Independent Contractor Misclassification and Compliance News February 2024

As the independent workforce continues to grow, so do the issues of worker compliance and misclassification. It is important for enterprises to remain informed about the latest laws, regulations, and developments surrounding these topics. Each month, we’ll bring you the latest news stories from around the web.

Commissioner of Federal Trade Commission (FTC) Argues Misclassification is Unfair Method of Competition and Subject to FTC Enforcement

The Biden administration has focused on the misclassification of workers as independent contractors. The Department of Labor (DOL) has focused on misclassification among healthcare, construction, and food workers. The National Labor Relations Board (NLRB) has argued that misclassification is an unfair labor practice and the Federal Trade Commission (FTC) promised that it would protect gig workers from, “unfair, deceptive, and anticompetitive practices,” and “combat unlawful practices that harm gig workers.”

In February, FTC Commissioner Alvaro M. Bedoya argued that the FTC should use its enforcement powers to fight misclassification as an unfair method of competition. On February 2, the Commissioner Bedoya issued remarks titled ““Overawed”: Worker Misclassification as a Potential Unfair Method of Competition.” Commissioner Bedoya argues that misclassification is an unfair method of competition. Commissioner Bedoya said:

U.S. Treasury officials have recognized the competitive disadvantage that honest businesses face when they go against businesses that misclassify…State officials in Ohio, Indiana, Tennessee, Georgia, and elsewhere have said misclassification is unfair to honest employers because it prevents them from being able to compete.

Commissioner Bedoya supports his argument with a report from the Treasury Department which states, “2orker misclassification can affect Federal, State, and municipal governments due to lost revenue, while placing honest employers and businesses at a competitive disadvantage.”

Commissioner Bedoya also said officials in Ohio, Indiana, Tennessee, Georgia, and other states said misclassification undermines free markets and is unfair competition. Some of the other states that have said misclassification is unfair competition include:

• Kansas: In 2023, Kansas Labor Secretary Amber Shultz said, “worker misclassification can lead to unfair competition among law-abiding businesses. A business that attempts to defraud the system cheats workers of vital benefits and adversely affects other businesses.”
• Texas: In 2014, the House Business and Industry Committee issued a report saying, “the impact of misclassification can undermine free markets, damage law abiding businesses, deprive employees of wages and other legal rights, and lessen governmental revenues…A misclassifying employer compromises free markets through unfair competition and promulgates lawlessness.”
• New Jersey: In 2018, New Jersey Governor Murphy established a Misclassification Task Force to, “promote fairness, fight against discrimination, and work to end unfair labor practices… that create an unfair advantage over companies that play by the rules.”
• California: In 2022, California Labor Commissioner Lilia García-Brower said, “unscrupulous employers who misclassify workers do so not only to dodge obligations but also to gain an unfair business advantage over employers who comply with the law.”
• District of Columbia: In 2023, Washington DC Attorney General Brian Schwalb said, “companies that misclassify workers unlawfully avoid at least 16.7% in labor costs compared to law-abiding companies, providing an unfair advantage over their competition.”

Secretary Bedoya also relies on the Fair Labor Standards Act (FLSA) which states:

(a) The Congress finds that the existence, in industries engaged in commerce or in the production of goods for commerce, of labor conditions detrimental to the maintenance of the minimum standard of living necessary for health, efficiency, and general well-being of workers… (3) constitutes an unfair method of competition in commerce… (29 U.S. Code § 202 – Congressional finding and declaration of policy) (emphasis added).

Despite the support offered by Secretary Bedoya for the FTC attacking misclassification as an unfair method of competition, this is an innovative approach and goes beyond areas in which the has traditionally involved. If the FTC brings enforcement actions based on misclassification claims, is likely that that will be challenged in court.

See FTC Usurping NLRB and DOL? and Federal Trade Commission Likely to Expand Labor Enforcement to Worker-Misclassification Issues. Companies who engage with independent contractors should review their practices to ensure compliance and minimize their risks.

For more information, check out our resources page on misclassification and compliance. If you have any questions about engagement, classification, or management of your independent workforce, we’re always here to help.