The Department of Labor (DOL) recently issued a final rule on independent contractors that had previously stalled out at the agency at the same time that Acting Secretary Julie Su’s nomination languished in the Senate. NTU applauds Senate Health, Education, Labor, and Pensions Committee Ranking Member Bill Cassidy (R-LA) for his leadership in introducing a Congressional Review Act to overturn this rule. As NTU has noted in the past, this rulemaking should be a red flag due to Acting Secretary Su’s history supporting similar, disastrous policies in California. The final rulemaking will certainly harm numerous business models, including franchising and freelancing platforms.
In particular, the final rule removes weighting or concisely defined criteria, instead moving to a “economic dependence” test that allows for significant room for interpretation by the DOL. This uncertainty will further exacerbate compliance costs from other regulations like the recent “joint employer” rule from the National Labor Relations Board. The DOL has also not sufficiently justified the rollback of the 2021 independent contractor rule, which had established clear and understandable weighting based more substantially on how much the worker controlled their work and their opportunities for profit or loss. This reflects how independent contractors are generally satisfied with their work status, with nearly 8/10 rating their experience as somewhat positive or better. In contrast, the new final rule moves towards a nebulous “totality-of-the-circumstances” approach which will empower bureaucrats to use this rulemaking to achieve ideological goals. Even worse, recent research from the Mercatus Center at George Mason University suggests that California’s independent contractor rule substantially decreased self-employment opportunities, without a subsequent increase in W-2 employment.
This problem has become pervasive under the “Bidenomics” approach to changing interpretations to fit the goals of the White House, instead of letting individuals and businesses chart their own course. Take for example, the FTC’s removal of brightline tests from their merger guidelines, or the creative use of the Defense Production Act to reshape domestic industry. Each new example from the Biden administration demonstrates that “economic reality” is what the administration deems ideologically appropriate. Moving away from clear guidelines promotes uncertainty and creates compliance costs for business owners, workers, and independent contractors.
For many companies using independent contractors, they may have to cut independent contractor opportunities, curtail business services, or face reduced operational capacity. For the contractors themselves, they may find their previous business turned into an employer-employee relationship against their will. Further concerning is the goal post moving across the federal bureaucracy. Without clear interpretation of the laws and without Congress pushing back on these overreaches, these legal and compliance costs will continue to burden the economy, just as they have in California. NTU urges Congress to immediately take up and pass this crucial CRA to warn the bureaucracy that enough is enough.