On July 2, 2024, the Federal Trade Commission announced that it is taking action against a gig work company for allegedly misleading consumers about the money they could make on the company’s platform and marketing its business opportunity without complying with the FTC’s Business Opportunity Rule, including the requirement to truthfully disclose the basis for earnings claims to consumers.
Under the proposed settlement, the company would be required to pay $7 million, which will be refunded to consumers harmed by its purported misconduct, and must be able to back up any earnings claims it makes in the future.
“[The company] lured in workers with false promises about what they could earn while requiring them to pay out-of-pocket for essential equipment, training, and other expenses,” said FTC lawyer and Chair Lina M. Khan. “Operating in the ‘gig’ economy is no license for evading the law, and the FTC will continue using all its tools to protect Americans from unlawful business practice.”
In its complaint against the company, the FTC charges that it used misleading advertisements representing that consumers who signed up on their platform would have access to jobs that paid “up to $18/hour” doing remote customer service work for major companies. The company heavily promoted this business opportunity online, targeting stay-at-home mothers and others who might be looking for opportunities to support their families by working from home, the FTC alleges.
According to the complaint, when the company began citing the $18/hour figure in 2020, its own internal documents showed that the average pay for jobs on its gig work platform was just $12/hour. From 2019 to 2022, 99.9% of the consumers that joined the company’s platform made less than $18/hour in hourly base pay, the FTC alleges. The overinflated earnings claims were effective in drawing consumers in; the company’s market testing showed more consumers responded to these specific claims than those simply advertising “extra income,” says the agency.
According to the FTC, the company continued running ads touting earnings of up to $18/hour even after receiving a Notice of Penalty Offenses from the FTC regarding false and unsubstantiated earnings claims in money-making opportunities in 2022.
The FTC alleges that in addition to the fact that consumers’ pay was nearly always below the levels the company advertised, the company’s earnings claims did not factor in the substantial fees consumers faced when joining and using the platform.
According to the complaint, consumers who join the company’s platform are required to make hundreds of dollars in equipment purchases like computers and headsets, including some equipment that is purchased from and financed by the company. In addition, until July 2022, the company charged consumers as much as $250 for training programs that were required before consumers could begin money-earning jobs, and only stopped charging for that training after learning of the FTC’s investigation, says the Commission.
The company also purportedly failed to provide the documents and disclosures required by the FTC’s Business Opportunity Rule.
Beyond the startup costs, the company also allegedly charges workers on its platform nearly $40 each month in mandatory fees, which further reduced consumers’ effective earnings. When consumers left the platform after discovering that their pay was not sufficient or equal to what was promised, their expenses were allegedly not refunded.
In addition to the $7 million payment, the company will be permanently prohibited from making any earnings claims to consumers without being able to substantiate those claims as part of the proposed settlement. In addition, the company will be prohibited from making any false or misleading claims generally and will be required to provide the disclosures mandated by the Business Opportunity Rule.
Chair Lina M. Khan and Commissioners Melissa Holyoak and Andrew Ferguson issued statements.
Takeaway: This is the first case where the FTC has charged a company in the gig economy with violating the Business Opportunity Rule, which requires that prospective workers receive key disclosures about earnings claims and other important information before they decide to invest their time and money in a business opportunity. Consult with an experienced eCommerce law firm to discuss the impact of this action and how to comply with applicable gig economy marketing legal regulatory requirements.
