The Debate Over Startups and Tipping Could Be Just Heating Up

(Bloomberg) -- Startups like to test boundaries. At their best, they push technological ones. At their worst, they breach legal or ethical limits. Instacart Inc. and DoorDash Inc., with their creative approach to tipping, fell into the latter category. 

Before getting into the details, this issue is bigger than just apps garnishing drivers’ tips for their financial benefit (as bad as that is). It raises the much weightier question of how much federal protection gig economy workers deserve. And with an increasingly progressive and pro-labor pool of Democratic 2020 presidential candidates, Silicon Valley may find it doesn’t like the answers it’s getting.

Here’s what happened: Instacart guaranteed its workers $10 per delivery, but only made them whole after accounting for customers’ tips. DoorDash had a similar policy.

The effect was that the more people tipped, the less the companies had to pay out. So customers who thought they were helping to supplement a delivery worker's meager income were actually just tossing some extra money to their favorite startups’ corporate coffers. That surely helped the cash-bleeding companies’ bottom lines, but drivers protested, urging people to only tip in cash.

This week, after public pressure, Instacart relented and ended its policy. The company’s chief executive officer wrote in a Medium post, “It’s our responsibility to change course quickly when we realize we’re on the wrong path.” The company announced that, going forward, tips would be separated from Instacart’s payment, along with some other reforms.

DoorDash, which raised $785 million in funding last year, said it stands behind the pay policy. “It was designed to ensure that Dashers are more fairly compensated for every delivery,” a spokeswoman for the company wrote in an email. “Since implementing this pay model in 2017, Dasher retention and overall satisfaction have increased significantly while average delivery times have decreased.”

It’s not just grocery startups. Amazon.com Inc., too, is now facing questions over tipping. Even Lyft, whose nice-guy reputation was until recently mostly unblemished, had a similar policy as recently as 2017. When the company offered minimum hourly guarantees, tips were included. Uber, of course, refused for years to include tipping in the application. In June 2017, it relented. Tips don’t affect drivers’ regular pay for either Lyft or Uber today, though there are certainly broader questions about how well they pay their drivers.

In what could be a bellwether of coming policy fights, last week New York City instituted a minimum wage for drivers. It came after years of brawling with Uber. Lyft sued the city, protesting the particulars of the new minimum wage. And New York Mayor Bill de Blasio took a loudly pro-worker stance, tweeting, “This isn’t hard — PAY A DECENT WAGE.”

New York quickly brought Lyft to heel. The second-place ride-hailing company capitulated and said it would pay drivers according to the new rules, even as it fights their implementation in court.

For now, while some startups struggling to make money will have to shoulder a few added costs, gig work remains mostly unregulated. We’ll see if other politicians looking for a stump speech will follow New York’s lead.

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To contact the editor responsible for this story: Anne VanderMey at avandermey@bloomberg.net, Aki Ito

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