This is a very common setup in other pay structures as well, such as commissioned sales where you are paid a "draw" (such as minimum wage) and you don't paid get any commission until your commissions exceed minimum wage.
What's more, the tip money did go directly to the driver; Instacart just decided to pay less.
It's a pretty inhumane thing to do but on the face of it I don't see how it's wage theft. Welcome to the gig economy.
Here's some more information about how it works legally: https://corporate.findlaw.com/human-resources/legal-consider...
Does the independent contractor bring more than their personal labor?
Do they hire crew of their own or are they bringing other employees?
Or, are they bringing heavy or costly specialized equipment?
Are they an established business, working without your direction or control?
Are they free from your supervision, direction or control?
Is the individual’s business different and separate from your own?
Is the individual’s service “outside the usual course of business,” or in other words, does the contractor do something different from what you do?
Is the individual’s service being performed “outside of all of the places of business,” or in other words, does the contractor perform the service away from where you perform your services?
Is the individual contractually obligated to pay costs affiliated with the location from where the work is controlled (usually its headquarters)?
Does the individual have an established independent business that existed before you brought them on – OR – does the individual have a principal place of business that qualifies for an IRS business deduction?
Do you have evidence to demonstrate that the individual has an established business?
Does the individual have a principal place of business that qualifies for an IRS business deduction? Do you have evidence to demonstrate it?
Is the individual responsible for filing a schedule of expenses with the IRS, such as would be part of a business tax return?
Does the individual have all required registrations and licenses for their business?
Does the individual maintain his/her own set of books and records that reflect all income and expenses of the business?
This question is for construction contractors only: Is the individual a properly registered contractor?
Note that this is not an "Answer 'yes' to any question to be considered a Contractor", it's a "totality" thing. (https://www.lni.wa.gov/IPUB/101-063-000.pdf)
"I subcontracted some work to a guy who has a contractor’s registration with L&I. Doesn’t that mean he’s not my employee?"
Not necessarily. L&I auditors look at “direction or control” and other factors described on the previous pages. Because he is a construction contractor, all seven parts of RCW 51.08.181 must be met.
And so on...
I don't know how the contractor status of Instacart drivers affects this. They're not technically employees. But the verbiage of "Tip" in the UI is a strong signal to the customer that the money is directly credited to the driver. It should bear no relation to their fee from Instacart.
This is wage theft. A horrible agreement doesn't make it right, even if it is legal.