Whether working full time for themselves or part time as contractors, picking up occasional gig work, or having a side hustle, an estimated 64 million Americans performed some sort of independent work in 2023.
These aren’t just accountants or Uber drivers. They’re IT consultants, makeup artists, musicians, interpreters, fitness instructors, copy editors and truck drivers—just to name a few.
But now, their ability to be their own boss is in jeopardy. A Department of Labor rule, scheduled to take effect March 11, would significantly restrict the right to work as an independent contractor instead of being treated as an employee.
Proponents of the rule argue that workers who aren’t formal employees won’t be protected by labor laws regulating things like minimum wages, work hours and unemployment insurance. They assume the regulation will simply shift contractors to employee status without significant changes in their work or lifestyles.
But California shows it doesn’t work that way.
The Golden State passed a similar law, AB5, significantly restricting independent contracting. It took effect in January 2020 and has proved so unpopular and damaging that the state has now exempted more than 100 professions from the law and voters overturned its application to ridesharing and delivery services via a statewide referendum. Yet even the watered down restrictions are wreaking havoc among workers in the state.
The group Freelancers Against AB5 compiled a list of more than 600 professions that have been negatively affected by independent contracting restrictions, and Americans for Tax Reform documents more than 600 personal testimonials of workers who’ve been harmed.
Karen Anderson, the founder of Freelancers Against AB5 testified to federal lawmakers about children’s theaters and nonprofit youth sports clubs closing their doors; sign language interpreters unable to provide ADA-mandated services to the deaf; and professionals having to move out of state to maintain their livelihoods.
One Californian hurt by AB5 is Monica Wyman, a stay-at-home mom who started her own floral business in 2009. She hired friends—fellow moms who wanted flexible work—as contractors for events like weddings. After AB5, Monica was unable to hire contract help, 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 overwhelmingly harmful effects is not just strictly anecdotal. New research by a group of economists at the Mercatus Center shows that California’s independent contracting restrictions are significantly damaging California’s workforce on a macroeconomic level.
Their analysis found that AB5 reduced self-employment by 10.5% in California. Despite the law’s intent to push more people into traditional employment, AB5 led to a 4.4% drop in overall employment. Job losses were most severe—a 27.9% drop in self-employment—among professions in which self-employment is more common.
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The administration’s independent contractor rule is likely to have similar effects, devastating self-employment and cutting overall employment as well. The nation can’t afford that. Employment is already 2.6 million lower than it would be if the employment-to-population ratio were the same as it was prior to the pandemic. Even weaker employment would diminish economic growth and compound America’s precarious fiscal situation.
Why does this rule eliminate so many jobs? Because being an employee—including a prescribed schedule and reporting to a boss—isn’t possible for everyone. Freelancing in America reports that more than half of independent workers surveyed say they can’t work for a traditional employer because of their caregiving duties or their personal health conditions.
Moreover, even independent workers who can work as employees are likely to be worse off because they overwhelmingly choose independent work over traditional employment. Independent workers say it provides better work-life balance, the same or higher income, and flexibility that leads to less stress and better health. In fact, nearly half of independent workers say that no amount of money would cause them to go back to traditional employment.
Congress should protect independent workers and provide much needed clarity on the issue by passing a law, such as the 21st Century Worker Act, which establishes a bright-line test, consistent across all federal laws, to determine who is an “employee” and who is an “independent contractor.”
Instead of trying to “protect” workers by pushing them into employment terms they don’t want or can’t perform, policymakers should protect workers’ rights to pursue the type of work and compensation that is best for them.
This piece originally appeared in MSN
