The grocery delivery startup Instacart has agreed to settle a class action lawsuit for $4.6 million and to make changes to how it explains its fees to customers.
Instacart will pay $4.6 million to settle a class action lawsuit with its workers
The startup also has to change how it describes a controversial service fee.
Jason Del Rey has been a business journalist for 15 years and has covered Amazon, Walmart, and the e-commerce industry for the last decade. He was a senior correspondent at Vox.
As part of the suit, independent contractors who pick out and deliver groceries for Instacart claimed 18 violations, including improper tip pooling and failure to reimburse workers for business expenses. Instacart still denies all the claims against it.
The settlement is a drop in the bucket for Instacart, which just closed a new $400 million investment that values the startup at around $3 billion. The company has now raised nearly $700 million from venture capital firms and strategic partners like Whole Foods.
No one is getting rich from the deal either — three of the workers actively involved in the lawsuit will receive $5,000 each, while others named in the suit will get either $1,000 or $500 a piece. Instacart workers who aren’t named in the lawsuit will receive, at best, a couple hundred dollars.
But the settlement agreement also requires the startup to alter the way it describes a new service fee that has led to outrage among Instacart workers because many customers incorrectly assume the fee is a tip. Recode recently called out Instacart for how it introduced this fee, how hard it has made it for customers to find the tipping option and how it describes tips.
“Instacart will modify the existing user interfaces related to the Service fee to provide additional information to customers regarding the nature of the Service fee and the differences between the Service fee and tip,” the agreement reads.
“We have settled a nationwide class action lawsuit, primarily over the classification of our shoppers as independent contractors,” a spokesperson said in a statement. “This is a positive, early resolution for the company, and we look forward to finalizing the settlement.”
Other companies in the burgeoning “on-demand” economy like Uber and Lyft have also settled class action suits against them. All of these companies rely on a network of independent contractors to carry out their core services. Instacart previously converted some of its in-store shoppers from contractors to part-time employees.
The settlement also requires Instacart to create a formal policy that explains under what circumstances a worker can be deactivated from the Instacart system — essentially, being fired — and a process for disputing deactivation.
This article originally appeared on Recode.net.
