App-based drivers from Uber and Lyft protest in a caravan in front of City Hall in Los Angeles on … [+]
AFP via Getty Images
Have you ever watched Law & Order or any other popular police procedural or legal television show? When people are about to testify in court, they swear to tell the truth, the whole truth, and nothing but the truth.
That is a three-part approach to honest discussion. You say only what is factual, mention everything factual so you don’t lie by omission, and avoid extraneous material that would distract from the truth.
The PRO Act and its plan to introduce the ABC test of independent contractor status into the basic union legislation National Labor Relations Act (NLRA) has been an example of misdirection. Union proponents of the new bill, as well as politicians beholding to the powerful groups, insist that it’s only about expanding the people who can be in unions.
Not if you look at the evidence. The PRO Act is only a first step in a plan to expand the ABC test—which is a 1930s era approach to identifying employees—to all areas of labor, employment, and tax law.
The result would be to outlaw millions of independent contractors (probably about 10 million at current IRS estimates of actual ongoing business owners), presumably clearing out people who might compete with union members. The evidence comes from Joe Biden’s own campaign promises and a bill introduced last fall by Patty Murray (D-WA) and Sherrod Brown (D-OH) in the Senate and Rosa DeLauro (D-CT) in the House. That bill would have pushed the ABC test into every major area of employment law, something unions pretend they haven’t been working toward.
Although unions need help, the ABC test is incompatible with independent contractor status. Experts in employment and tax law—including those representing management and corporations and those whose clients are employees and unions—have said there is no telling how the PRO Act with the ABC test would potentially impact independent contractors. Even the introduction of the ABC test, with its demand that a contractor not work in the “usual course of business” of a client, into federal law for the first time would be a problem. But unions and Democrats plan far more.
This legal animosity toward independent contractors is clear in several ways. First, look at President Biden’s promises to expand the ABC test into all relevant areas of law.
Joe Biden’s presidential campaign ran, in part, on promises to put rigid definitions that restricted … [+]
National Democratic Committee
Next, consider a succinct point I saw someone make. If the intent were only to allow independent contractors to form or join unions, why not just explicitly mention employees and independent contractors in the legislation? As it would modify the NLRA, that would expand the legal basis to do what they claim they want. Instead, unions insist on the ABC language, just as they did in California in the AB5 law that turned out to be a nightmare, with officials having to eventually carve out all sorts of exemptions to keep huge numbers of businesses from disappearing.
The biggest evidence to date, though, is the Worker Flexibility and Small Business Protection Act introduced last fall. It amended the following laws: “Fair Labor Standards Act (FLSA)
FLSA
, National Labor Relations Act (NLRA), Occupational Safety and Health Act (OSH Act), Migrant and Seasonal Agricultural Workers Protection Act (MSPA), Mine Act, Davis-Bacon Act (DBA)
DBA
, Service Contract Act (SCA), Walsh-Healey Act, Family and Medical Leave Act (FMLA), and Federal Unemployment Tax Act.”
This is from the bill’s summary:
The bill provides nearly all workers with most of the traditional labor rights they are entitled to as employees while also ensuring them flexibility at work; helps to protect small businesses by making big businesses responsible for respecting their workers’ rights; enables consumers to avoid funding workers’ rights violations by establishing public transparency on worker treatment; and provides for worker protections to be strengthened year after year instead of eroding in order to ensure a safe and secure future for workers.
Notice the “workers” terminology. The bill’s section 102 incorporates what it calls the “ABC-Plus test” and presumes anyone doing work for pay is an employee, a status “which can only be overcome by clear and convincing evidence.” As the United States Courts for the Ninth Circuit notes in its model civil jury instructions: “When a party has the burden of proving any claim or defense by clear and convincing evidence, it means that the party must present evidence that leaves you with a firm belief or conviction that it is highly probable that the factual contentions of the claim or defense are true. This is a higher standard of proof than proof by a preponderance of the evidence, but it does not require proof beyond a reasonable doubt.”
The legislation would force most independent contractors into employee status, undercutting and likely destroying their businesses. The penalties for businesses that “wrongly classify an employee as an independent contractor” are civil penalties of $10,000 for a first violation, $30,000 for “repeat or willful” violations, and 1% of net profits “if widespread.” What company could afford to take the chance?
It also would prohibit employers “from having employees form a corporation, partnership, LLC, or other entity in order to facilitate, or evade detection of a workers’ rights violation.” Forcing independent status on actual workers would be a terrible thing to do. But given the penalties and tenor of the wording, what company would do business with someone who had on their own set up a corporate entity? It’s too risky.
