Are Your Website and Mobile Application Compliant With Consumer Protection Laws?

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Stradling Yocca Carlson & Rauth

In this client alert, I discuss two lawsuits that were recently filed by the District of Columbia Attorney General (“D.C. AG”) against food delivery company DoorDash and grocery delivery service Instacart.  In particular, I discuss the potential ramifications these lawsuits could have for similarly situated gig economy companies that rely heavily on websites and mobile applications to engage with their customers, and identify some best practices that can help companies avoid becoming the target of a similar lawsuit.     

D.C. AG’s Issues with DoorDash

The D.C. AG’s core allegation against DoorDash was that the company misrepresented to consumers how tips paid by consumers would be distributed to couriers.  In particular, the lawsuit alleged that DoorDash’s app left reasonable consumers with the impression that any tip added to the delivery charge would be paid to the delivery person (“Dasher”) when it actually subsidized DoorDash’s costs.  On November 24, 2020, the D.C. A.G. and DoorDash agreed to a $2.5 million settlement of the lawsuit, in which DoorDash denied violating the D.C. Consumer Protection Act or engaging in any deceptive practices.  Under the terms of the settlement, DoorDash is required to make the following changes to its website and mobile application:

  • Make its Dasher Pay Model disclosure accessible through a clear and conspicuous hyperlink that appears in the Checkout Screen flow and Dasher Screen flow.
  • Provide to consumers for each delivery order an itemized summary of charges, including, but not limited to, item costs, tips paid, service fees, and taxes; and
  • Provide to Dashers for each delivery order an itemized summary of the total payment for the delivery order, including base pay, tips paid and any promotional payments.

While DoorDash was able to claim a victory with the language in the settlement that denies any violation by the company of the D.C. Consumer Protection Act or engaging in any deceptive practices, the allegations made in the lawsuit will nonetheless have broader implications for the e-commerce ecosystem with respect to website and mobile application design.  The D.C. A.G.’s pending lawsuit against Instacart is an early example of this ripple effect. 

D.C. AG’s Issues with Instacart  

The D.C. AG’s complaint against Instacart focuses on the design of Instacart’s check-out screen (website and mobile application), and alleges that the company’s check-out screen was designed with the intent to deceive customers about the purpose of InstaCart’s Service Fee.  Specifically, the D.C. AG makes the following allegations:    

  • Instacart allegedly created separate line items on its check-out screen for “Service Fee” and “Delivery Fee” so that customers would believe the “Delivery Fee” was going to Instacart as the basic price of Instacart’s grocery delivery services and the “Service Fee” fee was going to the shoppers who fulfilled the order as a gratuity.
  • Instacart’s check-out screen allegedly did not make a clear and conspicuous disclosure in close proximity to the Service Fee that made it clear for the consumer that the Service Fee was optional and not a tip.
  • Instacart required customers to click on a hyperlink directly adjacent to the Service Fee entitled “Change” that would generate a separate pop-up window that would disclose the distinction between the Delivery Fee and Service Fee. In other words, the D.C. AG believes that Instacart buried this material disclosure in a hyperlink.

The Instacart lawsuit is pending as of the publishing of this article, but the final resolution of the case will certainly shed more light on how the D.C. AG and his fellow attorneys general will likely approach similarly situated companies that are participating in the gig economy.  

What do these lawsuits mean for other gig economy companies?

Companies that rely heavily on interactions with their customers via a website and/or a mobile application, like DoorDash and Instacart, should be equally concerned about the D.C. AG’s allegations because of the continued ripple effect these types of allegations can have on the rapidly expanding e-commerce ecosystem.  The D.C. AG’s allegations related to the hyperlinks utilized by DoorDash and Instacart are probably the most noteworthy allegations in the respective complaints because of the controversy that has surrounded the use of hyperlinks for disclosure of material terms in the past. 

In previous enforcement actions, certain state Attorneys General have taken the position that material disclosures cannot be made via hyperlink because not every consumer possesses the technological sophistication to access that hyperlink (i.e. Baby Boomers and generations older than Baby Boomers may not be sophisticated enough to click on the hyperlink).  That position (i.e. no hyperlinks for material disclosures) has always been at odds with the Federal Trade Commission (“FTC) in its “.com Disclosures”[1], which were published in March of 2013, and have always expressly authorized the use of a hyperlink for material disclosures, under certain circumstances. 

