DoorDash to pay $16.75 million settlement over deceptive pay practices

Investing.com -- Today, New York Attorney General Letitia James announced a settlement of $16.75 million with the delivery platform DoorDash (NASDAQ:DASH). The agreement comes after an investigation revealed that DoorDash misled both consumers and its delivery workers, known as Dashers, by using tips meant for Dashers to subsidize their guaranteed pay. The deceptive practice was in place between May 2017 and September 2019.

Under the pay model used by DoorDash during this period, Dashers were shown a guaranteed payment before accepting a delivery. However, the company used customer tips to offset the base pay it had already promised to workers, not giving workers the full tips they had rightfully earned. As a result of the settlement, DoorDash will pay $16.75 million in restitution for Dashers and up to $1 million in settlement administrator costs to facilitate the payments.

The Attorney General’s office investigation also found that DoorDash’s pay model only allowed workers to see their tips if they exceeded the amount DoorDash had already guaranteed to pay them. DoorDash would always pay a minimum of $1 to the Dasher and would use the customer’s tips to make up the rest of the guaranteed amount.

For instance, for orders with a guaranteed payment of $10, if a customer tipped $3, DoorDash would use that tip to pay $7 of the guaranteed amount, meaning the Dasher still only received $10 in total. Customers were misled into believing their tips would directly benefit Dashers, but instead, DoorDash used the tips to reduce its own costs.

DoorDash failed to clearly disclose these practices to customers and Dashers. At checkout, customers were encouraged to tip with a message reading “Dashers will always receive 100 percent of the tip.” Information about the use of tips was hidden in online documents and not accessible during key moments in the ordering process. Customers were unaware that DoorDash was using tips to lower its own expenses.

The restitution from DoorDash, which totals $16.75 million, will be distributed directly to Dashers who were affected by the deceptive pay model. Any worker who delivered for DoorDash between May 2017 and September 2019 in New York state may be eligible to file a claim for this settlement. During this period, New Yorkers placed over 11 million delivery orders with DoorDash, and approximately 63,000 New York delivery workers stand to benefit from this settlement. Payments are expected to start in early 2025.

In addition to the restitution fund, DoorDash must revise its payment practices to ensure consumer tips are paid to Dashers in full, without impacting DoorDash’s contribution to guaranteed pay. The company is also required to clearly disclose pay policy details to both Dashers and consumers and provide Dashers with a breakdown of base pay, promotional bonuses, and tips for every delivery. Furthermore, Dashers, including those deactivated, will have access to their delivery history for at least four years.

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