DoorDash agreed to make a settlement of nearly $17 million in a lawsuit which accused it of subsidizing workers’ income using customer tips in New York. The company, between May of 2017 and September of 2019, practiced a contested compensation system in which customer tips subsidized workers’ base wage, rather than in addition to it. The system, which was not clearly disclosed, made it appear as though tips directly subsidized drivers’ income.
DoorDash, between 2017 and 2019, operated on a “guaranteed pay” system, which made it possible for delivery workers, who refer to themselves as Dashers, to see earnings projections before accepting a job. However, DoorDash configured its payment system in such a way that tips didn’t have a tendency of adding on earnings for workers. For example, when a customer left a customer a $11 tip on an order for which DoorDash guaranteed a payout of $10, DoorDash contributed a mere $1, leaving total payout at $12. This made tips act in a way of reducing DoorDash’s own payout obligation rather than adding on for workers.
Consumers didn’t notice this arrangement and presumed gratuities went directly to workers, which is standard in this industry. The transparency issue led to widespread criticism and ultimately resulted in legal action.
Under the settlement announced by New York Attorney General Letitia James, DoorDash will pay $16.75 million in restitution to approximately 63,000 affected workers who made deliveries in New York during the specified period. Compensation for individual workers will range from $10 to $14,000, depending on the number of deliveries they completed.
In addition to making restitution payments, DoorDash will fund a maximum of $1 million in costs of settlement fund administration. The company is required, under the settlement, to continue its existing compensation system, which remits tips in full for Dashers, in a manner such that it won’t lower its contribution of base compensation. DoorDash is also mandated to provide more detailed disclosures of its compensation practices for workers and consumers and report on its compliance every six months for a period of three years to the Attorney General’s office.
New York Attorney General Letitia James condemned DoorDash’s historical compensation system, which she characterized as “unfair in its fundamentals.” She emphasized the urgency of transparency in wage systems, particularly in the gig economy, in which workers can have little negotiation power.
“This settlement assures workers receive fairly earned tips and that customers aren’t being misled about where dollars go,” James stated. “It sends a clear signal that businesses can’t cheat workers and customers in an attempt to make a large profit.”
DoorDash, in agreeing on the settlement, upheld its defense of its past practices. The firm, in a statement, asserted, “While we believe we appropriately described our compensation model when it went live, we are pleased we have been able to reach a solution. DoorDash is committed to providing flexible earning opportunities for Dashers and maintaining its payment practices in an open manner.”
DoorDash has been in legal trouble for its tipping practices in the past. In 2020, it agreed to a settlement in a Washington, D.C. lawsuit for a combined total of $2.5 million for falsely making assurances about tips being directly given to its workers. The Washington, D.C. lawsuit followed a pattern of complaints in New York, once again spotlighting the issue of gig industry workers struggling for a living wage. In other English-speaking countries, tipping transparency and employee rights remain urgent concerns beyond the U.S. In Britain, for example, meal delivery companies like Deliveroo have been criticized for compensation practices and platform workers’ treatment. In Canada and Australia, governments have been pushing for stronger regulations for just compensation and protections for workers in the so-called gig economy.