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Instarcart Faces Lawsuit In Washington DC Over Deceptive Service Fees

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Washington DC Attorney General, Karl A. Racine, is suing Instacart over allegations that it charged customers millions of dollars in “deceptive service fees” and failing to pay hundreds of thousands of dollars’ in sales tax.

 

The Attorney General in the suit is seeking restitution for customers who paid those service fees. He also seeks to collect the taxes and interest on taxes owed to Washington DC.

 

Racine alleges that Instacart misled customers regarding the 10% service fee. He says that Instacart, from September 2016 to April 2018, led customers to believe that the service fee was a tip for the delivery person.

 

“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. 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,” Racine said in a statement.

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An Instacart spokesperson said Instacart “clearly” states that service fees go toward its operations. The spokesperson added that the company clearly distinguishes between the service fees and tips.

 

“Additionally, 100% of customer tips always go to Instacart shoppers who are providing an important essential service for customers. 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,” the spokesperson said.

 

This also spells more legal trouble for the company as it faces uncertainty over its operations in California. The state passed a law in January 2020 seeking to make it and other gig companies reclassify their workers as employees instead of contractors. The reclassification will increase its operating cost as employees will be eligible for full work benefits and minimum wage.

 

Instacart and other gig companies like Uber, Lyft, and DoorDash are instead willing to fight the AB 5 law. The companies are backing a ballot measure, Proposition 22, to keep classifying their workers as contractors.

 

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