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California’s AB5 Goes National With the Independent Contractor Rule: Why You Need to Pay Attention

While you were distracted by all things Iowa, Hunter Biden, and Trump throwing Vivek Ramaswamy under the bus, the Biden administration is eroding small businesses and snatching away the livelihoods of independent contractors through bureaucratic fiat. The Acting Secretary of Labor, Julie Su, quietly dropped a revised Independent Contractor Rule on January 9, and it’s as bad as expected. California Rep. Kevin Kiley (R), who has been at the forefront of this war against independent professionals since his time as an Assemblyman, rendered the bad news ahead of the Department of Labor announcement.

It’s official. Gavin Newsom’s war on workers has just been taken national by Biden and Julie Su. They’ve announced an “Independent Contractor” rule based on California’s notorious AB 5 law. It will put millions of Americans out of work. 

That’s a conservative estimate. Since 2022, there are 57.3 million Americans who consider themselves freelancers, independent contractors, self-employed, or entrepreneurs. The legacy media’s tendency to lump all of these categories under the “gig” economy simply frames it in people’s minds as technology or rideshare; but these are your dental hygienist, your child’s soccer coach, fabricators, farriers, and home health care providers, to name just a few. Over 600 professions have been identified that would be upended or outright eliminated when this DOL IC Rule takes effect.

Kiley went on to talk about the wreckage AB5 left behind. Wreckage that, four years later, still has not been fully quantified. Americans can expect the same damage nationwide if this rule is allowed to be implemented.

Here are some of the reviews AB 5 received in California: 
-Newsom’s own former deputy chief of staff Yoshar Ali called it “one of the most destructive pieces of legislation in the past 20 years,” adding, “It’s truly horrific how many people are negatively impacted by it.” 
-Former State Assembly Speaker and San Francisco Mayor Willie Brown said the law made him want to “picket” against the “bastards” at the Capitol and the special interests that “took advantage” of them. 
-Andrew Cuomo rejected a similar law in New York, saying he didn’t want to “make the same mistake” as California. 
-The Daily Kos warned other states, “Don’t make the mistake California’s Gavin Newsom did,” with the site’s founder calling the law “disastrous” and “asinine” and its supporters “shameful.” 
-The head of the California NAACP assailed AB 5 as a “terrible law” and a “gut punch to our community.” 
-The CEO of the Black Chamber of Commerce called it a “catastrophe” responsible for “enabling, defending, and propagating systemic racism.” 
-Two hundred Ph.D. economists reported the law is “doing substantial, and avoidable, harm to the very people who now have the fewest resources and the worst alternatives available to them.” 
Yet Biden campaigned on a promise of imposing a new federal standard “modeled” on California’s AB 5. He has now done just that, and has even elevated the architect of AB 5, Julie Su, to carry out this attack on the right to earn a living as ruthlessly as possible.

The Independent Contractor Rule was recorded in the federal register on January 10, 2024, and is scheduled to take effect on March 10, 2024. It is 339 pages of essentially the Department of Labor justifying why independent contractors should not be allowed to exist. The rule acts from the premise that independent contractors have no right to determine whether they are independent or an employee. It is the DOL’s job to do that for you.

The Biden administration has used court precedent to expand on these, creating six overarching factors in a “totality of the circumstances” which will be analyzed to determine, as a matter of economic reality, whether professionals are dependent on the potential employer for work or in business for themselves. 

The term “economic reality” appears 345 times within the Rule as one of the means to deny an independent contractor their right to earn money as they choose. It’s positively chilling, and if Americans refused to pay attention when California independent professionals raised the alarm on AB5, then they very well need to pay attention now. The independent contractor community, particularly the California professionals who were adversely affected by AB5, once again sounded the alarm and expressed their determination to see this rule divested.

In an attempt to quell the flow of outraged comments, Acting Secretary Julie Su issued this anemic post. But Su’s attempts at gaslighting fell flat.

Georgia Rep. Rick Allen strongly objected to the Independent Contractor Rule and issued this statement:

“In yet another crushing blow to the American workforce, the final rule issued today by President Biden’s DOL would eliminate the flexibilities that being an independent contractor provides to millions of workers. Because Congressional Democrats have continuously failed to pass their radical PRO Act, which would significantly narrow the definition of an independent contractor, President Biden is now doing their bidding—weaponizing the DOL to circumvent the legislative process altogether.

“As I’ve visited with small business owners across Georgia’s 12th District, the number one issue I hear about is the need for workforce. To eliminate an employment model that has allowed millions of Americans to have the flexibility they need and helped countless individuals achieve the American Dream is inconceivable.

