Californifying the U.S. Labor Market
The Biden administration moves a step closer to imposing the Golden State’s chaotic independent contractor rules on the nation.
The Biden administration came into office with a sweeping union agenda embodied in the PRO Act, which would have rewritten key elements of decades-old American labor law. Stymied in Congress, however, the administration now seems likely to impose at least one component of that legislation on the workplace through a Department of Labor rule that would narrow the definition of an independent contractor in ways similar to California’s controversial AB5 law. Doing so would likely upset employment policies and practices at a vast array of businesses nationwide, just as has happened in the Golden State, where freelancers lost work because companies couldn’t afford to employ them full-time and truckers recently shut down a port to protest efforts to end their independent status. In the post-Covid world, workers are seeking more flexibility in income-earning. The Biden administration’s effort, which views the independent contractor almost exclusively as an exploited worker denied the benefits of full employment, is a step backward for individual workers—but a gift to unions.
California’s AB5 law redefined independent contractors by means of restrictive standards that excluded many current workers who toil for companies on a contract basis. Key to the redefinition was a requirement that an independent contractor had to be engaged in work that was outside the course of normal activities performed by the company. Thus, for instance, a freelance journalist employed by a newspaper could no longer be considered a contractor because the newspaper’s main activity was journalism. A trucking company couldn’t use independent haulers (those who own their own vehicles and work on a contract basis) because they were engaged in the same activity as the trucking company. In the process, AB5 seeks vastly to limit a company’s options in trying to manage its workflow—and prevent individuals from forging a career by working for various employers rather than sticking with a single company.
The law, passed in September 2019, sparked protests, layoffs, and lawsuits. Rather than revoke the legislation, however, the state amended it a year later, exempting 75 fields from the law. Journalists, for instance, no longer faced limits on the number of articles they could publish in a single publication before being deemed full-time employees. The resulting modifications have turned the contract work landscape for self-employed Californians into a maze of standards. And many key occupations remain subject to AB5.
The latest controversy involves California’s independent truckers, who play a crucial role in the transportation of goods in the United States. Industry groups filed suit against AB5 soon after it was passed, so enforcement of the new standards has been on hold for nearly two years while the case has wound its way through the courts. On June 30, however, the Supreme Court declined to take the truckers’ case. In anticipation of the law taking effect, independent truckers in late July shut down the Port of Oakland in protest. The potential for disruptions is massive, since the approximately 70,000 owner-operator truckers in the state form a key link in the nation’s supply chain. Despite the turmoil and threat of disruptions, the Biden administration’s solicitor general had asked the Court not to intervene in the truckers’ lawsuit. It’s not hard to understand why. The Teamsters Union, a crucial administration ally, stands to gain thousands of new members if the state’s independent truckers are forced into full-time employment. It’s also possible that many haulers would instead leave the state or quit the business. Like many other independent workers, these truckers value their current status and aren’t looking for the state to redefine it for them.
Even as the administration was asking the Court not to intervene, the Labor Department began holding “listening” sessions on independent contractor status, in anticipation of issuing a rule that would redefine contractors nationwide in the same way as the California law. Biden has long expressed enthusiasm for AB5’s restrictive standards, and the PRO Act would have legislated them into law. Absent that step, the administration is moving toward a rulemaking solution. Early in 2021, Biden began by revoking a Trump-era Labor Department rule that expanded the definition of independent contractor to clarify that status in the evolving economy. Now it’s laying the groundwork for a new, more restrictive rule. In late June, the Labor Department held several sessions to solicit comments from employers and employees on contract work.
Though these sessions were not recorded (no transcripts exist of the testimony, according to reporters who have tried to obtain them), they apparently did not go as the administration hoped. Officials probably anticipated that disgruntled employees and union members would show up to testify in favor of stricter rules, but it appears that contractors and their employers, energized by what has happened in California, dominated the sessions, speaking out against any new rules and endorsing the current ones. “Only a handful of people asked the department to change the rule, and most of them weren’t even independent contractors,” the co-founder of a group that opposes changes, Fight for Freelancers, said. “They were union organizers or union members who wouldn’t be affected by any rule change.” Given that AB5 is now nearly three years old, contractors have plenty of experience with the new, more restrictive standards. They made it plain that they disliked them. “Cautionary tales from California were prevalent,” said the head of a professional association of translators (who tend to work as contractors). Nevertheless, the Labor Department “did not give any indication of any exemptions being contemplated,” she added.
The next step is for the administration to propose the new rule and ask for comments on it. Given the heated controversies in California, any comment period for regulations akin to AB5 is likely to be intense and disruptive, which makes it probable that the administration will wait until after the midterm elections to move forward. But the Biden administration, a victim of plunging approval ratings, needs friends, and the labor movement is a key ally. So we should expect the administration to persist in seeking to Californify America’s labor market.
Photo by Justin Sullivan/Getty Images
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