Washington, D.C. files lawsuit against Instacart over fees

Instacart is being sued for back taxes and for the way it operates its grocery delivery service in Washington, D.C., marking the second major legal action against the 8-year-old company. The latest lawsuit — filed Thursday by Attorney General Karl Racine — claims that Instacart misled customers about service fees. 

Instacart did not tell customers that an optional service fee was being added to grocery bills between September 2016 and April 2018, Racine's lawsuit argues. Court documents also allege that customers were led to believe service fees were tips for delivery workers. But instead of using the money to boost workers' pay, Instacart pocketed the fees and hasn't paid sales tax in six years, Racine said Thursday. 

"Instacart used these deceptive fees to cover its operating costs while simultaneously failing to pay D.C. sales taxes," Racine alleged in a statement. "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."

Instacart dismissed Racine's claims, calling the accusations "without merit" in a statement. Instacart said transparency is important to company officials and that all customer tips go to shoppers. 

"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," Instacart said. 

Still, Racine's office believes Instacart violated the District's consumer protection statues. At issue was the way Instacart presents customers' bills. The company puts an automatic 10% service fee on orders without showing customers that the fee was optional and could be amended, the lawsuit contends.

Racine didn't disclose an exact amount he believes Instacart owes in taxes, but the lawsuit claims "Instacart owes the District hundreds of thousands of dollars, plus penalty and interest, for unpaid sales taxes since 2014." 

Instacart was sued in 2015 by workers who claimed they were owed extra pay but didn't get it because they were misclassified as independent contractors and not employees. The company eventually settled with the workers in 2017, paying $4.6 million.

The D.C. Attorney General's Office has an ongoing lawsuit against food delivery service DoorDash alleging that the company misled customers on tips intended for drivers. DoorDash changed its company policy last year after widespread criticism, and now passes along all of a tip to drivers.