“My Employee Rights Act, which I introduced last year, would create a clear definition across federal laws to protect independent workers and provide essential protections for workers’ rights, choices, and freedoms in the 21st-century economy. The modern workforce is entrepreneurial, and our government should help facilitate that spirit, not crush it under the weight of bureaucracy. Today serves as another stark reminder that Congress must pass this legislation in short order.”

This is part of the Department of Labor’s multi-pronged attack on independent professionals and small businesses. The National Labor Relations Board finalized its Joint Employer Status Rule in late October, essentially limiting the earning potential and autonomy of franchisors and franchisees. There has been mounting outrage and lobbying to Congress from the Chambers of Commerce and small business and franchisor associations because the rule is scheduled to take effect even sooner, on February 26. On Friday, Congress stepped in to block it. The Congressional Review Act allows Congress to overturn regulatory overreach, so a resolution was submitted to have the Joint Employer Status Rule rescinded.

The American Hotel & Lodging Association (AHLA) applauded the move.

“Today’s House vote is a victory for common sense. Neither companies nor their employees want this job-killing regulation, which will destroy the franchise model that supports millions of small business jobs,” said AHLA President & CEO Chip Rogers. “The bipartisan nature of this vote underscores how destructive this misguided Biden Administration rule would be to our fragile economy, and we thank Dr. Foxx, Rep. James, and Speaker Johnson for making this a priority. We urge the Senate to stand up for America’s workers and pass this resolution as soon as soon as possible.”

The advocacy organization Independent Women’s Voice also expressed their approval.  

Independent Women’s Voice wrote a letter in support of H.J. Res. 98 highlighting the harms of the NLRB’s final joint employer rule to small businesses and franchises, particularly those owned by women.
Patrice Onwuka, director of the Center for Economic Opportunity at Independent Women’s Voice, issued the following statement: 
“Passing this CRA is great news for America’s franchises and small businesses. With regulation after regulation, the Biden administration has been hammering the economic and labor engine of our nation with costly, time-consuming, and growth-limiting regulations. Some 30.6% of franchisee businesses are owned by women. IWV has been very concerned that the NLRB’s joint employer rule would undo the great success women entrepreneurs have enjoyed over the last two decades by effectively shrinking the market and increasing the liability and compliance costs for the firms they run. We commend members of the House for righting an egregious wrong, and we encourage the Senate to follow suit.”

Who benefits from these Department of Labor and NRLB Rule changes? The Labor Unions, which poured millions into the 2020 Biden campaign for the presidency and expect a return on their investment. Congress’ move brought the ire of the AFL-CIO, the largest labor organization in the nation. 

Rep. Kevin Kiley also plans to use the Congressional Review Act and his role as chair of the Employment and Workforce Protections Committee to put an end to the Independent Contractor Rule.

We are using every possible tool to stop the Biden-Su “Independent Contractor” rule from destroying the livelihoods of millions of Americans: 
First, I’m introducing legislation under the Congressional Review Act to nullify it. This is a fast-track procedure for overriding an executive agency. 
Second, I’ve secured language in the Labor Appropriations bill providing that no funds may be spent to enforce the rule, rendering it a dead letter. 
Third, I’ve joined with Rep. Elise Stefanik to author the Modern Worker Empowerment Act, which creates a clear legal standard to protect independent workers. 
Fourth, I’ve introduced the Department of Labor Succession Act, which has already passed through committee, to stop Julie Su – the architect of AB 5 – from clinging to power despite the Senate rejecting her nomination. 
Fifth, I expect there will be court challenges to the new rule, based both on the dubious legality of Su remaining in office and the overly broad nature of the rule itself. 
Finally, as Chair of the House Subcommittee on Workforce Protections, I will continue to conduct rigorous oversight of the Department of Labor and do everything possible to protect workers against this Administration’s overreaching policies.

SCOTUS will also hear the case of Relentless, Inc. v. Department of Commerce, which, as my colleague Ward Clark wrote:

[H]as the potential to dramatically change the way the federal government issues regulations. […]
Regulation can only arise from law. Congress is the source of any new law. Any regulation issued by any government agency has to be authorized by a specific statute, voted on, and passed by Congress. It is perhaps belaboring the obvious to point out that federal agencies have pushed the boundaries of their regulatory authority in recent years, and we can hope that the Supreme Court is about to slam the doors on at least the most egregious of these oversteps.

Let us hope and pray that the ruling on the Relentless case and Congress’ actions to nullify the Department of Labor’s overreach will effectively neuter both the Independent Contractor Rule and the NRLB Standard for Determining Joint Employer Status Rule before they render permanent damage to our nation’s independent professionals and the nation’s economy. In case it has escaped notice, we are also in an election year. Americans in every state can petition their senators, representatives, and state legislators to speak out against the Department of Labor and National Labor Relations Board bureaucratic and economic nightmares. 

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