In 2023, an estimated 64 million Americans worked independently, whether full-time or part-time as contractors, taking on occasional gig jobs, or starting a side business.
These aren’t simply accountants and Uber drivers. They are IT consultants, makeup artists, musicians, interpreters, fitness instructors, copy editors, and truck drivers, to mention a few.
However, their capacity to be their boss is at risk. A Department of Labor rule set to take effect on March 11 would dramatically limit the right to work as an independent contractor rather than as an employee.
Proponents of the rule believe that workers who are not legal employees will not be covered by labor rules that govern minimum salaries, work hours, and unemployment insurance. They believe the policy will merely convert contractors into employees without causing significant changes in their work or lifestyles.
However, California has demonstrated that this is not the case.
California’s controversial AB5 law sparks chaos despite exemptions
AB5, a similar bill approved in California, severely restricts independent contracting. It went into effect in January 2020 and has proven so controversial and destructive that the state has already exempted more than 100 professions from the law, and voters overturned its applicability to ridesharing and delivery services in a statewide referendum. However, even the watered-down limits are causing mayhem among state workers.
Freelancers Against AB5 has prepared a list of over 600 occupations that have been badly impacted by independent contracting restrictions, while Americans for Tax Reform has documented over 600 specific testimonies from people who have been hurt.
Karen Anderson, the founder of Freelancers Against AB5, testified to federal lawmakers about children’s theaters and nonprofit youth sports clubs closing, sign language interpreters unable to provide ADA-mandated services to the deaf, and professionals forced to relocate out of state to keep their jobs.
Monica Wyman, a stay-at-home mom who began her own floral business in 2009, is one Californian who has been affected by AB 5. She employed friends—fellow mothers seeking flexible work—as contractors for occasions such as weddings. Following AB5, Monica was unable to hire contract staff, including people to fill in for her when she was battling cancer. “I don’t even have words to explain how bad this has been for our family,” Monica said. “I’m at this crossroads where I’m thinking I’m going to have to dissolve my business and close my doors.”
Evidence of AB5’s extremely negative consequences is not solely anecdotal. According to new study from the Mercatus Center, California’s independent contracting limits are having a major macroeconomic impact on the state’s employment.
According to their analysis, AB5 reduced self-employment in California by 10.5%. Despite the law’s intention to force more individuals into traditional jobs, AB5 resulted in a 4.4% decline in overall employment. The most severe job losses (a 27.9% decline in self-employment) occurred in fields where self-employment is most prevalent.
The administration’s independent contractor rule is likely to have similar effects, damaging self-employment while also reducing overall employment. That is not something the nation can afford. Employment is already 2.6 million lower than it would be if the employment-to-population ratio was the same as it was before the pandemic. Even weaker employment would diminish economic growth and compound America’s precarious fiscal situation.
Why is this rule eliminating so many jobs?
Being an employee, which includes following a set schedule and reporting to a boss, is not something everyone can do. According to Freelancing in America, more than half of independent workers questioned are unable to work for a regular employer due to caregiving responsibilities or personal health issues.
Furthermore, independent workers who can work as employees are likely to be worse off because they prefer independent labor to traditional employment. Independent workers claim it gives a better work-life balance, the same or higher income, and flexibility, resulting in less stress and better health. In fact, over half of independent workers think no amount of money will persuade them to return to traditional employment.
Congress should safeguard independent workers and offer much-needed clarification on the subject by passing legislation, such as the 21st Century Worker Act, that creates clear-cut criteria, consistent across all federal statutes, to identify who is a “employee” and who is a “independent contractor.”
Instead of attempting to “protect” workers by forcing them into job terms they do not want or cannot perform, authorities should defend workers’ freedom to choose the type of work and income that best suits them.