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Competition Authority Gives FTC New Tool on Gig Worker Policies

Oct. 3, 2022, 8:57 AM

The Federal Trade Commission’s broad authority to crack down on unfair competitive practices gives it an opening to police alleged worker misclassification by gig companies differently than traditional labor regulators.

Critics allege that gig companies wrongly designate workers as independent contractors not eligible for the benefits and protections of employment laws. The agency laid out its legal rationale for its ability to attack unfair conduct by gig companies in a recent policy statement.

The commission’s focus on consumer protection and competition law allows it to examine “unlawful business practices and harms to market participants holistically, complementing the efforts of other enforcement agencies with jurisdiction in this space,” the FTC said.

Section 5 of the FTC Act empowers the commission to crack down on unfair competition and deceptive practices, giving it the tools to challenge alleged misclassification, legal observers said. Instead of arguing that a company is misclassifying its workers, the agency could contest particular company practices.

“Effectively, the FTC does have the authority to require appropriate classification, but indirectly. They aren’t enforcing laws regarding employment status,” said David Seligman, executive director of the nonprofit legal organization Towards Justice.

“There are a lot of facts in the world about how companies control workers,” Seligman said. “Those facts may violate both the employment laws and the laws to do with unfair methods of competition and unfair, deceptive, and abusive practices.”

Fighting alleged misclassification has often stymied state regulators and private plaintiffs for the past decade, as gig work has grown more common. By paying to settle lawsuits and shunting misclassification claims into private arbitration, gig companies like Uber Technologies Inc., Lyft Inc., and Grubhub Inc. have avoided court rulings on worker classification.

A company exerting a high level of control over worker assignments while treating them as independent contractors could be competing unfairly, Seligman said. That discrepancy would give the company an edge over competitors who allow their contractors more freedom to decline or accept assignments, inviting an FTC Section 5 challenge, Seligman said.

Competition Focus

Leveraging antitrust laws to protect workers has become increasingly widespread in recent years, as private plaintiffs and the Department of Justice target alleged agreements between employers not to hire each others’ workers. But using competition law to target gig platforms has been less successful.

The FTC’s heightened focus on gig economy practices may change that dynamic, Seligman said.

“If you put the wrong label on something but still treat it the way it’s supposed to be treated, the label by itself does not carry a bunch of weight or significance,” Seligman said. “The treatment behind it is probably giving the FTC more pause.”

The likely FTC strategy echoes the theory of harm illustrated in an antitrust case Seligman and other attorneys are litigating against Uber and Lyft. In a California state court case, Gill v. Uber, they are arguing the companies are acting anticompetitively by saying workers are independent contractors but exercising a high level of control over their assignments.

“Platforms have tried to pressure you into repeat rides, giving you a bonus for completing a certain number quickly,” said Yaman Salahi, a partner at Edelson PC who is also involved in the case. “That effectively limits the ability of drivers to switch between platforms.”

The use of algorithms to fix the price for services between gig companies, or misrepresentation of potential contractor earnings could qualify as deceptive practices or unfair methods of competition, said Eleanor Tyler, a Bloomberg Law legal analyst.

“When you do these things to employees, it triggers a different kind of enforcement. But when you do that to an independent contractor, there’s a hole,” Tyler said. “By addressing it as an unfair method of competition, you can reach it, but not the misclassification itself.”

Proving a misclassification claim would raise several practical hurdles for the FTC, including that there’s no legal standard for employment in the laws it enforces nor does it have institutional expertise in employment law, said Bruce Hoffman, who led the agency’s antitrust enforcement during the Trump administration.

The notion that violating a law creates the type of competitive advantage that the FTC can regulate isn’t a new concept, said Hoffman, now an attorney at Cleary Gottlieb Steen & Hamilton.

Michael Pertschuk, a commissioner and chair of the FTC during the Carter and Reagan administrations, argued that Section 5 essentially gave the agency plenary authority over what companies did to gain advantages, Hoffman said.

Pertschuk’s position generated colossal backlash—nobody imagined Congress meant the FTC to act as a super-regulator backstopping other laws—and the agency almost got defunded, Hoffman said.

“In the 1970s, it was political backlash,” Hoffman said. “Today the agency would face that, plus a judicial environment that’s much less hospitable.”

‘Calculated Risk’

The FTC would likely have to start off slowly in any enforcement actions against gig companies for violating the Section 5 prohibition against unfair methods of competition.

The commission can only punish a first violation with an injunction against the unfair conduct, Tyler said. Companies could then face fines for violating the injunction.

“That puts others on notice: If you engage in similar practices, you run the risk of facing an FTC investigation or lawsuit,” said Sandeep Vaheesan, the legal director of the Open Markets Institute, a liberal think tank.

“That’s costly and distracting,” Vaheesan said. “Some will see that, others will take a calculated risk and take the chance of an FTC lawsuit, knowing the worst-case scenario is being told they can’t do it anymore.”

To contact the reporters on this story: Dan Papscun in Washington at dpapscun@bloombergindustry.com; Robert Iafolla in Washington at riafolla@bloomberglaw.com

To contact the editors responsible for this story: Keith Perine at kperine@bloomberglaw.com; Martha Mueller Neff at mmuellerneff@bloomberglaw.com