At a very high level, the FTC’s “.com Disclosures” advise companies engaging consumers online to (1) clearly and conspicuously disclose all of the material terms of their offer and (2) make the disclosures in close proximity to the relevant claims in their offer.  The FTC’s “.com Disclosures” state that to evaluate whether a particular disclosure is clear and conspicuous, you must consider:

  • The placement of the disclosure in the advertisement and its proximity to the claim it is qualifying;
  • The prominence of the disclosure;
  • Whether the disclosure is unavoidable;
  • The extent to which items in other parts of the advertisement might distract attention from the disclosure;
  • Whether visual disclosures appear for a sufficient duration; and
  • Whether the language of the disclosure is understandable to the intended audience.

The last bullet point is particularly important for gig economy companies like DoorDash and Instacart that have traditionally been the domain of millennials and younger demographics.  DoorDash and Instacart probably designed their websites and mobile applications to be both user friendly for tech savvy millennials and compliant with the FTC’s .com Disclosures, and the end result was a lawsuit by the D.C. AG alleging that the disclosures on their websites and mobile applications were non-compliant. 

The takeaway here is, if your company designed its website and mobile application based on the preferences of tech savvy millennials and the guidelines established in the FTC’s “.com Disclosures”, it might not be enough to avoid regulatory scrutiny from attorneys general or local district attorneys.  Your company should be paying close attention to the constantly evolving consumer protection laws in the states and municipalities in which your company operates to make sure there is no looming regulatory exposure for your company.

Best practices to ensure your website and mobile application are compliant

As a general rule, the closer a disclosure is to the claim to which it relates, the better.  Importantly, if your company is not able to make a disclosure in a space-constrained ad (i.e. Twitter, Instagram, etc.), it is acceptable (under some circumstances) to make the disclosure clearly and conspicuously on the page to which the ad links.  The following are some recommended best practices for ensuring your website and mobile application are compliant with the myriad of federal, state, and municipal consumer protection laws:

  • Place material disclosures as close as possible to a claim, space permitting.
  • If it is not possible to make a disclosure in a space-constrained ad (i.e. social media or mobile app), use a clear and conspicuous hyperlink that the consumer cannot miss.
  • When using a hyperlink to lead to a disclosure:
    • Make the link obvious (i.e. contrasting color or font);
    • Label the hyperlink appropriately to convey the importance, nature, and relevance of the information it leads to (i.e. “Dasher Pay Model” in the context of the DoorDash settlement);
    • Use hyperlink styles consistently, so consumers know when a link is available;
    • Place the hyperlink as close as possible to the relevant information it qualifies and make it noticeable;
    • Take consumers directly to the disclosure on the click-through page;
    • Assess the effectiveness of the hyperlink by monitoring click-through rates and other information about consumer use and make changes accordingly.
  • Keep abreast of empirical research about where consumers do and do not look on your website and mobile application.
  • Prominently display disclosures so they are noticeable to consumers, and evaluate the size, color, and graphic treatment of the disclosure in relation to other parts of the webpage.
  • Importantly, if there is any indication that a significant portion of reasonable consumers are not noticing or comprehending a necessary disclosure, the disclosure should be improved.

 

[1] In March of 2013, the Federal Trade Commission (“FTC”) released its .com Disclosures, with the intent of providing “guidance” for companies concerning the making of clear and conspicuous online disclosures that are required pursuant to the laws the FTC enforces (i.e. FTC Act, ROSCA, MITOR, etc.).  When the FTC issued this guidance, it made sure to clarify that it was not “intended to provide a safe harbor from potential liability,” but instead was “intended to only… provide guidance concerning practices that may increase the likelihood that a disclosure is clear and conspicuous.”  However, in the absence of similar guidance from state regulators or updates to federal and state consumer protection laws that reflect the rapid pace of technological change in the e-commerce space, the FTC’s guidance has become, for many, the unofficial standard for compliance.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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