This week, in a letter addressing individual workers of the food delivery service DoorDash, the company’s co-founder and CEO Tony Xu appeared to finally face brewing tension over the startup’s tipping model.
In the letter, Xu said the company would be organising surveys and roundtables with its delivery workers, independent contractors called dashers, about what they think DoorDash should be doing better. Xu wrote that DoorDash had “heard from some who expressed confusion about how pay is calculated and what happens with tips.”
The letter follows a controversy that reached its proverbial tipping point a few weeks ago after the company defended the payment system — one in which tips help make up workers’ wages instead of supplementing them — even as one of its competitors that had recently implemented a similar model acknowledged that it was bad practice.
Speaking with Bloomberg in February after closing a $565 million funding round, Xu said: “There was no coverage of this two years ago. But all of a sudden there’s coverage because of an experiment that another company ran.”
That DoorDash’s pay model — which has been in place since 2017 — is still causing “confusion” among workers and indeed, even customers, is alarming. However, a survey of interviews with four current and former dashers as well as three former DoorDash corporate workers, emails to the company’s contractors, past marketing materials, screengrabs from a private dasher group on Facebook, and screenshots of the platform itself paint a picture of a system that’s confusing as if by design.
DoorDash, a San Francisco-based on-demand delivery service valued at $10 billion, was founded in 2013 and counts Y Combinator and SoftBank Vision Fund among its backers.
It’s currently the reigning king for total consumer spend in food delivery services ahead of its competitors Uber Eats and Grubhub, according to research firm Edison Trends. Part of its recipe for success may be its expanded offering of restaurants, including upscale city joints that boost spending, Edison co-founder Hetal Pandya told the Wall Street Journal.
An overarching criticism of the so-called “gig economy” at large—including services like Uber and Amazon Flex—is that wages often don’t account for some expenses necessary to do the job, such as gas, car payments, and wear and tear on drivers’ vehicles. For these kinds of jobs, the benefits don’t always outweigh the wages or risks of the work—and that’s not always immediately clear to workers. But DoorDash appears especially eager to bend truths about the reality of its service to further its ambitions, particularly in its messaging.
Prior to 2017, DoorDash’s system in most of its markets was to pay dashers a fixed rate per delivery, which varied depending on the city. Versions of the dasher website archived throughout 2016 indicate that could be anywhere from $7-7 per dash in San Diego, $11 per dash in San Francisco, $8 per dash in Seattle, or $7 per dash in Manhattan. The company did and continues to say that drivers are able to keep 100 per cent of their earned tips. (This is also the law.)
DoorDash announced to dashers midway through 2017 that it was restructuring its payment model, according to emails about the change as well as interviews with DoorDash workers. Under this new model, the company presented dashers with a guaranteed wage they could earn per dash. Let’s take for example a dash that earns $11. DoorDash agreed to pay at least $1 of that figure. If a customer tipped less than the guaranteed amount, DoorDash said it would issue a “boost” payment to make up for the difference to meet the promised wage. If a customer tipped over the amount, DoorDash would pay $1, and tips would make up the rest of the earnings. In other words, dashers do get to keep their tips, they’re just also helping to offset the wages that the company would otherwise have to pay its workers.
According to a former employee who worked at the company during the spring of 2017, DoorDash spent months ironing out the model and its messaging before overhauling its payment structure. Indeed, in his email to dashers this week, Xu said the company “conducted months of testing and surveyed thousands of Dashers” prior to rollout.
The company told corporate employees internally at the time that the new pay system was designed to benefit workers, according to two corporate employees. But when announcing the model at an all-hands meeting, one source said, the company “glossed over” specifics about how it worked, instead emphasising the claim that dashers were happier with it.
An email about the rollout to a dasher in the Northern California market in September of 2017 called the new model a “fairer” and more “transparent” pay model. The company claimed that dashers could earn more and have added clarity about how much they’d earn per dash ahead of time.
It also said that some 80 per cent of workers preferred this new model. But immediately after launch, some dashers lamented on Reddit that they were making less per order under the new model, despite the company’s assurances that workers could make more. And despite DoorDash’s claim that the new system was intended to be more “transparent,” some said guaranteed pay calculations were unclear.
DoorDash claims that it calculates the guaranteed dasher pay rate based on a variety of factors, including distance, travel time, the size of the order, and whether the delivery must be placed by the dasher at the restaurant or store. Further complicating an already confusing payment system, DoorDash’s app does not disclose to the dashers how much a customer tips per order, according to multiple current dashers for the company who spoke with Gizmodo on the condition of anonymity to protect their jobs.
And even when a dash looks like it could bring in some serious cash, it’s possible that DoorDash’s measly $1 contribution combined with the customer tip won’t square up to much more than the dash’s guaranteed rate, as one former dasher explained to Gizmodo.
“Sometimes you’ll get one that looks great, and it looks like it’s going to be profitable, but you don’t get any real tip on top of what they’re guaranteeing you. You can’t really complain because that’s what they guaranteed you and that’s it,” this person said. “It just seemed like a backwards way of doing business. Like they’re shuffling the deck behind the scenes sort of thing, you know?”
It’s also hard for dashers to know where their money is coming from. The company “makes it impossible for us to know how we’re getting paid each delivery,” a current dasher said. “They don’t let us know how much the customer tips us and they don’t let us know how much DoorDash gives us off each individual delivery.” Multiple dashers said they had spoken with customers directly about how much they tipped on an order to calculate how much was being counted toward their wage.
