FTC protections may spur rise in class actions by gig workers

In the gig economy, independent contractors and freelancers take on temporary, flexible jobs via digital gig platforms such as Uber, DoorDash and Instacart. According to the Pew Research Center, 16% of Americans earn compensation from such sources, with over half relying on it for their basic needs.

While projections indicate that these numbers will continue to rise over the coming decade, gig workers continue to face challenges such as inadequate compensation for completed work and limited access to employee benefits. Consequently, there is a nationwide surge of class action lawsuits concerning their treatment and classification. Economic analysis will likely be required in these cases, both to assess the suitability for class-wide treatment of the allegations being advanced as well as to understand the merits of those allegations.

FTC protections for gig workers

The Federal Trade Commission (FTC) seeks to safeguard gig workers from potential exploitation by gig platforms. In a recent policy statement, the FTC recognised gig workers as consumers of gig platforms, thus protecting them under the commission’s consumer protection mandate. The commission identified three market features of the gig economy that have implications for this mandate:

• control without responsibility;
• diminished bargaining power; and
• concentrated markets.

Later in the statement, it also detailed plans to investigate gig companies’ potential violations of Section 5 of the FTC Act – which prohibits unfair methods of competition.

On that note, the commission further debuted a new policy regarding the scope of unfair methods of competition under Section 5, explicitly stating that all related inquiries will focus on “stopping unfair methods of competition in their incipiency based on their tendency to harm competitive conditions”.

These new policies jointly suggest that the FTC will take a more proactive and preventive approach to addressing potential violations by gig companies. In the context of the gig economy, Section 5 enforcements may include:

• violations related to unfair pay practices;
• undisclosed costs or terms of work;
• deceptive practices by an automated boss; and
• unfair contractual terms and restrictions on mobility.

To that end, the commission has already had some success recovering damages for gig workers, including those at Amazon and Uber.

Rising class action cases

There has been a recent surge in lawsuits focused on the treatment and classification of gig workers. Many have taken the form of class actions, reflecting collective efforts by workers to address their concerns.

In August 2022, Uber and the State of California reached a class action settlement concerning drivers who alleged they had been misclassified as independent contractors. Conversely, in Razak v Uber Tech Inc, the US Court of Appeals for the Third Circuit ruled that drivers could not be classified as employees. The classification of gig economy workers as non-traditional salaried employees is thus becoming increasingly blurry. However, despite this ambiguity, the FTC aims to protect these workers regardless of how companies classify them.

Since the FTC issued its policy statement regarding enforcement pertaining to gig work, additional class actions against the gig companies have cropped up. For example, in Silva v Doordash Inc, delivery drivers alleged that they were misclassified as independent contractors. Similarly, in Anderson v The Hudson National Golf Club Inc, caddies sought to recover unpaid minimum and overtimes wages, alleging that they were misclassified as independent contractors. Likewise, in Mathews v USA Today Sports Medica Group LLC, site editors claimed that they were misclassified as independent contractors. More recently, in Sears v Cherish Productions LLC, Massachusetts delivery drivers made similar allegations.

The standards to certify a class action, as outlined in Rule 23 of the Federal Rules of Civil Procedure, are high. In particular, the predominance requirement plays a crucial role in class certification, emphasising the need for class members to have shared legal or factual issues that predominate their individual differences. Given that proposed class actions could involve thousands, if not millions, of individual gig employees, the potential for individualised differences is significant.

Another obstacle for gig workers pursuing class actions is the increasing prevalence of mandatory arbitration clauses and class action waivers in Terms of Service contracts. For instance, in Lawson v Grubhub Inc, the US District Court for the Northern District of California noted that only two of Grubhub’s delivery workers in California had opted out of such waivers. Moreover, the FTC has found that few class members claim their portions of settlement agreements.

Key takeaways

Given its priorities, the FTC is expected to take proactive measures to establish greater accountability among gig platforms for the harm suffered by gig workers. These measures may catalyse more legal actions, including class action lawsuits, aimed at safeguarding gig workers' rights. Given the unique circumstances of each gig worker, however, having a proposed class be certified is far from a guaranteed outcome. Further, even when proposed classes get certified, plaintiffs will still need to prove that the challenged conduct rises to the level of unfair competition or otherwise harmed competitive conditions.  However, we have yet to fully comprehend the competitive effects of such actions.