An estimated 16% of American workers derive at least some of their annual income from “gig” work – “side hustles” whereby they (purportedly) choose from available, on-demand work opportunities, usually through internet-based platforms or apps, working when, where, and for as long as they want. However, the practical reality for many gig workers is that these drivers, shoppers, cleaners, care workers, designers, and other freelancers often find themselves constrained by concentrated markets with limited work opportunities, surprising start-up costs, unexpected contract terms, and limited opportunities for profit. As gig workers are disproportionately people of color and low wage earners, and as gig work is not guaranteed to pay a minimum wage or overtime pay, overreaching business practices of gig economy companies have the greatest impact on already vulnerable worker populations.
Preventing abuse of gig workers has been an enforcement priority for the current administration, particularly within the Department of Labor (see here, reversing an earlier DOL position) and the National Labor Relations Board, but on September 15, 2022, the Federal Trade Commission (FTC) joined the effort by announcing its Policy Statement on Enforcement Related to Gig Work. The 17-page policy statement emphasizes that, in addition to being laborers, gig workers remain consumers, and thus subject to the FTC’s oversight and protection against unfair, deceptive, and anticompetitive business practices. The FTC highlights three major pitfalls of gig work:
- Control Without Responsibility: This refers to the allure of gig work as a flexible opportunity, where workers control their hours and terms of work, whereas in reality gig companies may prescribe and control workers’ tasks in a way that contradicts the promise of independence, or adopt algorithms to capture more revenue from customer payments than is disclosed to workers, without in return providing workers the protections that a traditional employment relationship does (e.g., right to organize, minimum wage and overtime, health and safety precautions, stable and predictable pay, reimbursement of business expenses, insurance).
- Diminished Bargaining Power: The decentralized work environment, unavailability of organization, and high turnover contribute to workers’ diminished bargaining power against gig companies, some of which provide little transparency into payment formulas, when work will be available, where they will have to perform it if they accept the gig, and whether and how they will be evaluated.
- Concentrated Markets: Markets populated by businesses that run online platforms are often concentrated, particularly in urban centers, reducing choice in providers for workers and customers. As a platform gains market dominance, it incentivizes workers pursuing work from that provider, reducing competition for workers’ services, acting as a barrier to market entrants, and depressing pay rates.
The FTC notes its “vital role” in preventing practices that violate gig workers’ protections as consumers, and in eliminating anti-competitive practices generally. The agency warned that it will use the full weight of its authority to enforce laws, such as the Sherman Act (15 U.S.C. § 1), the FTC Act (15 U.S.C. § 45), the Franchise Rule (16 C.F.R. pt. 436), and the Business Opportunity Rule (16 C.F.R. pt. 437), to penalize gig companies that make false or misleading claims regarding pay and start-up or training costs; agree to fix wages with or not recruit competitors’ workers; provide opaque compensation criteria or present non-negotiable, unconscionable contracts restricting mobility or competition; or withhold pay from workers without consent. Also in the agency’s crosshairs are gig companies that engage in practices involving artificial intelligence or algorithm-based decision-making to govern how gigs are made available to workers, and how workers are paid, rated, surveilled, and suspended or terminated from the platform, using undisclosed or arbitrary metrics. The FTC also underscored the impact that non-compete clauses have in the gig economy on undermining free and fair labor markets, restricting workers’ ability to obtain competitive offers for their services, lowering wages, and degrading working conditions. The agency expressed particular skepticism of the use of restrictive covenants in the gig economy without violating antitrust principles.
If the FTC brings an enforcement action against a company for deceptive or unfair business practices (and, in late 2021, 1,100+ businesses received Notices of Penalty Offenses warning them of potential actions), the Commission may obtain an order enjoining the unfair or anticompetitive business practice, seek consumer redress, and obtain civil penalties that now amount to $46,517 per violation (16 C.F.R. § 1.98(e)). Furthermore, collusive actions among gig companies, such as naked wage-fixing agreements or no-poaching agreements, may be referred to the Department of Justice (DOJ) for criminal prosecution.
The policy announcement underscores the stepped-up effort by this administration to protect workers. Gig workers themselves are encouraged to report unfair business practices (at ReportFraud.ftc.gov), while the FTC confirmed its commitment to working on an interdisciplinary basis with the NLRB, DOL, DOJ, and other interested agencies to share information, uncover patterns of unlawful practices, and pursue repeat offenders. Companies retaining workers through the gig economy model are encouraged to work with employment (and tax, data privacy, and antitrust) counsel to audit their practices proactively and implement measures that reduce the risk of significant enforcement actions in the future.