FTC Usurping NLRB and DOL?

Commissioner Alvaro Bedoya wants to challenge worker misclassification under Section 5 of the Federal Trade Commission (FTC) Act. His broad interpretation of the “unfair methods of competition” language in Section 5 of the Act would expose employers to unprecedented enforcement litigation and potential liability.

Commissioner Bedoya argued in his February 2 speech, “Overawed,” that the “unfair methods of competition” language in Section 5 of the FTC Act should be read broadly to enable the FTC (or Commission) to challenge companies that misclassify workers as independent contractors instead of employees.[1] This would result in an extraordinary usurpation of labor and employment law enforcement—including novel initiatives by the National Labor Relations Board (NLRB) and enforcement efforts by the US Department of Labor (DOL)—and significantly expand the scope of Section 5.

This expansion is part of an ongoing trend at the FTC. Beginning in June 2021, under Chair Lina Khan’s leadership, the Commission has adopted broader interpretations of antitrust and consumer protection statutes, like the FTC Act, as part of their concerted efforts to bring more conduct under the FTC’s enforcement umbrella, including conduct related to labor and employment practices. Commissioner Bedoya’s speech is consistent with—and doubles down on—this trend.

In support of his proposal for this significant jurisdictional extension, Commissioner Bedoya argued that US Congress had intended Section 5, enacted in 1914, to grant the FTC the power to regulate conduct beyond the scope of other antitrust laws like the Sherman Act to “check monopoly in the embryo.”[2] He then extended this already expansive reading of the 1914 legislative history of the FTC Act to interpret Section 5 as regulating conduct previously considered not only to be beyond the scope of antitrust laws, but instead, to be squarely within the scope of US labor and employment laws and structures.

Commissioner Bedoya opined that the FTC’s efforts to combat worker misclassification under Section 5 would not be duplicative of efforts undertaken by the NLRB or the DOL because the FTC’s “authority allows [the FTC] to stop unfair practices in their incipiency, before harms to works and other actors are cemented.”[3] To highlight the recent history of common interest and complementary roles played by the three agencies in their previously collaborative efforts against worker misclassification, Commissioner Bedoya cited two recent Memoranda of Understanding:   one between the FTC and NLRB in 2022 that listed worker classification as an “issue of common regulatory interest”[4] and the other between the FTC and DOL in 2023 that put “misclassification of employees” on a list of “unfair methods of competition and unfair or deceptive acts or practices.”[5]

Considerations Related to FTC’s Jurisdiction

It is worth noting that the FTC's attempt to regulate labor practices in its own right, rather than in cooperation with the NLRB and the DOL, would be unprecedented.[6] In that regard, it is worth noting that Commissioner Bedoya conceded that a 2022 FTC policy statement made clear that “violations of generally applicable laws by themselves, such as environmental or tax laws, that merely give an actor a cost advantage would be unlikely to constitute a method of competition.”[7] Presumably, even Commissioner Bedoya would concede that such conduct would continue to fall outside the jurisdiction of the FTC.

Nonetheless, Commissioner Bedoya concluded that worker misclassification differs from such “violations of generally applicable laws” and that therefore, misclassification can constitute actionable unfair competition, suggesting that “in the context of competitive bidding, 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 . . . [and] can worsen competitive conditions by taking honest employers off the playing field—and out of those bidding competitions.”[8]

Commissioner Bedoya finished his speech with a clear call to action, saying “it’s time for competition authorities to step up to the plate”[9] regarding labor and employment issues.

How We Can Help

With the prospect of unprecedented FTC policy changes and enforcement actions related to labor issues, firms will need to consider these potential new antitrust-related risks associated with their worker classification strategies. Morgan Lewis is well positioned to guide clients on these issues, as well as issues that arise more generally at the intersection of labor and antitrust laws.