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FTC Again Signals Strong Focus on Independent Contractor Misclassification Actions

    Client Alerts
  • February 29, 2024

The Federal Trade Commission (FTC) continued its steady march toward broadening its enforcement over labor and employment conduct using antitrust laws in early February when Commissioner Alvaro Bedoya declared that the misclassification of workers as independent contractors rather than employees might run afoul of Section 5 of the FTC Act as an "unfair method of competition."

Speaking at the Global Competition Review Summit in Miami, Bedoya parsed Section 5’s prohibition on unfair methods of competition as the "next step" in fighting misclassification. Claiming the unprecedented use of the antitrust laws in the employment forum would be "complementary" rather than duplicative of the Department of Labor (DOL) and National Labor Relations Board’s (NLRB) authority, he claimed the FTC Act was in a position to stop these practices at their "incipiency" before harms are "cemented" when, one supposes, the DOL and NLRB will step in.

This latest step follows closely on the heels of the DOL’s release in January of its final rule on classifying workers as employees or independent contractors under the Fair Labor Standards Act and is the latest in a long line of movements by the current administration toward additional regulation of labor and employment practices.

Arguably, the July 2021 executive order "Promoting Competition in the American Economy" was the first step by endorsing a "whole of government" approach. That was followed by, among other things, Memoranda of Understanding (MOU) between the NLRB and the FTC in July 2022, noting the "common regulatory interest" of the agencies regarding worker misclassification, and between the DOL and Department of Justice Antitrust Division in August 2023, which identified misclassification as an "unfair method of competition." And this week, the FTC challenged a potential merger between two grocery giants, saying for the first time ever that a merger is an antitrust violation because it reduces competition for employees in the labor market. Add to that the FTC’s proposed federal ban on noncompete agreements, and it’s not hard to see the writing on the antitrust wall with respect to employment regulation.

The ongoing forays into these areas, which have not previously or traditionally been under the FTC’s umbrella, continue to muddy the waters for clients trying to navigate between the DOL and NLRB’s developed employment and labor laws, and the new "tools" that the FTC is attempting to use. If misclassification falls within unfair competition, it will be a noteworthy expansion of Section 5’s reach.

It is not clear how that expansion would potentially overlap with the NLRB and DOL’s initiatives in the misclassification area. Thus, in analyzing the use of independent contractors versus employees, we advise clients to focus on the rules and requirements of the DOL and NLRB — the agencies customarily charged with supervising these areas. If those are met, then it appears unlikely that the FTC would have support for a claim of unfair competition. Ultimately, what the FTC’s foray may be is simply another agency and avenue for the government to enforce and punish companies that attempt to take an end run around the classification of their workers.

Click here to read more about the MOU between the Department of Labor and Federal Trade Commission.

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