One of the priorities of the current administration is to police the alleged abuse of “gig workers,” particularly through the Department of Labor and the National Labor Relations Board. The Federal Trade Commission (FTC) is now joining those agencies in the employee-protection business. The FTC recently announced it has initiated enforcement efforts to protect gig workers from alleged deception about pay, work hours, unfair contract terms, and anti-competitive practices.

According to the 17-page Policy Statement published by the FTC on September 15, 2022 (Statement), 16% of Americans report earning income through an online gig platform. Gig work has become commonplace in food delivery and transportation. As the FTC notes, gig work is expanding into healthcare, retail, and other sectors of the economy.

Three primary concerns for gig workers

The FTC’s Statement outlines three key concerns the FTC plans to address via the full weight of its legal and regulatory authority.

1. “Control without responsibility” – Most gig companies categorize gig workers as independent contractors instead of employees. “Yet in practice,” the FTC explains, “gig companies may tightly prescribe and control their workers’ tasks in ways that run counter to the promise of independence and an alternative to traditional jobs.” The FTC states that improperly classifying workers as independent contractors (instead of employees):

  • Deprives workers of essential rights, like overtime pay, health and safety protections, and the right to organize;
  • Burdens workers with undue risks such as unclear and unstable pay and requires they use their personal equipment (car, cell phone, etc.); and
  • Forces workers to cover business expenses commonly paid for by employers (insurance, gas, maintenance, etc.).

2. “Diminished bargaining power” – Gig workers are not given information about when work will be available, where they will have to perform it, or how they will be evaluated. Because of their lack of bargaining power and decentralized work environment, the FTC believes workers have little leverage to demand transparency from gig companies. Due to what the FTC characterizes as a “power imbalance”:

  • “[A]lgorithms may dictate core aspects of workers’ relationship with a” company’s platform, “leaving them with an invisible inscrutable boss.”
  • Workers are often forced to sign take-it-or-leave-it agreements with liquidated damages clauses, arbitration clauses, and class-action waivers.

3. “Concentrated markets” – Markets populated by gig companies are often concentrated among just a handful of businesses, resulting in reduced choice for workers, customers, and businesses. The FTC believes the resulting loss in competition may incentivize gig companies to suppress wages below competitive rates, reduce job quality, and impose onerous terms and conditions on gig workers.

Three areas of increased enforcement efforts

The FTC plans to play a “vital role” in addressing the above concerns and other challenges it sees facing gig workers. The FTC warns it will use “the full portfolio of laws it enforces” (such as the FTC Act, the Franchise Rule, the Business Opportunity Rule, and the Sherman Act) “to prevent unfair, deceptive, anticompetitive, and otherwise unlawful practices affecting gig workers.” The Statement underscores three areas of enforcement focus for the FTC:

  1. Holding companies accountable for their claims and conduct: The FTC warns gig companies not to make deceptive claims about potential earnings, and to be transparent and truthful about potential costs the worker may have to cover.
  2. Combatting unlawful practices and constraints: The FTC appears to be focused on gig companies that use artificial intelligence and algorithms to govern workers’ pay, workflow, and performance. The FTC also plans to target unfair contractual terms and restrictions on mobility that, it states, result in restraints on trade.
  3. Unfair methods of competition: The FTC intends to investigate agreements between gig companies to fix wages or benefits, no-poaching agreements, and agreements to share information that may suppress compensation and competition.

What should impacted companies do?

Take action. This new area of enforcement activity could extend past gig companies. The FTC could conceivably initiate enforcement action against any company that utilizes algorithms or artificial intelligence to manage its independent contractors and contingent workforce. The FTC is still in the process of finalizing these new regulations. In the meantime, affected companies should audit their policies and practices to ensure compliance with the laws and regulations enforced by the FTC. Make sure to properly classify workers, and be clear and transparent about pay, workflow, and cost expectations. In addition, be careful about imposing non-compete restrictions on low-wage workers.