District of Columbia Attorney General Karl A. Racine announced on Thursday that the Office of the Attorney General (OAG) filed a lawsuit against grocery delivery service Instacart for charging consumers in the District of Columbia “millions of dollars in deceptive service fees and for failing to pay hundreds of thousands of dollars in District sales tax.”
Consumers order groceries through Instacart and its workers deliver the groceries. During checkout, Instacart consumers are directed to a subtotal for their order and other related charges. The OAG averred that for a year and a half between September 2016 to April 2018, Instacart did not clearly disclose to consumers that it added an optional 10 percent service fee to their bills, in addition to the delivery fee, and purportedly led consumers to believe that the service fee was a delivery worker tip. The option allegedly replaced the former tip option, which was also adjustable but set at 10 percent.
Racine noted that “to a reasonable consumer, this service fee appeared to be a tip: the amount was set as a percentage of the order total, consumers could increase or decrease the percentage or waive the amount, and there was no tip option visible at check-out.” However, these fees “were an extra revenue source for the company and did not increase workers’ pay.” Instead, the service fee covered Instacart’s operational costs. In April 2018, after numerous media reports and after being contacted by the OAG, Instacart changed its service fee practice, but it has not provided consumer refunds.
According to Racine, when Instacart announced the service fee change “it told consumers that ‘100% of the variable service amount is used to pay all shoppers more consistently for each and every delivery, not just the last shopper to touch the order.’” Instacart supposedly noted that it added a service fee because “multiple shoppers may have been involved in a single order” and this “service fee is used to pay this entire set of shoppers,” instead of the last one to work on the order. However, shoppers working on an order were paid the same regardless of a consumer paying the service fee.
“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.
Racine also claimed that Instacart failed to collect the sales tax on its delivery services as required by the District’s law. “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.”
The specific allegations against Instacart include: “charging District consumers millions of dollars in deceptive service fees,” “misleading consumers about how service fees contributed to worker pay,” and “failing to pay hundreds of thousands of dollars in District sales tax.” Instacart is accused of violating the District’s Consumer Protection Procedures Act and tax law and failing to collect sales taxes on delivery and service fees, which could total hundreds of thousands of dollars that it has not collected.
The OAG has sought restitution for consumers who paid these deceptive fees, back taxes and interest on owed taxes, civil penalties, and costs. The OAG has also sought a court order to stop further violations, to recover unpaid sales taxes, civil penalties, and other relief.
The representatives for the OAG in this suit include Attorney General Karl A. Racine, Deputy Attorney General Kathleen Konopka, Assistant Deputy Attorney General Jimmy R. Rock, Director, Office of Consumer Protection Benjamin M. Wiseman, and Assistant Attorney General Jennifer M. Rimm.
In October of last year, DoorDash was sued for a similar deceptive tipping scheme, whereby consumers unknowingly subsidized their delivery workers’ pay through their tip, instead of the tip actually serving as a tip to the delivery worker.