Instacart faces lawsuit from DC attorney general over ‘deceptive’ service fees

Instacart is facing a lawsuit from Washington, D.C. Attorney General Karl A. Racine that alleges the company charged customers millions of dollars in “deceptive service fees” and failed to pay hundreds of thousands of dollars’ worth of sales tax. The suit seeks restitution for customers who paid those service fees, as well as back taxes and interest on taxes owed to D.C.

The suit specifically alleges Instacart misled customers regarding the 10% service fee to think it was a tip for the delivery person, from September 2016 to April 2018.

“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. “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.”

In a statement to TechCrunch, Instacart said customer transparency is important and that it currently discloses to customers that tips are separate from service fees. A spokesperson said Instacart also “clearly” indicates that service fees go toward its operations.

“Additionally, 100% of customer tips always go to Instacart shoppers who are providing an important essential service for customers,” the spokesperson said. “We believe the accusations made in this complaint are without merit. We’re disappointed with today’s action by D.C. Attorney General Racine’s office and we welcome the opportunity to continue an open dialogue on these matters.”

This is not the first time Instacart has faced legal issues over its service fees. In 2017, Instacart settled a $4.6 million suit regarding claims that the company misclassified its personal shoppers as independent contractors, and also failed to reimburse them for work expenses. As part of the settlement, Instacart was required to change the way it described a service fee, which many people mistakenly thought meant tip. Even when Instacart clarified the language, the suit alleges Instacart still buried the option to tip.

“In this respect, Instacart’s checkout design compounded consumers’ tendency to confuse the service fee with a shopper tip,” the suit alleges.

This lawsuit comes as Instacart is facing uncertainty in California over the way it classifies some of its shoppers and delivery people. Despite a new law going into effect in January that clearly lays out what type of workers should and should not be classified as independent contractors, Instacart has yet to classify its workers as employees. Instead, Instacart, along with Uber, Lyft and DoorDash, are backing a ballot measure, Prop 22, that seeks to keep their workers classified as independent contractors.