Biden’s Latest Disaster for Small Businesses, Independent Contractors

Under the guise of helping “gig workers” at companies like Uber and DoorDash, the Biden administration just finalized a new Labor Department rule modeled after a California law that will likely be a death sentence for many small businesses and make it significantly more difficult for independent contractors to earn a living. The rule, which was finalized on January 9 and goes into effect on March 11, will force companies to classify more workers as employees rather than independent contractors. A 2022 study from McKinsey & Co. found that 36 percent of employed Americans identify as independent workers – a cohort of roughly 58 million people. According to some studies, full-time employees cost companies as much as 30 percent more than independent contractors due to labor laws requiring that employers pay for certain benefits like healthcare and retirement. But independent contractor arrangements allow many Americans to take second and third jobs with more flexibility and freedom not afforded to traditional employees. Along with drivers for services like Uber, Lyft, and DoorDash, there are also many lawyers, traveling nurses, and construction workers who operate as independent contractors. While it’s currently unclear exactly how many of these individuals the new Labor Department rule will cover, industries from healthcare to shipping companies are bracing for major disruptions. According to a Wall Street Journal report, “Under the new rule, if a worker can be counted as a contractor would depend on factors such as whether the job is primarily permanent or temporary, how much control an employer has over work performance or how integral a worker’s job is to the overall business.” In a prepared statement, U.S. Chamber of Commerce Vice President of Workplace Policy Marc Freedman said that the new rule “is clearly biased towards declaring most independent contractors as employees” and would “decrease flexibility and opportunity and result in lost earning opportunities for millions of Americans.” The Society for Human Resources Management also said that the Labor Department’s rule “would create uncertainty and confusion for employers” and “would undercut workers’ ability to work independently.” While Uber, Lyft, and DoorDash executives have explicitly stated that they don’t believe the new rule will force them to re-classify their drivers as employees, those same companies also fought hard against the rule after it was first introduced in October 2022. A court battle will likely determine whether or not app-based service drivers fall under the rule’s six new criteria for determining whether someone should be considered an employee or independent contractor. The new rule appears to be modeled after California AB 5, which Governor Gavin Newsom signed into law in 2019. In a lengthy post on X, Republican Congressman Kevin Kiley warned that AB 5 “rendered countless independent professionals unable to earn a living in our state.” “Writers, interpreters, court reporters, musicians, language pathologists, photographers, forensic nurses, and people in literally hundreds of other industries were told they were no longer allowed to practice their profession and serve their clients as they’d been doing their whole careers,” Kiley continued. “Turning AB 5 into national policy, as Biden is set to do, will multiply these losses.” As Kiley also noted, “Seventy-nine percent of independent contractors prefer their current worker status,” while “only 10 percent say they’d prefer a traditional job.” As has been the case with dramatic minimum wage hikes in blue states, Biden’s new rule will likely result in businesses raising prices for consumers while laying off staff. Many small businesses who rely on part-time work from independent contractors will be forced to close up shop entirely. This development marks the latest effort by the Biden administration to undo a series of decisions by former President Donald Trump to give workers more freedom to determine their own work arrangements. Another Biden Labor Department rule in 2021 reversed a Trump-era rule simplifying the process for businesses to hire independent contractors. Although Rep. Kiley has promised to introduce a bill reversing the new rule, it will likely be difficult for any such legislation to pass the Democrat-controlled Senate. The best chance for independent contractors and businesses to reverse the decision is for a change in leadership in the White House this November. Independent contractors make a willing choice to give up certain benefits associated with being a full employee in exchange for freedom and flexibility that many use to achieve greater financial security, help ailing family members, or put children through college. Now, Biden is denying them and the companies they work for that option. Shane Harris is a writer and political consultant from Southwest Ohio. You can follow him on Twitter @ShaneHarris513.