Gig Economy, Dark Patterns and Identity Fraud: FTC Signals Priorities at Open Commission Meeting
On September 15, 2022, the Federal Trade Commission (FTC) held a open commission meeting which included three items on the agenda: 1) a rulemaking to identity fraud, 2) a policy statement for enforcement related to gig work and 3) a personnel report on dark patterns. While items (1) and (3) advanced with a 5-0 bipartisan vote, the Gig Economy Policy Statement passed by a 3-2 vote across party lines. This alert provides insight into the implications for future FTC activity in these areas.
Announcement of proposed rulemaking on identity fraud
During the meeting, the FTC voted 5-0 to issue a notice of proposed rulemaking that codifies the established principle that identity fraud violates FTC law. The proposed rule would also allow the FTC to reclaim money from scammers or seek civil penalties against scammers posing as corporations or governments.
Analysis/snack: This proposed rulemaking is not particularly controversial. Although some have expressed Skepticism about the FTC’s exercise of its so-called Magnuson-Moss rulemaking authority in other contexts, however, there appears to be bipartisan support for using it for these sorts of narrow-minded issues. This is in sharp contrast to disagreements surrounding other recent FTC events proposed rulemaking on data protection, which advanced by 3 votes to 2, solicited public comment on 95 areas affecting the whole economy, and was generated To ponder via the FTC, which may exceed its statutory authority.
Enforcement Policy Statement Relating to Gig Work
The FTC identified several areas for enforcement priority in relation to the gig economy:
- Earning Claims: The FTC stated that false, misleading, or unsubstantiated claims about workers’ earnings could be considered unfair or misleading under Section 5 of the FTC statute. The FTC also stated that under Opportunity and Franchise Rules, gig companies that require payment from new participants may be required to disclose their claims of earnings and materials supporting those claims.
- Undisclosed costs or working conditions: Similar to salary claims, the FTC said that misleading claims or disclosures about formation costs, training fees, other expenses, or other material terms associated with employing gig work may violate Section 5 of the FTC statute, the Franchise Rules, or the business opportunity rule.
- Algorithmic Decision Making: The FTC highlighted how gig economy companies could violate Section 5 of the FTC statute by using algorithms to dictate employment-related decisions such as hiring and firing, salary levels, work availability and performance evaluation.
- Unilateral contract terms: The FTC warned against unilateral, non-negotiable gig worker contracts that contain provisions such as prohibiting negative employee reviews or seeking alternate employment during or after an individual’s time at the company. It determined that these unilateral terms could be considered abusive under Section 5 of the FTC statute.
- Unfair competition: The FTC said it will investigate evidence of agreements between gig companies to illegally set gig workers’ wages, benefits or fees. The FTC will also challenge mergers that significantly reduce competition and investigate exclusionary or crowding-out behaviors that could harm customers or result in lower pay or worse working conditions for gig workers.
Commissioners Noah Phillips and Christine Wilson disagreed. Both commissioners suggested that the FTC should focus its activities on enforcement efforts rather than policy statements. Commissioner Wilson expressed his concern that the FTC is exceeding its mandate by dealing with workers’ injuries rather than consumer injuries.
Analysis/snack: Discussions at the meeting confirmed what was clear to FTC observers: competition, consumer protection and privacy issues in the gig economy will continue to be a key focus on Chairwoman Lina Khan’s agenda.
Employee report on dark patterns
The FTC voted 5-0 to release a staff report on dark patterns drawn from an April 2021 FTC workshop on the same topic. The FTC defined dark patterns as “design practices that mislead or manipulate users into making decisions they otherwise would not have made and that can cause harm,” and stated that it would take enforcement action if companies used these patterns to to deceive consumers. In its report, the FTC provided many examples of problematic dark patterns. Some examples are well established in law and precedent, such as: B. using misleading testimonials or endorsements, formatting ads to falsely appear to be independent journalism or other content, and failing to notify consumers of recurring subscription fees or allow for easy cancellation of subscriptions. But the FTC also highlights newer and more unexpected examples of dark patterns, such as the following:
- In the area of sales tactics:
- Generating pressure to buy a product by falsely claiming that demand is high (“20 other people are viewing this item”) or that inventory is low (“Only one left!”)
- Unfounded/fake countdown clocks, fake time-limited messages (e.g. offer ends at 00:59:48) and even incorrect “discount” or “sale” claims
- Discourage shoppers from simply comparing prices by bundling things together, using different metrics (price per unit vs. price per ounce), or listing the price per payment (e.g. $10 per week) without the total number of payments or disclose the total cost
- Adding hidden fees or introducing fees very late in the checkout process without prior disclosure (e.g. unexpected “convenience fee” that only appears right before checkout)
- In the area of data protection:
- Obfuscating or subverting privacy choices with double negatives (“uncheck the box if you don’t want to receive email updates”), acknowledging shame (e.g., “No, I don’t want to save money”), and pre-selecting default settings that are “good for the business and not for the consumer”
- Get users to create an account or share their information to complete a task
- Repeatedly and disruptively asking if a user wants to perform an action
- Regarding child advertising:
- Hiding real costs by asking consumers to buy things with virtual currency (e.g. “coins” or “acorns” in kids apps)
- Autoplay another video as soon as a video ends in an unexpected or harmful way (e.g., after the first video, a less kid-friendly video — or a sponsored ad disguised to look like a recommended video — autoplays )
- Using cartoon characters to encourage children to make in-app purchases
Analysis/snack: While it is debatable whether the FTC would be able to prove that some of its specific examples reach the level of fraudulent or unfair practices, many of these examples reflect dark pattern examples provided in the proposed California Data Protection Agency regulations released this summer. With regulatory scrutiny of these issues, businesses should review their consumer interfaces in light of these examples to ensure their practices remain unnoticed by these regulators.
Wilson Sonsini Goodrich & Rosati routinely assists businesses with complex privacy, data security and consumer protection issues and responds to FTC and other regulatory investigations. For more information on privacy issues, please contact Maneesha Mithal, Lydia Parnes, Roger Li or another member of the company Privacy and Cyber Security work out. For more information on antitrust issues, please contact Michelle Yost Hale or another member of the company Antitrust and Competition Law work out.
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