Legislators Seek to Stop California’s Controversial Contractor Law From Spreading Nationwide

A worker tosses a hammer to a colleague as construction continues on the HWY 73 southern interchange from the 405 freeway in Costa Mesa, Calif., on April 21, 2022. John Fredricks/The Epoch Times

State and federal lawmakers are introducing legislation to stop rules limiting independent contractor work, after the U.S. Department of Labor issued a rule change Jan. 10 to recategorize many such workers as employees, using similar provisions as a controversial California law.

At issue is Assembly Bill 5, passed in California in 2019, which reclassified many contract or freelance workers to employees, allowing them to receive benefits.

The law outlines three legal criteria to define independent contractors, and any workers that fail the so-called “ABC test” must be classified as an employee instead.

“AB 5 has been bad for workers, bad for our local economies, and bad for California as a whole,” Assemblywoman Kate Sanchez said at a Jan. 23 news conference while announcing her new legislation designed to repeal the law. “It is time to end the madness and help restore the American dream in California by repealing AB 5.”

Her Republican colleague, Minority Leader Assemblyman James Gallagher agreed and said the law has cost families across the state while diminishing employment opportunities.

“This terrible policy has robbed people of their livelihoods and the jobs they loved,” Mr. Gallagher said during the news conference. “These are jobs that people wanted to do; they wanted to work as independent contractors.”

Highlighting the approximately 76 million Americans that work as contractors annually—some as full-time employment and others to supplement their income—he said preventing such entrepreneurialism is counter to the spirit that founded the country.

“It’s wrong,” Mr. Gallagher said. “It’s a violation of the very principles of our Republic.”

Some exemptions were made for 57 occupations, including doctors and lawyers, with another 52 job types exempted with a law passed in September 2020. Additionally, voters passed Proposition 22 in November 2020 which also exempted ride-share operators and delivery drivers.

To qualify as an independent contractor, workers in non-exempt industries—including construction—must be free from directional control from the company that hired them, must normally be engaged in a similar business independently, and must be performing work outside the normal scope of the company hiring them.

AB 5 Increases Labor Costs, Reduces Job Opportunities

Some say the criteria are not clear.

“[AB5] creates an ambiguous and difficult-to-understand standard for determining independent contractor status,” Matt Estipona, director of government and community affairs for the Association of Builders and Contractors, said during the news conference, resulting in “more confusion and expensive, time-consuming, litigation as both employers and workers will not understand who qualifies as an independent contractor.”

It also means less work for some, Mr. Estipona said.

“It will cause workers that have been classified as independent contractors in the construction industry to lose work opportunities,” he said.

According to a recent study from Mercatus—a university-based research center located at George Mason University in Virginia—researchers found that self-employment jobs declined by nearly 11 percent and employment overall fell by 4.4 percent in California as a result of the law.

The law has also increased the cost of labor, as employers are subject to higher wage expenses and additional payroll taxes, the report found.

“While these regulations provide important benefits to workers, they also increase the cost of labor, which may reduce employment, hours worked, or wages,” the study concluded.

Though the goal of the law was to have workers’ titles change from contractor to employee, the result was fewer job opportunities overall, the study found.

“Our findings suggest that AB 5 likely did not merely induce employers to reclassify some independent contractors as employees and that it resulted in a significant decline in self-employment and overall employment,” the researchers wrote.

Regarding the federal government’s new rule on the matter, researchers determined such could come with costs to the national labor market.

“Our analysis herein would suggest that the [labor department] may have challenges in meeting these intended results,” the authors wrote. “Instead, we may expect the rule to be associated with a decrease in self-employment nationwide.”

Republican Kevin Kiley speaks at a debate of California gubernatorial recall election candidates in San Francisco, Calif., on Aug. 25, 2021. Scott Strazzante-Pool/Getty Images

Noting that the rule change was made after prior Congressional attempts to introduce similar legislation failed, U.S. Rep. Kevin Kiley (R-Calif.) suggested the move was an abuse of power.

“They simply moved on to getting this done by executive decree,” Mr. Kiley said during the news conference. “[This] is clearly, very clearly designed to imitate AB 5 as closely as possible and will have the same disastrous effects.”

Also of interest, he said, is the person in charge of implementing the law, Julie Su—acting secretary of labor and the prior labor secretary in California.

After President Joe Biden nominated Ms. Su for the role of labor secretary last year, the Senate refused to confirm her, with some lawmakers saying, at the time, she was inexperienced and others expressing concern with her ties to AB 5. Earlier this month the president re-nominated her for the role.

“Of all the people President Biden could have chosen to be his Secretary of Labor ... who does he choose but the very architect of AB 5 itself to enforce his new independent contractor rule,” Mr. Kiley said.

Two lawsuits are challenging the new federal rule, the congressman said during the news conference, in addition to new legislation he is introducing to initiate a full Congressional review of it.