'Independent Contractor' Rule Latest Dumpster Fire Exported From California

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by Tyler Durden
Wednesday, Jan 31, 2024 - 05:35 PM

Authored by Mary Katherine Ham via RealClear Wire,

California is known for many things –  beautiful scenery, surfing, wine, movies, singing raisins. But perhaps its biggest exports now are its failed public policies and the hundreds of thousands of people leaving the state because they cannot live with those policies. 

One of those infamous policies and the havoc it’s bound to wreak has gone national, thanks to labor department rules issued by the Biden administration. A 339-page Department of Labor rule – you can always count on the federal government to keep it pithy – would make it much harder to be an independent contractor or freelance worker in America. Created to replace a simpler Trump-era rule, it’s modeled on AB5, a disastrous 2019 California law that made independent contracting and freelance work so hard to do that it effectively outlawed it in the Golden State. 

That law was so calamitous, despite its advertised intent of ensuring more employment benefits for more workers, even California had to admit it, scrambling to make fixes and hand out hundreds of exemptions to the law. Those exemptions are, of course, based on lobbying and political clout, leaving smaller, unconnected people to languish or leave the state. The list of exemptions is now more than 20 times longer than the original law. Some industries, like freelance transcription services, simply ceased to exist in California, said Karen Anderson, a freelancer who founded Freelancers Against AB5. Small community theaters suffered, unable to afford to make their freelancers into full-time employees, and that was before they got walloped by COVID restrictions. AB5’s opposition has collected the stories of hundreds of Californians and former Californians who had their livelihoods ruined or disrupted by AB5. 

“The chilling effect alone is enough to make a corporation or a business skittish about hiring an independent contractor at all,” Anderson said, noting the same is probably already happening with Biden’s regulation.

It was just a complete and total dumpster fire (in California),” she said.

A study on the employment effects of AB5, by economists at George Mason University’s Mercatus Center quantified the dumpster fire by comparing traditional and self-employment rates in California to other states with less strict independent contracting rules. If the law did what its proponents claimed they wanted, it would have increased traditional employment while decreasing self-employment. Instead, the data showed that “AB5 is significantly associated with a decline in self-employment and overall employment,” suggesting businesses were unable to afford to turn freelancers into full-time employees, and people who wished to do independent contracting were pushed out of the labor market or out of the state.

This shouldn’t come as a great surprise, as the Mercatus study notes these results follow a fairly simple economic principle: “While these regulations provide important benefits to workers, they also increase the cost of labor, which may reduce employment, hours worked, or wages.”

So, why export it to the rest of the American work force, over a third of which did some kind of independent contract work in 2023, according to surveys, amounting to more than 60 million workers?

Gov. Gavin Newsom being Newsom, declared his state’s rolling catastrophe the model for America, and Biden both on the campaign trail and in office, agreed. He pushed the passage of the PRO Act, which mirrors AB5 in California, as part of his attempt to be the “the most pro-union president you’d ever seen.”

Unable to muster support in the Senate to pass the law, the administration turned to its bureaucratic buddies to implement the philosophy from his 2023 Labor Day proclamation – “when organized labor wins, our Nation wins.”

And that’s really the point of these laws. As demands for flexibility and novel work arrangements increase in the modern economy, driven in part by the policies of the pandemic era, fewer Americans work traditional jobs and fewer Americans are in unions. Biden and Newsom want more of them in unions, even if they don’t want to be. Supporters argue these laws simply prevent misclassification of workers, which deprives them of benefits they’re due. But there are already laws on the books to prevent misclassification. It’s no accident that the author of AB5, Lorena Gonzalez, leapt from the legislature to leading the California Labor Federation while California’s enforcer for AB5, Julie Su, is now acting Secretary of Labor. 

“Misclassification is not what this and AB5 are aimed at. What they’re aimed at is millions of other people who have willfully chosen to work independently bc that is what is best suited to their lifestyle,” said Rep. Kevin Kiley of California, who introduced legislation to nullify the rule under the Congressional Review Act and prohibit funding for its enforcement. “It makes absolutely no sense to say that because there are some folks out there who are genuinely misclassified, we should eliminate the rights of tens of millions of others to choose the working arrangements that they desire.”

In the Senate, Sen. Tim Scott introduced the Employee Rights Act, designed to protect modern workers from this type of anachronistic push from an administration beholden to Big Labor.

Some of those workers, in Fight for Freelancers, are suing the Department of Labor to protect their economic liberty. They’re represented by the Pacific Legal Foundation, which notes “ordinary citizens do not know how to structure their relationships to avoid liability under federal law, giving the government a sword of Damocles it can bring down on the heads of businesses it doesn’t like.”

Yet another perk of Bidenomics.

Mary Katharine Ham is a journalist, author, Georgia Bulldog, and host of her own light-hearted podcast, "Getting Hammered.” She lives in Virginia with her husband, four kids, and a very energetic Belgian Mal, and serves on the board of the Travis Manion Foundation.