Instacart sued by DC attorney general over 'deceptive' service fees

District of Columbia Attorney General Karl Racine filed a lawsuit against the grocery delivery service Instacart on Thursday. The suit alleges that the company deceived customers with service fees that appeared to go to workers, but went into company coffers instead.

"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," said Racine, adding that the company also failed to pay DC sales taxes. "We filed suit to force Instacart to honor its legal obligations, pay DC the taxes it owes, and return millions of dollars to District consumers the company deceived."

The lawsuit, which mirrors a similar suit against DoorDash that Racine filed in 2019, says that from September 2016 through April 2018, Instacart charged DC customers a default "service fee" of 10% for its delivery services.

"To a reasonable consumer, this service fee appeared to be a tip: the amount was set as a percentage of the order total, consumers could increase or decrease the percentage or waive the amount, and there was no tip option visible at check-out," reads a press release announcing the suit. "However, unlike a tip, the service fee went to Instacart and not to workers. Instacart used the revenue to cover its operating expenses."

The suit notes that Instacart updated its service fee policies in April 2018 after facing scrutiny in the media, but says the company refused to reimburse customers. The suit also alleges that Instacart has failed to collect DC sales tax on revenue and delivery fees for as long as it's been operational in the area.

"Customer transparency is incredibly important to Instacart," the company told CNET in a statement. "In our product, we disclose to customers that tips are always separate from and in addition to any service fees, and we clearly indicate that service fees go towards our operations. 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 DC Attorney General Racine's office and we welcome the opportunity to continue an open dialogue on these matters."

In 2019, Instacart's workers, whom the company calls "Shoppers," planned a protest calling on Instacart to make the default tip amount at least 10%, let the Shopper keep the whole tip, and eliminate the service fee.

"We did not arrive at the 10% figure arbitrarily," wrote Instacart Shopper Vanessa Bain in a letter to customers explaining the 2019 protest. "Rather, this is what the default tip amount was back when I and many others started working for Instacart. We are simply demanding the restoration of what was originally promised."