FTC commissioner wants to regulate worker misclassification, decries ‘unfair competition’

Federal Trade Commissioner Alvaro Bedoya has announced that the Federal Trade Commission (FTC) will get into the business of enforcing labor law. That was the upshot of a speech he gave earlier this month in which he said “employer misclassification” of workers was a matter of unfair competition and therefore fell under the commission’s authority to enforce.

“I think the next step in confronting misclassification is making sure that we use every tool in our toolbox to fight it – including competition law,” Bedoya said at a Feb. 2 law enforcement summit in Miami. “And so today I want to make the case for using the existing statutory prohibitions against unfair methods of competition to closely examine allegations of misclassification.”

There are two major problems with this. One is that federal government already has agencies in place to deal with labor-related issues such as misclassification, the Labor Department and the National Labor Relations Board. The FTC would be stirring up confusion by encroaching on the other agencies’ turf. The other problem is that what the FTC is deeming as “unfair methods of competition” is better understood as just plain old-fashioned competition.

Misclassification is the argument that some employers dodge having to comply with minimum wage, overtime and other federal regulations by classifying their workers as “independent contractors” rather than traditional employees. Contractors are not covered by most workplace laws.

It’s a controversial issue because many businesses are built around primarily hiring contract labor and many workers prefer it, since it allows them far more flexibility for scheduling and how many hours they work. Contract work is legally indistinguishable from being a “freelancer.”

Unions have pushed for workers to be classified as employees in part because contractors are much harder to organize. The National Labor Relations Act, the federal law that covers organizing, mostly applies to traditional employees. The rise of the so-called “gig economy” through businesses such as rideshare companies Lyft and Uber, which mainly use contract labor, has presented a problem for unions. They have in turn pressed the government to act.

Both the Labor Department and the National Labor Relations Board have tried to update their rules to address the issue in recent years. The fact that this issue was already being addressed by these agencies did not strike the FTC’s Bedoya as a reason why his agency could not also join in. In fact, he argued that his agency had unique powers to prevent misclassification from happening in the first place.

Bedoya said, “If you’re asking yourself – ‘why would we need the work on the same problem as the Labor Department or the National Labor Relations Board?’ – it’s partly because our authority allows us to stop unfair practices in their incipiency, before harms to workers and other market actors are cemented. In this way, our agencies’ authorities are complementary and not duplicative.”

The commissioner argued that misclassification was covered by the Federal Trade Commission Act’s prohibition against “unfair methods of competition.” Bedoya said this extended to the use of economic power that was “restrictive or exclusionary, depending on the circumstances.”

One example of such conduct he cited was a construction company that had bid for federal projects and lost out to a rival that was able to put in lower bids because it used contract labor, which was cheaper.

“[M]isclassification can be more than a cost savings strategy that hurts workers. It can also be a method of competition that lets law-breaking employers win business from honest ones,” Bedoya claimed. In other words, a business that merely operates more efficiently than its rivals may be running afoul of FTC regulators.

Another case that Bedoya cited involved a Los Angeles port trucking company that obligated its drivers to trade in their old trucks, which they owned, for newer ones that the company would lend-lease to them. Drivers ended up working more hours and paying new fees to the company, presumably so the business could pay down the investment in the new trucks. Bedoya calls this a classic case of a business using its economic leverage to exploit its workers. However, according to Bedoya, the company had bought the new trucks “in order to comply with new environmental rules.”

In short, all of this was happening not due to greed but because the company was trying to comply with other regulations. He gives no indication that he sees the irony of proposing more federal action to protect the lot of these truckers.

“Misclassification helps this abuse happen. The Department of Labor and the National Labor Relations Board are doing everything they can to stop it. It’s time for competition authorities to step up to the plate,” he concluded. Here’s a different suggestion: Leave labor policy matters to the agencies actually charged with enforcing them. It may not be a perfect solution, but it is better than making the situation more complicated and confusing than the current one.