Amazon has agreed to a settlement totaling nearly $4 million to resolve allegations that the online retailer improperly utilized tips intended for its delivery drivers to subsidize labor costs. This announcement was made by the Attorney General of the District of Columbia, Brian L. Schwalb, on Friday.

This settlement follows a previous payment of $61.7 million made by Amazon four years prior to address claims brought forth by the Federal Trade Commission regarding similar issues. In 2022, the then-Attorney General of DC initiated a lawsuit asserting that Amazon violated the District’s consumer protection statutes by misleading residents about the use of digitally received tips.

The lawsuit focused on drivers affiliated with Amazon’s Flex program, which empowers individuals to deliver Amazon packages using their personal vehicles. According to the complaint, after launching the program in 2015, Amazon communicated to customers that all tips entered during the checkout process for Flex orders would be directed entirely to the drivers.

However, both the District and the FTC contended that in late 2016, Amazon altered its payment structure to cut costs, failing to inform customers or drivers of this change. The previous FTC complaint indicated that Amazon employed algorithms to reduce its own pay for drivers based on data regarding typical tip amounts in specific regions. This meant that the tips were subsequently used to compensate for the difference between the new base pay and the promised hourly wage of $18 to $25.

According to the FTC, Amazon ceased collecting tips in 2019, once it learned of the investigation by the agency. Despite these allegations, Amazon has refuted any wrongdoing and did not accept fault in the settlement that was disclosed on Friday.

An Amazon representative, Steve Kelly, stated that the Flex program has evolved over time, emphasizing that the practices in question were revised more than five years ago. As part of the settlement agreement, Amazon will pay $2.45 million in penalties along with $1.5 million allocated for legal fees. Furthermore, the company is required to be transparent about how tips affect driver earnings on its website and in its app.