KEY POINTS 

• FTC Commissioner indicates intent to use Section 5 authority to address worker misclassification. 
• Follows California Supreme Court decision upholding Proposition 22 on app-based drivers.
• Part of broader trend of antitrust enforcers scrutinizing labour market practices.

RECENT DEVELOPMENTS

The Federal Trade Commission (FTC) has signalled its intent to expand enforcement of Section 5 of the FTC Act to address the classification of workers as independent contractors. This comes on the heels of the California Supreme Court's July 25, 2024 decision in Castellanos v. State of California, which upheld Proposition 22's classification of app-based drivers as independent contractors. 

FTC Commissioner Alvaro M. Bedoya in February 2024 announced plans to "closely examine allegations of misclassification" as potential violations of Section 5's prohibition on unfair methods of competition. Notably, the FTC has signed MoUs with NLRB and the Department of Labour in 2022 and 2023 respectively, “regarding information sharing, cross-agency training, and outreach in areas of common regulatory interest”. The FTC views its powers as complementary to Department of Labor and NLRB efforts, citing its ability to address practices "in their incipiency" before harms are cemented.

This initiative is part of a broader trend of antitrust enforcers scrutinizing labour market practices. In recent years, the Department of Justice has brought its first criminal cases for labour market collusion and no-poach agreements. The FTC’s noncompete ban, challenge to the Kroger / Albertsons merger, and the 2023 Merger Guidelines’ discussion of labour-market effects are all prominent examples of this trend.

However, the law is yet unsettled. For example, in United States v. DaVita Inc., the judge ruled that no-poach agreements could be an illegal market-allocation agreement. However, defendants were ultimately acquitted, on jury trial, of criminal no-poach charges.

These developments reflect growing interest in the application of antitrust law to labor-monopsony (markets characterized by a single buyer) concerns, with the caveat that monopsony merger-review has not been well-studied in global markets because assessing a monopsony claim requires looking at both input and output markets to assess trade-offs – a complicated exercise – influenced by variables of dynamic efficiency, bargaining power, and cross-market effects.

IMPLICATIONS

Companies that rely on independent contractors should be aware that their classification practices may now face scrutiny not only from labor regulators, but also from antitrust enforcers. The FTC views misclassification as potentially harming competition by giving companies an unfair cost advantage and negatively impacting labor market conditions.

Although the law is unsettled and courts have generally upheld independent contractor models in the gig economy context, as in the Castellanos decision, the FTC's expansive view of its Section 5 authority creates new risks. Companies should review their classification practices and be prepared to demonstrate they are not engaging in unfair methods of competition.