Beyond the existential-level problems for the independent contractors, some of the requirements of the legislation are utterly incompatible with running a business. Section 101 says that employees have a right to flexibility:
Any employee who is currently classified as an independent contractor by an employer has the right to maintain the schedule and scheduling flexibility with that employer that the employee has before the enactment of this act. The employee shall continue to possess such schedule and scheduling flexibility for the duration of the employee’s employment. The employer may not discharge such employee except upon a showing of just cause and may not discharge or otherwise discriminate against such employee because of or with relation to the employee’s schedule or scheduling flexibility.
One of the classic tests of independent contractor status is the ability to set one’s own schedule. But put aside the millions who are clearly running independent businesses. Instead, look at two targets of such legislation: Uber
UBER
and Lyft
LYFT
.
Drivers for the ridesharing companies are in an odd position between true contractor and employee. The companies control pricing and relationships with customers. The drivers, though, can work when, where, and for however long they wish.
The companies treat the drivers as independent contractors. Now all those drivers become employees because “clear and convincing evidence” that they aren’t in the same business as the companies is going to be tough to find. But they’re supposed to keep schedule flexibility. This isn’t possible.
To understand that point, pretend that you own a store? You have 16 employees who need to work different shifts and you pay them $15 an hour. Can you afford to have them all show up, Monday through Friday, from 8 a.m. to 5 p.m.? No, because you need some to be there later or on weekends. And if you only need two workers on a shift, you’ve raised your labor costs eight-fold during weekdays and have none at other times, meaning you must hire more.
It’s unsupportable in any business. Lyft and Uber made it clear during lawsuits by drivers in California claiming employee status a few years back that, should drivers no longer be contractors, there would be huge changes. Many drivers would be dismissed. Those remaining would work set shifts. That wasn’t a threat, but rather a statement of reality. The companies still lose insane amounts of money a year (the wisdom of the basic business model has been and still is questionable). But these additions would be impossible to bear. And yet, the legislation would make it be mandatory.
Flexibility gets extended as well. Under the bill, all employees could request whatever schedule they wished. Employers would either grant the request in full or respond with “a written justification for any portion of the request that the employer is denying based on compelling business necessity.” Then the employee could appeal to the Department of Labor, which could force the business to provide the schedule if it found a “a written justification for any portion of the request that the employer is denying based on compelling business necessity.”
In certain industries like “transportation entities” or businesses that use a “digital network to connect individuals or entities seeking services or labor with people seeking to provide services or labor, but not neutral online marketplaces or union hiring halls,” all workers are employees, period. “Such workers must be compensated for time, immediately before performing labor, that is spent waiting for, receiving, reviewing, considering, accepting, and transporting themselves to perform it; minimum of 3 minutes, maximum of 30 minutes.”
An employer can be forced to stop its business for 30 days if found to have refused “to comply with a reclassification order for 2 or more workers.” It’s a club intended to ensure that no company argues.
Companies won’t try to keep independent contractors, even if such people have actual sustainable and separate businesses that have been in existence for years. Which is the clear point.
And given that, at least under the Fair Labor Standards Act (basic employment law), employees could sue employers and keep 25% of civil penalties, you can bet many would do so to see if they could pick up a nice check, with lots of plaintiff lawyers lining up to file cases that likely would settle.
Even temp work would be on the ropes: “An employer may not pay wages to covered employees provided by a staffing company less than the employer pays to direct employees for similar work (or 80% if the lower pay is due to a seniority system, merit system, production quality/quantity, or any factor other than employment status).” With union seniority status likely one of the potential factors. Paying temp workers through an agency the same amount as direct employees means the temp workers would be expensive, so in little use.
Temp agencies would also have to be registered with the Department of Labor to be able to operate and employers could only contract with registered staffing companies, adding even more regulatory administrative costs.
All “large” employers of more than 100 employees (the Small Business Administration has a 500-employee rule of thumb for a “small” business) become responsible for ensuring that their supply chains do not include “employers that regularly violate workers’ rights (across all labor laws, including foreign countries’ national labor laws).” That would be virtually impossible to do, even if the intent is good. Supply chains can go multiple layers deep with a business only knowing the vendors it directly does business with. Even corporate giants like Apple have a hard time controlling their supply chains.
This legislation is broad, demanding, unrealistic, and focused on actions that the drafters either know or should know would utterly undermine many millions of independent contractors. This is legislative insanity that could negatively affect vast portions of the economy.
There are probably people supporting the PRO Act who would say, “But this is from last year, so it doesn’t count.” Then again, so was the PRO Act, which was reintroduced. Does anything think this legislation won’t reappear?
Let’s stop pretending that the PRO Act is only about allowing independent contractors to join unions. It’s a backhanded and underhanded first step in eliminating those small businesses, all the while pretending otherwise.
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