Like Dante’s Inferno, Biden’s new anti-independent contractor rule — totaling a mind-numbing 339 pages — casts tens of millions of independent professionals into a regulatory hellscape where the fate of countless livelihoods and careers is at stake.
Published by DOL on January 10, 2024, the Final Rule is inspired by California’s infamous Assembly Bill 5 (AB 5). The Final Rule’s six factors (plus an open-ended, mysterious seventh factor) will determine whether a worker is an employee or independent contractor under the Fair Labor Standards Act. When the rule goes into effect this March, California’s Petri dish of bad ideas will continue to metastasize nationwide.
In an ominous sign of things to come, and on the same day as the Final Rule’s publication, the California-based tutoring company Cambly terminated all its independent contractors in Massachusetts and New Jersey, adding to the casualty count of contractors it had already let go in California because of AB 5. The company cited “recent regulatory developments, effective March 11, 2024,” which not coincidentally, is the Final Rule’s start date.
Chock full of contradictory interpretative “guidance” that drones on for more pages than “Harry Potter,” the Final Rule provides an unfettered opportunity for a regulator or judge to do the bidding of Big Labor, a.k.a. the ghostwriter of the Final Rule. Fearing for their careers, a group of freelance writers recently filed a lawsuit against DOL and its new rule.
The timing of the new regulation coincides with the re-nomination of Acting Secretary of Labor Julie Su to head DOL. As California’s former labor secretary, Su endorsed and enforced the AB 5 disaster prior to her current tenure in the Biden administration.
During her unsuccessful Senate confirmation hearing on April 20, 2023, Su went to great lengths to distance herself from the hot potato of AB 5 and its draconian ABC test — and with good reason considering the hundreds of thousands of independent careers that have been destroyed in California since the enactment of AB 5 in 2020. Empirical data from a new study by the Mercatus Center reveals a significant decline in self-employment and overall employment in California due to AB 5 — not exactly a rousing endorsement for duplicating California’s failed policy nationwide.
Not surprisingly, Su and her Department cohorts insist the Final Rule does not mimic the ABC test of AB 5. But that’s like a cook claiming she didn’t add a cup of salt to the sauce, but then sprinkled the equivalent amount throughout the dish before serving it.
For example, DOL’s Factor #5 says the work being performed cannot be integral to the hiring entity’s business otherwise the independent contractor is an employee. This is virtually identical to the problematic B prong of AB 5’s ABC test, which says the independent contractor’s work must be outside the usual course of business of the hiring entity, otherwise W-2 for you!
Anticipating inevitable outcry from Californians who have seen this movie before, DOL concedes there is “conceptual overlap” between Factor #5 and the B prong, claiming there isn’t any guesswork involved as to what they really mean. But like the old saying goes: six of one, half a dozen of the other.
Here’s another of many brainteasers embedded in the DOL rule: “If a worker utilizes specialized skills, this could indicate independent contractor status.” Yet in the very next sentence: “Where a worker brings specialized skills to the work relationship, this itself does not indicate independent contractor status.” Say whaaat?
The Final Rule is rife with these kinds of “on-one-hand-this, on-the-other-hand-that” scenarios that give mid-level bureaucrats enough leeway to find in favor of employee status over independent contractor status when enforcing regulations from district-office cubicles of the Wage and Hour Division.
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Additionally, “economic dependency is the ultimate inquiry” in deciding employee status, according to DOL. It goes without saying that in today’s challenging economy, most self-employed individuals rely on every penny from their clients no matter how much they earn. How DOL defines “dependency” is anyone’s guess, given the regulation’s byzantine language that ultimately tips the scales against independent contracting.
Just like what has happened in California with AB 5, the chilling effect alone will cause many risk-averse businesses to err on the side of caution and abandon their independent contractor relationships altogether. Freelancers across a vast range of professions will find themselves frozen out of work akin to the lost souls trapped in Dante’s frozen lake and its legislative equivalent, California’s hellish AB 5.
Karen Anderson is the founder of Freelancers Against AB5