Commissioner Alvaro M. Bedoya of the Federal Trade Commission (FTC) recently spoke on worker misclassification under the impetus that it is a method of unfair competition and therefore under the purview of the FTC. Though no explicit policy recommendations were made, the statement sets the groundwork for possible future FTC involvement. The Labor Department and the National Labor Relations Board already oversee labor relations, and it is not clear the FTC would have jurisdiction, despite Bedoya’s pronouncements otherwise. FTC involvement in this issue would harm businesses’ ability to experiment with new competitive labor structures and overstep the FTC’s legal authority.
Worker “misclassification” is the idea that employers classify their employees as “independent contractors,” which exempts them from labor laws associated with worker benefits, such as minimum wage, overtime, and other factors. Labor laws were built around the employer/employee relationship, usually with industrial and agricultural industries in mind. In this sense, most rules and stipulations regarding workweek length, wages, and other factors are predicated on outdated presumptions. Many workers are part of what is known as the “gig economy,” where they work on a contractual basis and frequently move between “gigs.”
Independent contractors themselves express positive feelings about their classification, probably because there are a lot of benefits to not being a traditional employee. Most notably, contractors are free agents and have far more breadth when it comes to setting their hours and working other jobs. In addition, the lack of regulations gives them the freedom to choose the work environment best for them, and employers can benefit from this by reducing the overhead costs for their workers. It’s truly a win-win scenario.
If a company decides to hire a worker on a contractual basis, and this creates productive efficiencies that give them an advantage over other companies, isn’t that just an example of healthy market competition?
Changing workplace structures have always been a part of competition. For example, Henry Ford found it beneficial to give his workers a five-day, 40-hour, work week. This arrangement was unprecedented for the time and benefited his company immensely. The federal government then codified this particular employer model into law through early labor laws, but there is no reason modern companies can’t experiment with different working arrangements that further increase efficiency in today’s economic and social framework.
Even if companies are mislabeling employees as contractors, as Bedoya is insisting, it is not the FTC’s role to address this issue because it’s not an example of “unfair competition.” Both the Department of Labor and the National Labor Relations Board have issued guidelines on worker classification to address the matter. Because labor classification falls under their supervision, how employers classify their workforce is an issue of labor relations.
Bedoya claims in his remarks that the Fair Labor Standards Act supports the FTC’s authority in this matter since, at the time, the law was intended to protect honest employers from “chiselers and sweatshop operators.” Despite this claim, procedural law historically has dictated the terms under which intervention by the FTC could occur.
As stated previously, two existing labor regulators undertake misclassification. For the FTC to also intervene, it cannot simply be to protect honest employers. As outlined in The National Law Journal, under Section 5(n), the FTC cannot declare an act or practice unlawful unless it “causes or is likely to cause substantial injury to consumers…” Thus, intervention in labor relations must be to protect consumers, a word which only appears once on the 13 pages of Bedoya’s remarks.
Suggesting this labor-based issue constitutes unfair competition makes no sense. If the employee is misclassified without clear consumer harm, then the underlying problem is one of labor relations, not competition. If the classification is accurate, it is simply another tool companies can use to remain competitive. As stated previously, workplace structure is constantly changing, and if left alone, more efficient and pro-consumer structures can emerge.
Isaac Schick is with the American Consumer Institute, a nonprofit education and research organization. For more information about the Institute, visit www.TheAmericanConsumer.Org or follow us on X @ConsumerPal