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Gig companies can’t take everyone for a ride

As gig economy companies work to woo drivers back to their platforms, they have been making some expensive promises. Breaking them could prove even more costly.

On Tuesday, the Federal Trade Commission said it sent a notice of penalty offenses to more than 1,100 companies, warning that those that mislead people about potential earnings could incur fines that can exceed $43,000 per offense. For gig economy companies, this includes “pitching a steady second income” for drivers that may prove to be less than advertised, the agency said. Uber Technologies (as well as Uber Eats), DoorDash, Instacart and Lyft all received the notice.

The FTC said a recipient’s presence on its list “doesn’t in any way suggest that it has engaged in deceptive or unfair conduct.” Still, it is a sure sign of more heightened scrutiny. In an interview for this article, Lois Greisman, associate director for marketing practices at the FTC, said the notice was meant to be a reminder that there are lots of enforcement eyes on the marketplace right now. That could add pressure for companies already finding it difficult to attract enough workers.

As two examples of what she called “nonempty threats,” Ms. Greisman pointed to a February settlement of more than $61 million with Amazon.com over FTC charges that it failed to sufficiently pay its independent “Flex” drivers over a 2½-year period, as well as a $20 million FTC settlement with Uber in 2017 over what the agency called “exaggerated earnings claims.”

From a financial perspective for the big tech companies in question, these fines are merely slaps on the wrist. But at tens of thousands of dollars per violation, future fines could become sizable if even a small portion of a platform’s drivers are found to be undercompensated. DoorDash, for example, said over three million people drove for its platform in the second quarter.

The Worker Institute at Cornell University collaborated on a study released in September that showed around 42% of participating app-based food-delivery couriers in New York City reported nonpayment or underpayment. Most couriers surveyed worked six or more days a week and more than six hours on any day of the week, the study found. Excluding tips, which represented on average of 44% of couriers’ earnings, average net pay of app-based delivery workers surveyed amounted to $7.87 an hour.

As part of a settlement for a 2019 case that alleged DoorDash pocketed some of consumers’ tips, the food-delivery platform was required to maintain a future payment model that ensures all tips go to workers without lowering their base pay.

DoorDash says it is proud of the flexible earning opportunity its platform provides those seeking to make supplemental income and that it works hard to provide its drivers with transparency and a clear understanding of earnings. The company said that in the first quarter its drivers were on average working less than four hours a week and earning over $25 an hour while on a delivery, though that doesn’t include the time its drivers were waiting to receive a delivery request.

Uber and Lyft have been investing heavily in incentives to boost driver supply in the face of recovering ride demand. Without giving absolute numbers, Lyft said it added 50% more new drivers in the second quarter than in the first. Uber said monthly active drivers and couriers in the U.S. increased by 420,000 from February to July, and that the number of mobility drivers in the U.S. was up 75% year over year in June.

Even still, it seems food delivery continues to be more appealing than ride-sharing: App Annie data show that this year through September, in the U.S. DoorDash’s driver app had 8 million downloads to 4.1 million for Uber’s and 1.35 million for Lyft’s.

On its second-quarter conference call, Lyft said drivers in its busiest markets had been earning more than $35 an hour on average while logged onto its app. Total earnings could be even higher if a driver was simultaneously earning on other platforms, the company said.

Consumers, though, seem to be bearing a big percentage of the tab. A research note from Gordon Haskett this week showed ride-share pricing was still about 40% higher than pre-pandemic levels as of September in Chicago. Given volumes are still down more than 50% in the Windy City, that level of elevated pricing isn’t likely to last forever, and that in turn could mean lower company profits.

One way or another, drivers will have to get paid.

 

This story has been published from a wire agency feed without modifications to the text

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