Could The FTC Regulate Employers?

Employment Law

Employers may face additional enforcement from another federal regulator, with a proposal by a Federal Trade Commission (FTC) commissioner to apply Section 5 of the FTC Act to improperly classified independent contractors.

In a February speech, FTC Commissioner Alvaro M. Bedoya laid out a case for applying Section 5 – which authorizes the agency to prohibit “unfair methods of competition” – more broadly in the employment context.

Commissioner Bedoya recalled his first legal job at a law office, working in the small sugarcane town of Belle Glade, Fla., where he helped to represent a group of tree planters who worked for a major paper company.

The men worked ten to 11 hours each day, planning a new tree every 15 seconds, following the mandates of contracts that detailed the angle at which the tree seedling could be planted, the blade with which the hole could be dug, the clothes the men should wear, how deep to dig the holes and how far apart to dig them, the size of the crew, and the times at which the crew could plant.

Despite the contracts, the paper company claimed the men were independent contractors. The tree planters lost in court, but the case triggered Bedoya’s interest in worker misclassification.

“I see misclassification as a broader and overlapping problem that often encompasses the question of joint employer liability,” he said. “Indeed, the tree planters only had to make a joint employer claim because the paper company misclassified the guy who hired them as an independent contractor – who himself apparently turned around and misclassified the tree planters as independent contractors.”

Such misclassification isn’t limited to tree planting or agriculture, Bedoya added. The money at stake is “staggering,” with workers losing anywhere from $6,000 to $18,000 per year because of misclassification, with studies suggesting that 10 to 30 percent of employers misclassify one or more of their employees.

“Misclassification takes billions from working people and gives it to lawbreakers,” Bedoya told attendees at Global Competition Review: Law Leaders Global Summit. “It is a pervasive and national scandal.”

How to fight it? Bedoya acknowledged recently issued rules from both the Department of Labor and National Labor Relations Board that will help combat misclassification, but said more could be done.

“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,” he said. “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.”

The FTC Act allows the agency to use its authority to stop unfair practices in their incipiency, before harms to workers and other market actors are cemented, Bedoya said; Congress deliberately drafted the term “unfair methods of competition” broadly and the U.S. Supreme Court has described the term as conduct that “may be coercive, exploitative, collusive, abusive, deceptive, predatory, or involve the use of economic power of a similar nature.”

Using examples in the construction and port trucking industries, Bedoya argued that “misclassification 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.”

Misclassification helps hide vertical restraints under a veneer of independence, he said.

“People need to know that there are places here in American where people work 60, 70, 80 hours a week – and still have to pawn their wedding bands to get by,” Bedoya concluded. “Places where people work so long that they sleep in back of their truck – even though their homes are only a drive away – only to make $0.67 a week, or worse, end up owing their employer money.

“Misclassification helps this abuse happen. The [DOL] and [NLRB] are doing everything they can to stop it. It’s time for competition authorities to step up to the plate.”

To read the remarks, click here.

Why it matters

Commissioner Bedoya offered an important disclaimer at the beginning of his speech: he was speaking for himself as a commissioner, not the chair, his fellow commissioners or staff of the agency. However, his interest in applying Section 5 of the FTC Act to worker misclassification should be on employers’ radar with the potential of an additional level of federal oversight. 



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