The Federal Trade Commission (FTC) is signaling its intent to get further involved in employment practices after its activity of the last year and a half in proposing a ban on noncompete clauses in employment contracts and signing a memorandum of understanding with the U.S. Department of Labor (DOL) to bolster the FTC's efforts to promote competitive U.S. labor markets.

Early this month, Commissioner Alvaro Bedoya focused his keynote speech at Global Competition Review: Law Leaders Global Summit 2024 on the competitive effects of misclassification of employees as independent contractors. Commissioner Bedoya indicated his belief that the FTC should be investigating these practices as an "unfair method of competition" under the FTC Act. In his speech, Bedoya highlighted two competitive concerns with employee misclassification. First, that businesses that violate labor and employment laws get an unfair competitive advantage and are able to undercut their competitors. Second, that labor markets are impacted by pervasive misclassification, affecting workers in the form of lost wages and benefits.

Commissioner Bedoya's remarks come on the heels of the DOL publishing a final rule,Employee or Independent Contractor Classification Under the Fair Labor Standards Act, effective March 11, 2024, that creates an employee-friendly legal standard the DOL will apply when evaluating the classification of workers as employees or independent contractors under the Fair Labor Standards Act. For more information on the final rule and its implications for businesses, please refer to our previous Alert.

Misclassification of workers is not a traditional concern of antitrust enforcers, and Commissioner Bedoya's announcement is a further indication of the broadening enforcement policies of the current FTC leadership. In November 2022, the FTC withdrew a policy statement that had interpreted "unfair methods of competition" as co-extensive with the Clayton and Sherman Acts, pivoting to a policy of broader enforcement on behavior that would not violate other federal antitrust laws. The FTC has shown an intent to use this expanded enforcement view in the labor and employment arena, including enforcement actions against businesses for noncompetition agreements with employees, and proposing a rule that would ban all noncompetition agreements. The FTC has also been increasingly scrutinizing mergers that may harm competition in labor markets. Commissioner Bedoya's comments suggest another area in which the FTC may seek to expand FTC Act Section 5 enforcement relating to "unfair methods of competition" outside the scope of traditional enforcement of the antitrust laws.

What This Means for Employers

In light of the trend to implement employee-friendly standards, and another regulator indicating a willingness to enter the fray, we strongly encourage employers to carefully review their independent contractor and employee classifications with the assistance of counsel.

For More Information

If you have any questions about thisAlert, please contact Sarah O'Laughlin Kulik, Maria Cáceres-Boneau, any of the attorneys in our Antitrust and Competition Group, any of the attorneys in our Employment, Labor, Benefits and Immigration, or the attorney in the firm with whom you are regularly in contact.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.