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Examining Biden’s War on Independent Contractors – House Committee on Education and the Workforce

House Committee on Education and the Workforce Subcommittee on Workforce Protections

Examining Biden’s War on Independent Contractors

Wednesday, April 19, 2023

Topline

  • Democrats voiced concerns that without worker protections, misclassified workers and independent contractors do not benefit from health care and other benefits that traditional workers are entitled to.
  • Republicans voiced concerns that the new DOL proposed rule regarding independent contractors will leave many unemployed during a recession.

Witnesses

  • Karen Anderson, Founder of Freelancers Against AB5
  • Tammy McCutchen, Senior Affiliate, Resolution Economics
  • David Long, CEO, National Electrical Contractors Association
  • Liya Palagashvili, Senior Research Fellow, Merctus Center at George Mason University
  • Laura Padin, Director of Work Structures, National Employment Law Project
  • Kim Kavin, Freelance Writer and Editor

Opening Statements

Subcommittee Chairman Kevin Kiley (R-Cali.)

In his opening statement, Kiley discussed the multi-pronged assault on the right to earn a living in America by the Biden Administration. He noted that with the Protecting the Right to Organize (PRO) Act, which he says is like California’s AB5 law, seniors, caregivers, students, and single parents will be negatively impacted. Kiley stated that 79% of independent contractors prefer their current worker status which allows them to set their own schedules while only 10% of independent contractors say they prefer a traditional job.

Subcommittee Ranking Member Alma Adams (D-N.C.)

In her opening statement, Adams noted that under federal law, employees have a wide range of work protections. She warned that when workers who should be employees under the law are misclassified as independent contractors, they lose out on various work protections. Adams stated that as many as 30% of current employers are misclassifying their employees. She closed by saying the misclassification of independent contractors is a pervasive problem for workers, law-abiding businesses, taxpayers, and our economy overall.

Testimony

Karen Anderson, Founder of Freelancers Against AB5

In her testimony, Anderson discussed her experience with her Facebook page “Freelancers Against AB5.” She noted that the result of creating the ground was hundreds of freelancers sharing their negative stories from AB5 being enacted. Anderson closed by asking that AB5 and its ABC test be eliminated so that other types of destructive policies are not nationwide.

Tammy McCutchen, Senior Affiliate, Resolution Economics

In her testimony, McCutchen opened with recognizing that the independent workforce is growing and here to stay. She noted that almost 65 million Americans take part in the independent workforce because they need more flexibility than a standard job can offer them. She noted that independent work is the right choice for many Americans, but regulators want to take that choice off the table. McCutchen said that the issue with independent contractors is that the definition of an employee changes from department to department. She closed by asking for the definition of an employee to be the same under federal statute and state laws.

David Long, CEO, National Electrical Contractors Association

In his testimony, Long discussed how the misclassification of workers in construction is done by choice and done intentionally. He noted that misclassification provides a competitive advantage by failing to ensure the financial obligations are met, which responsible businesses do every day. He noted that with misclassification schemes, contractors are allowed to submit lower bids because they do not have to worry about burdens since all burdens ultimately fall upon taxpayers. Long also stated that the misclassification of workers has results in a loss of overall unemployment insurance revenue of over $200 million annually.

Liya Palagashvili, Senior Research Fellow, Mercatus Center at George Mason University

In her testimony, Palagashvili discussed how independent workers span across industries, skills, and educational attainment. She noted that the proposed Department of Labor (DOL) contractor rule adds new considerations that significantly limit the circumstances under which a worker can be legally classified as an independent contractor. She noted that the DOL is doing this in hopes that organizations will hire workers as employees, however, it is impossible for every single independent work opportunity to turn into a full-time employment offer. Palagashvili said that during a time where employment opportunities are likely to become scarcer, it is unwise for the DOL to limit independent work opportunities. She closed by noting that women are impacted more directly from this proposed rule since they make up more of the independent workforce.

Laura Padin, Director of Work Structures, National Employment Law Project

In her testimony, Padin discussed how employers that engage in sham practices depress wages and working conditions and shed responsibility for their workers while maintaining control over key decisions. She noted that studies have shown that app-based drivers and delivery workers are making just at, or under, the minimum wage for the localities where they live and that these jobs are dangerous and difficult. She noted that misclassification hurts businesses that play by the rules and federal and state government with billions of unpaid taxes and contributions to social insurance programs.

Kim Kavin, Freelance Writer and Editor

In her testimony, Kavin discussed her decision to work as a freelance writer after working for companies before. She noted that the passage of AB5 and the ABC test strictly redefine who can and cannot earn income as an independent contractor. Kavin said that freelancers in California immediately began losing their income and their careers after the passage of AB5. She asked that Congress stop the attack on American freelancers.

Question & Answer

AB5 and the PRO Act

Kiley said that AB5 has created 100 exemptions for independent contracts. Anderson agreed but noted that it’s debatable whether all the exemptions are being taken advantage of. Kiley then followed with asking if the new DOL proposed rule had any of the same exemptions. Anderson said that the DOL rule does not, and the PRO Act does not either.

Rep. Mark Takano (D-Cali.) asked if the Biden Administration’s proposed rule for misclassification adopts the ABC test, as Kiley and other Republicans suggested. Padin said that the ABC test was not adopted and that instead there is a six-factor test.

Rep. Eric Burlison (R-Mo.) asked about the impact of a recession on independent contracting jobs. Palagashvili noted that the DOL rule would lead to significantly less independent work opportunities.

Worker Rights

Rep. Bobby Scott (D-Va.) asked for confirmation that independent contractors are not guaranteed certain worker rights, such as minimum wage and overtime, unemployment insurance, or commission if they’re hurt. Padin confirmed that they are all not guaranteed to independent contractors, but they are guaranteed for employees.

Rep. Haley Stevens (R-Mich.) directly asked about the consequences for workers when their employees misclassify them. Padin noted that workers lose out on almost all employment rights and protections, including the right to collectively bargain and social insurance programs.

Adams asked Padin if being an employee means that an individual cannot enjoy flexibility. Long and Padin disagreed and noted that employees and classified workers can also enjoy flexibility.

Adams followed her question by asking what policies could be adopted to give employees more flexibility in their day-to-day lives. Padin noted that there needs to be federal legislation that ensures workers have the right to request scheduling changes entirely. She also noted that the Health Families Act would be greatly beneficial.

Reality of Misclassification

Stevens also asked what we can glean from data on the prevalence of misclassification. Padin stated that most of the data is coming from states that have misclassification task forces, but that the data that is being released is troubling. She also noted that the studies are underestimating the severity of misclassification.

Rep. Ilhan Omar (D-Minn.) raised the question of what industries are liable for independent contracting misclassification. Padin said that low-wage and labor-intensive industries have the highest misclassification rates. She also specifically noted that construction, home care, trucking, and janitorial work are specific fields that misclassify at a higher rate. Scott also asked how much money businesses that misclassify workers save by doing so. Padin estimated that 20-40% of payroll costs can be saved, which employers typically put into their own pocket.

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