DoorDash is paying $2.5 million to settle a lawsuit that accused the food delivery company of stealing drivers' tips

• DoorDash is paying $2.5 million to settle a lawsuit filed in 2019 that accused the company of using a "deceptive" tipping model.
• The lawsuit alleged that DoorDash used millions of dollars in tips and applied it towards drivers' base pay and the guaranteed minimum pay for orders, instead of adding it to the overall check.
• Customers believed the tips would go directly to drivers, and many were not aware of DoorDash's actual tipping process until it was made public.
• The settlement comes just two weeks after DoorDash filed to go public and in the same month that the company celebrated the passing of Proposition 22, a California ballot measure that exempts some gig companies from paying contractors as employees.

DoorDash is paying $2.5 million to settle a lawsuit that accused the food delivery startup of misleading customers in how it issued tips for its drivers.

Washington DC Attorney General Karl Racine filed the lawsuit against DoorDash in November 2019, alleging that between 2017 and 2019, DoorDash reallocated millions of dollars in tips paid by customers to instead go toward drivers' base pay. Racine called the model "deceptive" because it meant that those payments didn't always go directly to the drivers. Many customers were not aware of the model when it became public.

The company refuted te claims, with a spokesperson saying the firm strongly disagreed with the 2019 lawsuit. DoorDash migrated to a new tipping model in September 2019, one that ensures that "100% of tips" goes to the drivers "on top of base pay and promotions."

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The terms of the settlement require DoorDash to pay "$1.5 million in relief to delivery workers, pay $750,000 to the District, and donate $250,000 to two District charities," according to a press release issued by Racine's office.

DoorDash will also be "required to maintain a payment model that ensures all tips go to workers without lowering their base pay, and it will be required to provide clear and easy-to-access information about its policies and payment model to workers and consumers."

In a statement to Business Insider, a DoorDash spokeswoman said, "We're pleased to have this issue behind us, and thank the Office of the Attorney General for DC for its work throughout this process. Our focus is on continuing to support Dashers, restaurants, and customers in DC and around the country."

The settlement comes just two weeks after DoorDash filed to go public. The company reported in its filing that it experienced a surge in business during the pandemic, generating a $149 million loss on revenue of $1.9 billion. The company said it may not be able to "maintain or increase profitability in the future" due to expected cost increases.

Read more: Here are the investors that are set for a windfall as DoorDash heads for an IPO, from asset managers like Fidelity to a retirement plan for Costco employees

Fellow food delivery startup Instacart has also fielded backlash over its own tipping model, one in which workers said allowed the company to apply customers' tips to their base pay.

DoorDash, Instacart, Uber, and Lyft just celebrated a major triumph this month when their joint Proposition 22 ballot measure passed in the California election. The ballot measure was created to exempt them from AB5, a law that required gig-based firms to pay their contractors like employees, with minimum wages, workers' compensation, and other benefits. The requirement would have added additional labor costs to the companies.

Labor experts told Business Insider that Prop 22 will still require gig companies to provide more benefits to workers, such as healthcare subsidies, but less than what they would receive as employees.