“If customers would just tip in cash, [DoorDash] would actually have to pay us a decent wage to deliver,” one dasher said.
Depending on the market, a “decent wage” is a bit of a tumble from the roughly $28 an hour that DoorDash advertises in some areas. On Craigslist, the company uses seemingly intentionally crafty wording to advertise its apparent hourly rates. A listing in early March for dashers in the San Francisco Bay Area, for example, boasted that dashers could make as much as $30 or more an hour.
People who worked on the corporate side at DoorDash said the company took precious care to manage its messaging. One former worker said this is especially true of the language used on platforms like Craigslist to advertise for dashers. This person claimed that when constructing headlines, using language like “up to” is intended to shift accountability about how much drivers can reasonably expect to earn per hour.
These ads are meant to be “enticing” and are designed to motivate workers even if the figures cited are in the upper percentile of what the average worker might expect to make. But ads like these can create confusion for workers who see one thing in an ad and something entirely different on their paychecks.
(DoorDash did not respond to multiple emails requesting comment.)
Shannon Liss-Riordan, a workers’ rights attorney who specialises in independent contractor misclassification cases, has brought cases against more than a dozen gig economy employers like Postmates, Lyft, and others, and recently reached a $28 million settlement with Uber. Liss-Riordan has pursued multiple suits against DoorDash in particular, including one over employee misclassification that resulted in a $7 million settlement with the company in 2017.
As part of the settlement, DoorDash overhauled some of its policies, including more creating more transparency around account deactivation and establishing channels of communication between dashers and the company’s management.
In terms of the dasher payment system currently in place, Liss-Riordan said that while what DoorDash is doing is disingenuous, the company isn’t technically breaking the law. Liss-Riordan explained the DoorDash model might be in violation of labour laws if, for example, the company was advertising that they would pay $17 an hour plus tips. But, she added, “I think these companies are all very crafty and careful to make sure they put the fine print somewhere that we’re allowed to, you know, set your pay at our discretion.”
In his letter to dashers this week, Xu wrote that DoorDash “continue[s] to hear from many of you that the model works: you know how much you’ll receive in advance, you receive the guaranteed minimum even if the customer doesn’t tip, and in 2018 U.S. Dashers received on average more than $25 per hour on a delivery.”
As a rule, the averages companies like DoorDash claim can be misleading. According to one former worker on the corporate side with knowledge of how DoorDash sometimes calculates so-called “averages” for earnings, the company would use figures pulled from a small pool to represent a larger population of dashers in its ads. For example, this person said, the company might look at data collected from a group of dashers in downtown San Francisco where earnings are high and use those figures to represent the entirety of Northern California. Those numbers might also be pulled from a period months prior, at a time when earnings were especially high.
DoorDash would certainly not be the first company to do this. Uber was forced to cough up $28 million to settle with the Federal Trade Commission in 2017 over its own sketchy ads promoting ballooned potential earnings. But even if the wages being cited by DoorDash represent someone somewhere making that amount of money, the figure might omit granular details like time dashers spend waiting in their cars between orders or time they’re getting gas.
Those figures may also omit costs to drivers like gas and maintenance. One former dasher claimed his own back-of-envelope calculations turned up the same holes. Again, due to lack of transparency, the worker is left to guess how exactly this hourly rate is calculated.
“They don’t count you as ‘working’ unless you’ve been assigned a delivery,” this person said. “So if you sign in for 10 hours, and you get a total of 15 deliveries, you might pull down $177. But between deliveries, there is a lot of sitting around waiting for the next delivery to be assigned. So for a total of 3 hours of that time, you ‘weren’t working’ by Doordash’s estimation. That’s how they can say that drivers make an average of ‘at least $25 an hour.’ More creative arithmetic, basically.”
When Xu’s email was shared on Reddit, other dashers expressed that the figure he cited seemed like a dubious representation of worker earnings. Redditors speculated about various ways that the company could have arrived at the number, suggesting like the former dasher that perhaps it didn’t account for downtime. Others said it almost certainly did not account for expenses to dashers. Some said that after factoring in gas and other expenses, they were making less than minimum wage.
When asked how the various pay models of these companies stack up against each other, Liss-Riordan told Gizmodo that all of these gig economy companies are “really basically pulling off the same scam.”
“It’s a little hard to compare because they’re all depriving the workers of their employment and labour code protections,” she said. “It’s hard to say as just a general matter who’s doing worse. But all these companies I believe are breaking the law by not acknowledging the employment status of the workers who are performing the labour that is making these businesses so wildly successful.”
What is needed is an amendment to the labour code specifying that employers can’t alter base pay based on the amount of tips a worker earns, Liss-Riordan said. Recode confirmed in early March that San Francisco’s Office of Labour Standards Enforcement has launched a probe into the company’s tipping policy, and DoorDash could be slapped with fines and forced to back pay workers if OLSE finds that it’s violating labour laws. But OLSE director Patrick Mulligan told Recode the investigation could take months or years to reach a conclusion.
In the meantime, two dashers who spoke with Gizmodo said they’re just holding out for something better. One said they are just months away from opening up their own business, and dashing is an interim opportunity to still earn a living while they prepare to take on a significant career adjustment. Another dasher said they are clinging to hope that a distant dasher referral bonus of $US2,500 ($3,530) will help bail them out of a sticky living situation.
“I’m like gritting my teeth, praying to god that we don’t get deactivated or something,” they said. “We’re counting on that money.”