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Gig economy companies have a new adversary: The FTC

The FTC's settlement with Amazon marks a new chapter for the agency.

Gig economy companies have a new adversary: The FTC

The FTC alleged that Amazon failed to pay its Flex drivers the full amount of tips they were owed, amounting to a deceptive business practice.

Photo: Chip Somodevilla/Getty Images

Gig economy companies know that President Joe Biden's Labor Department is going to be a problem for them. But the FTC's commissioners are signaling that they hope to take on the Ubers and Lyfts of the world, too, using any authority they have to defend workers being harmed by the notoriously opaque gig economy.

The FTC's settlement with Amazon over its Flex tipping practices on Tuesday marks a new chapter for the agency, which has not historically taken serious action against gig companies or in defense of workers. But in its complaint, the FTC alleged that Amazon failed to pay its Flex drivers the full amount of tips they were owed, amounting to a deceptive business practice.

Amazon agreed to pay $61.7 million to refund the drivers, a small price tag for a company that just reported its first $100 billion quarter. But beyond the dollar amount, the settlement is a serious signal to the gig companies that the Biden administration will scrutinize their business practices from all angles, and the FTC may be their next opponent in the upcoming regulatory wars.

Acting FTC Chairwoman Rebecca Slaughter told reporters the case shows that under her leadership the FTC will bring "cases that tackle today's pressing problems."

"Here that means not only protecting consumers but also workers in the fast-growing area of the gig economy," she said, calling it an "an important step in ongoing work to ensure that companies who use gig workers treat them fairly and honestly."

And outgoing FTC Commissioner Rohit Chopra ripped the agency for its historically "lax approach to worker abuse." "Despite broad pronouncements about a commitment to policing markets for anticompetitive conduct that harms workers, the FTC has done little," he said. "I hope that today's action turns the page on this era of inaction."

A litany of gig companies, including DoorDash, Postmates and Shipt, have been accused of misleading their workers about how much they receive from tips and silently tweaking their algorithms in order to pay lower wages. It's an area that's ripe for regulatory intervention, experts said.

"There's been a lot of allegations of questionable practices in the gig economy space, and so I certainly expect the FTC to continue to try to be more aggressive," said Justin Brookman, the director of technology policy for advocacy group Consumer Reports.

Slaughter declined to say whether the FTC is investigating other companies. But she said that the agency is taking those concerns seriously. "Misrepresentations having to do with income and compensation, however they fall, whether they be tips or base wage or otherwise, could be within the scope of the FTC Act's ban on deceptive acts and practices," Slaughter said.

It's not the first time the FTC has taken on a gig economy company, Republican FTC Commissioner Noah Phillips was quick to point out. Uber in 2017 agreed to pay $20 million to settle accusations that the ride-hailing company misled drivers about the amount they could make. And those efforts are only set to accelerate over the next few years.

Similar battles have been playing out across the country. DoorDash changed its tipping policy following a public outcry over revelations that it was using customers' tips to subsidize payments to delivery workers. And Instacart similarly changed its tipping policy after facing pressure from a group of senators who urged the FTC to investigate "tip-baiting."

And the FTC could expand those inquiries into the secretive algorithms controlling delivery workers' pay. "The FTC could use its power to go after corporations that have considerable economic power and use it to suppress wages or increase," said Laura Padin, a senior staff attorney with the National Employment Law Project.

The FTC's commissioners are also using the opportunity to push Congress to expand its authority — specifically, they want to dole out bigger fines the first time a company is caught deceiving consumers or workers. There's some scuffling among the FTC commissioners about how that could play out; Chopra said the FTC already has the authority while Slaughter and Phillips argue Congress needs to intervene. With Democrats controlling both chambers and the White House, that intervention is likelier than ever.

Ultimately, the Department of Labor and National Labor Relations Board will play a key role in determining the most consequential question at the center of gig work debates: whether workers should be classified as employees, with access to the full range of benefits under U.S. law, or contractors.

"The fundamental change here that needs to be made probably can't come from the FTC because it relates to the way these workers are classified and the rights and protections they have because of that classification," Padin said.

But the knowledge that a government agency is investigating their tipping and business practices could scare some gig companies into changing how they operate. "Before, it was very unregulated," said Lindsey Cameron, an assistant professor at the University of Pennsylvania's Wharton School. "They could do what they wanted to do. Now there's more eyes looking at them from all different directions."

Correction: An earlier version of this story misstated Rohit Chopra's title. This story was updated on Feb. 3, 2021.

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