US Labor Department’s 2024 Independent Contractor Rule on Chopping Block

The U.S. Department of Labor has proposed a rule to rescind the 2024 Biden-era independent contractor regulation, which just as California did before it, used a multi-factor test that frequently categorized independent contractors as employees, paving the way for more paperwork and expenses in addition to higher legal risks, thus destroying much of independent contracting.

There is no coincidence that the federal government adopted the same destructive law as California.

In 2020, Assembly Bill 5 authored by union labor leader and former Assemblywoman Lorena Gonzalez (D-San Diego), significantly limited Californians’ ability to work as independent contractors and freelancers by adopting the so-called “ABC test” for determining whether a worker is an independent contractor or employee under the California Labor Code. It was revealed during Senate debate that the AFL-CIO wrote AB 5.

Rather than challenging a flawed California Supreme Court decision, the bill, signed by Gov. Gavin Newsom, broadly codified the newest definition of an employee, established in 2019 in a case involving two delivery drivers who sued the Dynamex Corporation for classifying them as independent contractors instead of employees.

More than 300 professions have been impacted in California by AB 5, “hardly an industry or trade is unscathed,” then-Assemblyman, now Congressman Kevin Kiley noted in 2020.

The charming Assemblywoman Gonzalez said, “These were never good jobs,” referring to freelance journalists.

We do not know yet how the proposed federal rule will impact California’s independent workforce, what’s left of it, but this is important legal precedence.

We go to lengths to explain California’s disastrous law because California’s former Secretary of Labor, Julie Su, supportive of and in charge of implementing AB 5,  was appointed “Acting” U.S. Secretary of Labor for the Biden Administration. Su was a disaster in California, and clearly failed-up to the Biden Administration.

The proposed rule will pave the path for flexibility in hiring freelancers and gig workers, according to the Office of Advocacy, the independent voice for small business within the executive branch, which said it applauds the U.S. Department of Labor.

If enacted, the Labor Department’s proposed rule is estimated to save U.S. small businesses $2.31 billion over the coming 10-year period (discounting at 7%), amounting to $329 million in annualized costs.

According to the Department of Labor, Wage and Hour Division:

DOL’s proposed rule instead concentrates on economic dependence and specifically on two fundamental factors:

1. Control over work: Does the worker decide how, when, and for whom they work?
2. Chance to make profits: Can the worker earn extra money or lose money depending on how they manage their work, make business choices, or spend their own money?

If the two factors suggest that the worker is either an employee or an independent contractor, there is a substantial likelihood that is the accurate classification for the worker. Additionally, DOL’s proposed rule considers skill, how long the work lasts, and whether the work is part of a bigger production team.

“Small businesses throughout the U.S. have shared with Advocacy that the Biden Administration’s independent contractor rule has amounted to uncertainty, more paperwork, more expenses, and more headaches,” said Dr. Casey B. Mulligan, Chief Counsel of Advocacy. “It is refreshing to see federal agencies listen to and take into account the voices of our nation’s small businesses.”

As a very interesting aside, The Office of Advocacy created the “Most Wanted” reforms list as a result of hearing directly from thousands of small businesses about regulatory burdens. The 2024 independent contractor rule is one of nine rules on Advocacy’s “Most Wanted” reforms identified for rescission, withdrawal, or modification to lessen small businesses’ regulatory burden. If implemented, the associated deregulatory actions could save small businesses over $150 billion in compliance costs. Learn more about “Most Wanted” reforms list here.