The Biden Administration’s Department of Labor has unveiled a new final rule on independent contractors that threatens to disrupt the livelihoods of tens of thousands of freelancers throughout the country. Sound familiar?
Inspired by California’s own disastrous law known as AB 5, this new rule will make it more difficult for independent contractors to be considered as such. Instead, it would favor the reclassification of countless workers as full-time employees – with little say from actual freelancers.
The rule’s expected consequences extend beyond the individual worker. Industries that have long relied on the flexibility and cost-effectiveness of contract labor, such as trucking, manufacturing, health care, and app-based companies like Uber and Lyft, are bracing for a substantial increase in labor costs.
Studies suggest that employees can cost businesses up to 30 percent more than independent contractors. This isn’t just a minor uptick in expenses; it’s a significant financial burden that many businesses, especially small enterprises and startups, are ill-equipped to bear.
The move is estimated to jeopardize 3.4 million gig workers, facing a staggering $31 billion in lost income. This figure alone should give pause to policymakers and business leaders who have been navigating the complex landscape of the gig economy.
Labor Secretary Julie Su spearheaded the implementation of AB 5 in California, which forced independent contractors to be reclassified as full-time employees. Despite more than 90 percent of independent contractors in California opposing the bill, she happily enforced it anyway. And now, Su is attempting to bring AB 5 to the national level.
This shouldn’t come as a surprise. CABIA has long warned Su would bring California’s worst policies to the entire country should she get the job of Labor Secretary. Even without being confirmed to the position, Su is already proving us right.
Proponents of the rule argue that it provides necessary protections for workers, ensuring fair wages and benefits. However, this view fails to recognize the autonomy and flexibility that many independent contractors cherish. The allure of being an independent contractor often lies in the freedom to choose one’s projects, set one’s hours, and negotiate rates. In its attempt to cast a protective net, this rule risks ensnaring those who never sought such protection in the first place.
This one-size-fits-all approach overlooks the diversity and complexity of the U.S. economy. What works for a ride-share driver might not work for a freelance graphic designer or a consultant. This one-dimensional view fails to accommodate the multifaceted nature of modern work arrangements, setting a precedent that is more restrictive than protective.
The Department of Labor’s final rule on independent contractors is a misguided solution in search of a problem. Its inspiration from California’s AB 5 is alarming, given the law’s tumultuous impact on businesses and workers.
By potentially reclassifying millions of independent contractors as employees, the rule threatens to destabilize a vibrant sector of the economy, imposing unnecessary costs and restrictions on businesses, freelancers, and entrepreneurs.