Dive Brief:

• DoorDash will reform its tipping model to compensate delivery workers 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 rider's base pay, the company would use it to subsidize the rider's pay, thereby paying less into their wage than if the rider 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. 

DoorDash leads the U.S. industry of on-demand food delivery apps, ahead of competitors UberEats and GrubHub. 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 the company 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 delivery workers in California after the Dynamex ruling that it jeopardizes workers' "flexibility to choose when, where and how [they] want to work."

California, which has some of the most rigorous employee protection laws in the country, is in particular grappling with the disparity between the protections provided to employees and those provided to low-wage workers in independent contracting relationships. District Court Judge Jacqueline Scott Corley said in her opinion on a gig economy case involving GrubHub last year that the state is facing a "stark dichotomy" between worker types. Following New York City's 2017 Freelance Isn't Free Act and other legislative consideration underway, employers are likely to witness more laws that explicitly address the issue of pay for contract workers, Allan Bloom, a partner at Proskauer, previously told HR Dive.