of orders for delivery of alcoholic beverages through Drizly’s platform. (Drizly was acquired by Uber Technologies in 2021 and is now a wholly owned subsidiary of Uber.)

When consumers placed orders through Drizly’s platform, Drizly encouraged them to tip their delivery drivers on its checkout screen. The company even preselected a tip amount of 10% as the default at checkout. Through an investigation, OAG learned that—contrary to consumer expectations—tips consumers left through Drizly’s platform often did not affect driver pay. Instead, Drizly passed these “tips” to its retail partners with no meaningful restrictions or requirements that the money be paid to drivers. Many of these retailers paid delivery drivers an hourly rate or flat fee and used the “tips” left by consumers to offset their own operating costs or increase profits.

OAG’s investigation also revealed that Drizly failed to pay millions of dollars in sales and use taxes it owed to the District, including taxes for orders processed on its platform under the District’s Marketplace Facilitator Law as well as taxes on the delivery and service fees Drizly charged District consumers.

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

  • Pay $1.95 million to affected delivery drivers: Drizly will pay restitution to workers who delivered goods ordered through Drizly between January 1, 2019 and November 14, 2022. Drivers will receive compensation of $6.75 per delivery made during this period. If worker claims exceed $1.95 million, Drizly will be responsible for making the additional payments. The claims process will be managed by a third-party claims administrator, who will reach out to eligible workers over the next several months by all available contact methods, including phone call, text message, email, and mail, and will set up a claims website. Additional information will also be provided publicly.
  • Pay $3.2 million in sales taxes and interest: For years, Drizly failed to pay sales taxes on service fees and delivery fees and also failed to pay taxes owed under the District’s Marketplace Facilitator Law, which took effect on April 1, 2019. Now, the company correctly acknowledges that it has a legal obligation to collect and remit these taxes and has agreed to do so going forward. The settlement establishes a framework under which Drizly will initially pay $3.2 million, but may be liable for additional taxes and interest, depending on the results of a final calculation of how much tax is owed.
  • Pay $750,000 to the District: The company’s payment will compensate the District for costs connected to its investigation.
  • Release any objections to $465,833 in previous tax payments: In direct response to the OAG’s investigation, Drizly paid this amount to the District in May 2022, and has agreed as part of the settlement to forgo any efforts to receive a refund of this amount.
  • Provide clear information to consumers:  Drizly will stop describing gratuity funds collected through the Drizly platform as “tips” and will not preselect a gratuity option for consumers during checkout. Drizly will also change its disclosures to make it clear to consumers that Drizly retail partners have discretion over whether and how to distribute any money collected by Drizly as gratuities.

A copy of the settlement agreement is available here.

Under the framework established by the settlement, the District and its workers have the potential to recoup over $10 million in total.

This matter was handled by Assistant Attorneys General Randy Chen, Jessica Micciolo, and Charles Sinks, Investigator Jonathan Thervil, and Section Chief Graham Lake of the Workers’ Rights and Antifraud Section of OAG.

AG Racine’s Efforts to Stop Abuses by Big Tech

This settlement 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. AG Racine has worked to make sure gig economy companies – like InstacartDoorDashGrubHub, and Getaround – follow the same laws as brick-and-mortar businesses, including wage and hour laws. In addition, 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.