D.C. Attorney General Karl Racine said that Instacart misled consumers into believing that service charges were being paid directly to delivery drivers.
Grocery delivery service Instacart will pay Washington, D.C., an estimated $2.5 million to settle allegations that the company failed to pay required sales taxes and misled District consumers about its service fees.
According to The Washington Post, D.C. Attorney General Karl Racine alleged in his lawsuit that Instacart led consumers to believe that its mandatory service fees were tips that went directly to workers.
In reality, Racine said, the fees were simply meant to subsidize the company’s operating expenses.
“Instacart tricked District consumers into believing they were tipping grocery delivery workers when, in fact, the company was charging them extra fees and pocketing the money,” Racine said in a statement published to the Attorney General’s website. “Instacart used these deceptive fees to cover its operating costs while simultaneously failing to pay D.C. sales taxes. We filed suit to force Instacart to honor its legal obligations, pay D.C. the taxes it owes, and return millions of dollars to District consumers the company deceived.”
“D.C. consumers expect their tips to go to workers, not the C-suite. 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,” Racine said in a statement.
WTOP News notes that Instacart’s mandatory and allegedly “misleading” service fees impacted D.C. consumers between 2016 and 2018, when Instacart changed its policies.
Instacart will now pay $1.8 million to resolve the complaint, with Racine saying that the settlement will be used to cover litigation-related expenses and provide restitution to affected workers and consumers.
The company will also release an estimated $739,000 in disputed tax payments.
Despite the settlement, Instacart—which has operated in Washington, D.C., since 2014—has denied all allegations of wrongdoing, suggesting that it only agreed to the payments to prevent protracted litigation.
“While we strongly deny the District’s allegations, we are pleased to put this matter behind us after phasing out the waivable service fee more than four years ago,” Instacart said in a statement. “We believe our communications with customers are highly transparent and we have industry-leading tip protections in place for our shopper community.”
However, Racine observed that Instacart quickly changed its service fee practices after being contacted by his office in 2018.
“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,” Racine said.