FTC and NLRB Enter into an Information Sharing Agreement as a Likely Precursor to New Enforcement Activity

By: Gene Ryu, Katie Staba & Jonathan Rue

In light of the NLRB’s recent change to independent contractor rules, recent midterm elections and a focus on workers’ rights on many ballots, this article revisits an agreement between agencies that went largely unnoticed earlier this year. 

On July 19, 2022, the Federal Trade Commission (“FTC”) and National Labor Relations Board (“NLRB”) (collectively the “Agencies”) announced an unusual information sharing agreement to “better root out practices that harm workers in the ‘gig economy’ and other labor markets.” At first the agreement might seem an odd marriage; the FTC enforces the Federal Trade Commission Act (“FTC Act”), 15 U.S.C. § 41 et seq., and other laws and regulations that prohibit, among other things, unfair methods of competition and unfair or deceptive acts or practices.  The NLRB interprets and enforces the National Labor Relations Act, 29 U.S.C. § 151 et seq., which guarantees the rights of workers to join to improve their wages and working conditions, to organize a union and bargain collectively, and to engage in other concerted activity. Upon closer inspection, however, it is clear that the Agencies foresee significant overlap in their enforcement efforts to ensure robust, competitive markets that do not put employees at a disadvantage. “This agreement will […] advance our shared mission to ensure that unlawful business practices aren’t depriving workers of the pay, benefits, conditions, and dignity that they deserve,” said FTC Chair Lina M. Khan. The NLRB’s top lawyer, Jennifer A. Abruzzo, had a similar perspective: “Workers in this country have the right under federal law to act collectively to improve their working conditions. When businesses interfere with those rights, either through unfair labor practices, or anti-competitive conduct, it hurts our entire nation.”

The MOU describes a few different areas of cooperative focus. The Agencies intend to share information about alternative work arrangements, including the gig economy, that have become more prevalent in recent years. The Agencies also seek to better understand how employers in different industries restrict disclosures about earnings and costs associated with gig and other work. One-sided and restrictive contract provisions, such as noncompetition and nondisclosure, will be another area of emphasis, as will the ability of workers to act collectively and the classification and treatment of workers. Finally, the Agencies plan to share information about the impact of labor market concentration and algorithmic decision-making on workers.

Although the MOU is not legally binding on the Agencies, they are likely to engage in robust information sharing and enforcement activity during the current Administration. With respect to enforcement actions, we expect the Agencies to argue that companies are engaged in unfair or deceptive trade practices if they misclassify part or all of their workforce as independent contractors, rather than employees. Companies that take a hard line against collective activity to improve working conditions — such as independent contractors or employees seeking information about compensation, seeking information about the algorithmic formulas, or demanding benefits — are also likely to be scrutinized for engaging in unfair or deceptive practices. In short, the MOU suggests that the Agencies believe the scale is tipped too far toward employers and intend to tip it back.

Companies should take preventative measures to minimize the risk of a public and very expensive legal battle with the Agencies. Companies should review their use of independent contractors to determine whether (1) they are misclassified, or (2) the company is or has taken any positions that could be interpreted as denying or discouraging its workers from taking collective action to improve working conditions. Algorithmic formulas used to hire, promote, discipline, or determine compensation should be analyzed to ensure they do not disproportionately impact protected classes of employees or deceptively depress compensation. Companies should also analyze their use of restrictive covenants to ensure that they are not being overused, that they are justified by the worker’s job duties, expertise, or access to confidential or sensitive business information, and that they are compliant with applicable state laws. Restrictive covenants for lower level workers may be viewed as unlawfully anti-competitive and unfairly restrictive of worker mobility. 

If you have questions about how K&L Gates can help your company conduct a preventative review of its policies and practices, please do not hesitate to contact the firm.