Why Amazon’s $62 Million FTC Labor Settlement Is a Bigger Deal Than the Bezos News

On Tuesday morning, Amazon unveiled a futuristic Northern Virginia HQ2 campus design. Late that afternoon, the company released its blockbuster Q4 earnings report and simultaneously revealed that its founder Jeff Bezos would end his reign as Chief Executive Officer at the retail behemoth to become the executive chair of its board.

But it was the news sandwiched between those announcements that may signal one of the defining challenges ahead for Amazon and its incoming CEO Andy Jassy: the same day, the Federal Trade Commission (FTC) disclosed that Amazon would pay nearly $62 million to settle charges that it withheld tips from contracted delivery drivers to help its own bottom line.

“In its years-long scheme, Amazon baited drivers with earnings promises, but then siphoned tips and slashed wages, pocketing over $60 million in the process,” FTC Commissioner Rohit Chopra tweeted Tuesday.

According to the FTC, the independent government agency responsible for consumer protection and antitrust enforcement, Amazon had promised its “Flex” delivery drivers $18-25 in hourly wages and 100% of customer tips. But in 2016, Amazon allegedly lowered the base pay and attempted to hide the fact that it did so by withholding some of the contract workers’ tips to make up the difference from the lower hourly rates. In effect, the agency says, the Flex drivers received less total take-home pay.

Amazon settled with the FTC without admitting guilt. The company told TIME it disagrees that the way it reported pay to drivers was “unclear,” and that it added additional clarity in 2019. “[We] are pleased to put this matter behind us,” says spokesperson Rachael Lighty. “Amazon Flex delivery partners play an important role in serving customers every day, which is why they earn among the best in the industry at over $25 per hour on average.”

The hefty settlement is emblematic of the growing labor and equity concerns that Amazon has faced in its evolution from the vision Bezos dreamt up 25 years ago in a rented Seattle garage to the sprawling mega-company that has made dozens of acquisitions, boasts a $1.68 trillion market cap, and employs more people than the entire population of Austin, Texas. The company is already managing a changing workforce, threats of unionization in warehouses and ongoing employee safety concerns during the COVID-19 pandemic. As Amazon gets bigger, so will the grievances against it.

The fact that Amazon agreed to pay the FTC more than $61.7 million—the full amount the agency alleged the firm stole from the drivers—is unusual, says Jessica Rich, the former Director of the FTC’s Bureau of Consumer Protection. Many companies facing sanctions over prohibited practices are struggling financially and try to settle for sums that are less than the alleged amount of damage they did. “There’s often ‘ability to pay’ issues,” says Rich. “There’s not an ‘ability to pay’ issue here. And my guess is that Amazon, once it was caught, was eager to just resolve this.”

It’s an insignificant sum when compared to the retail giant’s profits; $62 million is not even 1/100 of the company’s fourth quarter net earnings. But the next alleged infraction could come with more serious consequences, says Rich. If Amazon were to make what the FTC considers “deceptive earnings claims” for a second time, the agency would then have the authority to impose civil penalties as well.

Consumers might start to pay attention too—especially if they aren’t distracted by a new CEO or architectural plans. “It’s not just the money,” Rich says of the settlement. “It’s also a black eye for a company that’s been trying to explain to everybody that it treats its workers really well.”

‘Amazon would not have been able to get away with this’

Case in point is the unionization battle unfolding at an Amazon warehouse in Bessemer, Alabama. In less than one week, the National Labor Relations Board is slated to mail ballots to the warehouse’s roughly 5,800 employees, who will then vote on whether they want to join the Retail, Wholesale and Department Store Union (RWDSU). A majority of ‘Yes’ votes out of ballots cast would make it the first Amazon warehouse in the country to unionize.

Unionization could give these Alabama warehouse employees the opportunity to collectively fight for regular pay raises and have bargaining power when it comes to obligations like mandated overtime shifts. It would also mark a significant shift in power in Amazon’s workforce that could change the underlying dynamics in the company that led to Tuesday’s FTC settlement, experts say.

