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Reason 101 for Making Sure You Properly Classify Your Workers

September 22, 2022

Don Walsh

Known by many names — the side hustle, freelancing, moonlighting, or gig — these  common terms all describe popular ways for people of all ages to enhance their living. Also common is the temptation to misclassify these entrepreneurial people as independent contractors.  The Federal Trade Commission (FTC) has announced that it will now join the battles already waged by the Department of Labor, the IRS and the plaintiff’s bar to make sure such workers are properly classified, appropriately treated and paid a fair wage for their work.  

In a newly released policy memo found here, the FTC announced that it intends to use its powers to protect the burgeoning numbers of gig workers from unfair, deceptive, and anticompetitive practices by claiming these practices violate Section 5 of the FTC Act, the Franchise Rule, or the Business Opportunity Rule.

The rapid growth of the gig economy is made possible by the contributions of drivers, shoppers, cleaners, care workers, designers, freelancers, and other workers. According to the FTC policy memo, one study suggests the gig economy will generate $455 billion in annual sales by 2023. Sixteen percent of Americans report earning money through an online gig platform and gig workers are disproportionately people of color.  Many gig workers have lower incomes and, because they may not be covered by wage and hour laws, can earn less than the minimum wage.

The Commission noted that other hidden harms exist to workers in the gig economy, including misrepresentations about the nature of and payment for gig work, and diminished bargaining power especially in concentrated markets where competition can be fierce and companies may be more likely to exert their market power in anticompetitive ways that harm workers’ wages, job quality, and other aspects of gig work.

The policy statement makes clear that the FTC intends to use its authority to enforce both competition and consumer protection laws impacting the gig workers by:

  • Holding companies accountable for claims and conduct impacting costs and benefits;
  • Combatting unlawful practices and constraints imposed on workers (including restrictive covenants and arbitration clauses); and
  • Identifying unfair methods of competition and predatory tactics which harm gig workers where there are allegations of illegally fixed wages, benefits, or fees for gig workers that should be open to competition.

Along with this enforcement effort are damages payable to the workers, civil penalties and companies may be ordered to cease unlawful business practices. The FTC also warned that it intends to partner with other governmental agencies to protect gig workers.  A simple complaint to the DOL could then bring in the IRS, the FTC and state and local authorities.

As if you didn’t already have enough reasons, now it is more important than ever to carefully evaluate your workforce and ensure labor law compliance and fair practices.  If you need assistance, our experienced team can help.

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