UPDATE: Friday Aug. 23, 2019: DoorDash CEO Tony Xu published new details yesterday about the company’s changed tipping model, which he said will be rolled out to all workers next month. Under the model, contracted workers will receive a base pay of between $2-$10, up from $1 under the current system, and which will vary depending on a delivery’s distance, difficulty and time required. Workers will receive the entirety of customers’ tips independent of their base or bonus pay, and according to DoorDash, will on average earn more through company promotions, including Peak Pay and Challenge Bonuses.

Dive Brief:

• DoorDash will reform its tipping model to compensate its delivery people the entire value of any tip paid through its app, CEO Tony Xu announced Tuesday evening on Twitter.

4/ Going forward, we're changing our model - the new model will ensure that Dashers' earnings will increase by the exact amount a customer tips on every order. We'll have specific details in the coming days.

— Tony Xu (@t_xu) July 24, 2019

• The decision comes after a New York Times article detailing their existing tipping model, published Sunday, spurred renewed outcry against the system. DoorDash previously faced pressure in February to reform its tipping structure after Instacart, a grocery delivery service, abandoned a similar model.
• Under the system, which the company rolled out in 2017, DoorDash used tips given to delivery workers through the app to subsidize their base pay. If the amount of a tip went over a driver's base pay, the company would use it to subsidize the driver's pay, thereby paying less into their wage than if the driver had not received a tip. Xu commented on the scrutinized structure: "It's clear from recent feedback that we didn't strike the right balance. We thought we were doing the right thing by making Dashers whole when a customer left no tip. What we missed was that some customers who *did* tip would feel like their tip did not matter."

Dive Insight:

DoorDash workers want greater transparency around their pay and more consistent compensation, according to a recent internal survey. And so do its customers. Its payment structure made it appear as if customer tips weren't being awarded as extra to delivery workers, which led to comparisons to other third-party operators that offer tips separate from base pay. 

The company's tipping policy has been under scrutiny for awhile leading to a class-action lawsuit, but it took extensive backlash from customers to make a dedicated change. And even after Xu said the company would change the tipping policy, DoorDash’s delay in providing details on the new model generated further questions from media outlets  and from workers who were not noticing any changes to their tips. Xu said in his blog post that DoorDash will be working with an external third-party to make sure that workers’ earnings increase under the new model, likely in an attempt to demonstrate a willingness for greater accountability. Given the company’s previous reluctance to divulge information, however, how genuine its willingness is remains to be seen.

But in the highly competitive segment where it recently garnered the most market share, the company will need to maintain customer loyalty and retain delivery workers to stay ahead. 

While a new tipping policy could solve some of the public outcry and spare it from future lawsuits, the recent criticism of third-party delivery operations, in general, are leaving a bad taste in the mouth of many operators. Restaurants in Louisiana are upset over Waitr's new fee structure that is based off of total order volume whereas Grubhub's prior practice of setting up microsites for restaurant partners led to accusations of cybersquatting. 

But with the delivery mobile app market set to grow to $16.6 billion by 2023, many restaurant operators are begrudgingly adding the service, especially since customers want it and these operators don't have the means to offer it on their own.​

And it's not just restaurants that have taken issue either. As gig economy companies have transformed from Silicon Valley start-ups to established tech giants, many have witnessed increasing pressure to reform their pay and treatment of workers. In March, more than 100 tech workers signed an open letter pledging not to work for DoorDash until it set a minimum pay rate of $15 per active hour working, paid tips to workers in addition to their base pay, and provided detailed information on pay. And in New York City, officials passed the first minimum wage rate for ride-share drivers of $17.22 per hour late last year. 

At the same time, the legal landscape of who classifies as an employee is evolving. The California state senate is expected to decide on a bill later this summer that would make it more difficult to classify workers as independent contractors rather than employees, codifying the independent contractor test established in the California Supreme Court's 2018 Dynamex ruling.

The bill would mean that, among others, ride-share companies — many of which are lobbying fiercely against it — would be required to follow all federal and state labor laws for their workers, including abiding by overtime pay laws, providing unemployment insurance and guaranteeing minimum wage. According to a Bloomberg report, DoorDash told its delivery workers in California after the Dynamex ruling that it jeopardizes workers' "flexibility to choose when, where and how [they] want to work."