The Amazon ‘Flex’ drivers at the heart of the FTC settlement would not be included in the Bessemer, Alabama union protections; they would have to unionize on their own for that. But union membership could have theoretically protected such ‘Flex’ workers from the tip withholding that the FTC alleged Amazon carried out between 2016 and 2019. “Had there been a union in place, Amazon would not have been able to get away with this as it did,” says Stuart Appelbaum, president of the RWDSU.

The corporation is pushing back against the Bessemer warehouse’s efforts to unionize. It has put up signs in bathroom stalls, according to the Washington Post, urging employees to consider where their union dues might go. Alabama is a right-to-work state, meaning that employees wouldn’t have to join the union and pay dues if they didn’t want to. Amazon says that unionizing would “impact everyone at the site and it’s important all associates understand what that means for them and their day-to-day life working at Amazon.“

The retailer has also appealed a National Labor Relations Board decision that allows employees to vote on unionization exclusively through mail. Appelbaum, the union president, says the tactic is just one more way Amazon is putting the Bessemer workers’ health at risk during a pandemic that has so far infected more than 460,000 in the state. “You would think that an employer would want to minimize risk towards its workforce. Amazon has taken the opposite [approach] and is maximizing the dangers its employees will face,” says Appelbaum. “The reason they do that is because they feel that they have a better opportunity to intimidate people on their way to a vote if it’s conducted at their own premises.”

Lighty, the Amazon spokesperson, tells TIME that Amazon doesn’t believe RWDSU represents the majority of its employees’ views and that Amazon already provides much of what a union would advocate for, including “industry-leading pay, comprehensive benefits from the first day on the job, opportunities for career growth, all while working in a safe, modern work environment.”

Workers face COVID-19 safety concerns

The COVID-19 pandemic—soon to reach its one-year anniversary of infiltrating U.S. cities and communities—adds extra urgency to questions of unionization and what constitutes a “safe, modern work environment.” Besides matters of pay, a union can require workplace safety standards through a collective bargaining agreement. Warehouse workers at the Bessemer plant have not been immune to the virus’s risks: 218 of the 7,575 employees of Amazon employees and contractors that work at the warehouse tested positive for COVID-19 during a two-week period between late December and early January, according to the Washington Post.

According to a February report from the Guardian, Amazon created a “Space Force” to police social distancing protocol between employees at the warehouse, but then didn’t ensure there would be enough space between employees to allow them to follow the protocol. Employees ended up being penalized for getting too close, the Guardian article alleges, even if it wasn’t their fault.

The company disagrees that it is impossible for employees to accomplish social distancing at the Bessemer site, which spans more than 855,000 square feet on its ground floor. Amazon says it has implemented staggered shifts and breaks to avoid overcrowding, created satellite break rooms, and started using technology that allows workers to clock in and out via their phones to reduce crowding.

As of September, nearly 20,000 frontline U.S. workers at Amazon and its subsidiary Whole Foods had tested positive or were at one point presumed positive for the virus, according to a company blogpost. Lighty says Amazon has invested more than $961 million into personal protective equipment and safety measures in 2020 to prevent more cases. The company also began mandating masks, conducting voluntary on-site COVID-19 testing at hundreds of sites globally, screening for temperatures, and increasing sanitization efforts, among other things.

Of course, risks remain. In the early days of the pandemic, Amazon rewarded its warehouse employees for working through those risks by providing them with a $2 per hour hazard pay boost as more and more people relied on Amazon orders rather than braving in-person brick-and-mortar retailers, but that temporary pay bump ended in June. (Lighty did not comment on whether Amazon was considering bringing back hazard pay, but said that the company “shared our appreciation for our frontline employees by providing a special recognition bonus totaling more than $500 million” at the end of 2020.)

The pandemic has continued—and so has Amazon’s earnings growth. The report Amazon released Tuesday indicated its net income more than doubled its Q4 earnings from last year, reaching $7.2 billion this year. Its net sales for the year surged 38%.