Small businesses are the engine of the U.S. Many people would be shocked to know that Washington is working against entrepreneurship and against small businesses. The Biden administration’s latest anti-small business effort is a crackdown on independent contracting. Here to discuss what’s going on is IWF Visiting Fellow Karen Anderson.

Public commenting on this issue ends December 13. Visit Independent Women’s Network to get involved.

Read more: Biden Administration Aims To Stifle Crucial Self-Employment


TRANSCRIPT

Patrice Onwuka:

Hi everybody, I’m Patrice Onwuka and welcome to this popup edition of She Thinks. Now you know me, I head up our Center for Economic Opportunity at Independent Women’s Forum, and one of the big issues we are covering are labor issues. We want to ensure that if you want to work, if you want to be a flexible worker, an independent contractor, or a full-time employee for a company, that you should be able to do so. And so it’s really important. Entrepreneurship is the engine of our nation. Small businesses are the engine of our country, and they’re so important. We actually dedicate a whole Saturday of Christmas and holiday shopping just to small businesses because they’re that key to our economy. And sadly, I don’t think our Washington regulators or Washington really recognizes the importance of small businesses, otherwise they wouldn’t be trying to regulate them and really squash the entrepreneurial spirit in the United States with some new regulations.

So here to talk with me more about what’s going on is Karen Anderson. Karen is an Independent Women’s fellow with us at IWF. She is also a third generation Southern Californian with 25 years of experience as a career freelance writer, a managing editor, and a photographer. She is also the founder of Freelancers Against AB5, and she’s going to get a little bit more into that. But we’re talking about what close to 20,000 people organized online by Karen in support of independent contracting, flexible independent work. So she’s an advocate for independent contracting, and I wanted to bring her on to talk with us today about what’s going on in Washington and what the implications are for the entrepreneurial spirit in America.

Karen, welcome to She Thinks.

Karen Anderson:

Thank you for having me, Patrice. It’s great to be here and to share what’s been going on in California for almost three years now. AB5 was passed into law in September of 2019, and I started my group about a month later. It’s called Freelancers Against AB5 because I realized that this law, when it was first passed, was going to involve a vast swath of professions. So I opened up this Facebook group to see who would come and share their story. And I got a front row seat to just hundreds and hundreds and hundreds and hundreds and hundreds and hundreds of stories pouring in of devastation even before the law went into effect in January of 2020.

Patrice Onwuka:

So I’m going to hold you there because I want you to talk about those and talk about AB5. But let’s just start with what’s going on today and immediately, because right now, within the next two weeks, we have something major going on here in Washington, DC, which is going to have implications for the whole country. Tell us about what the Department of Labor has proposed doing.

Karen Anderson:

Well, the US Department of Labor has not heeded the cautionary tale that’s come out of California, and they are proposing a new rule making to the Fair Labor Standards Act. It portends to stifle independent contracting. And what has been so devastating with AB5 in California is the B prong of the ABC test. Now, the Department of Labor has lamented the fact that they can’t just come out and apply that-

Patrice Onwuka:

Copy and paste.

Karen Anderson:

Right. But they’ve come in very, very close to that B prong in this Department of Labor rule, which has got everybody freaked out. You can go online and read tons of legal analysis about how this could just be a death knell for almost 59 million… There’s 59 million independent contractors across the country. And we’re trying to fight this at a national level now.

Patrice Onwuka:

Well, I think that’s really good. You literally have the Department of Labor implementing this new regulation, which it’s been ping pong back and forth between administrations because the Trump administration had implemented rules around independent contract, and that really provided a clearer definition of the difference between an employee and an independent contractor. And then the Biden administration tried to rescind those, they couldn’t. They’re trying again. And now they’ve proposed these new rules as you’re saying.

I think my shorthand is saying it’s cracking down on independent contractors and making it difficult for people to keep that independent status. Yeah. I would love for you just to share who are independent contractors. You mentioned 59 million people, but what are some of the different occupations that are independent contractors?

Karen Anderson:

The occupations in California that have been affected by AB5 is everything. I can read a long list of people, everyone for musicians and journalists to auctioneers, rehab specialists, nurse anesthetists, speech pathologists, pharmacists, genealogists, massage therapists, notaries, real estate appraisers, paralegals, nurse practitioners, radio engineers, sheep shearers, sign language interpreters. The list goes on and on and on and on. We’ve identified 600 categories of professions just within my group alone, that have been affected in some way, shape or form by AB5 and the ABC test and that B prong.

Patrice Onwuka:

Well, and we’ve covered AB5 so extensively at IWF. California law, as you mentioned, was passed in 2019, implemented in 2020, just before the start of the pandemic, which made it really difficult for independent contractors from that broad, hundreds of occupations to continue to be independent. They’re not W2 employees, so they don’t get a check. They are pretty much small businesses, right Karen? Individuals, small businesses who are getting their own clients, one or many. They do their work when they want, how they want, in the manner that they want. They’re not employees. They’re truly independent. And women, you’ve really written recently at IWF about the impacts on women and on retirees or older Americans. Can you talk about that?

Karen Anderson:

Well, for example, the freelance transcription profession in California is pretty much extinct. AB5 put it completely out of business. And most of the people that participate in that profession are women and seniors. I have dozens of just horrible heart wrenching stories of women who were in their 60s and 70s and supplementing their social security, who lost their career. A career that they were proud of, and that they were trained for and went to… It’s a range though. It can be career professionals, licensed professionals. It can be people who just work a one off, who will work at a community theater production, for example. And that’s one sector in California that’s really been impacted by AB5 is community theater and regional theater. It’s shutting theaters down all across the state because these productions cannot afford to put every single person on payroll. It will increase the production cost by something like 30%.

Patrice Onwuka:

Wow. And let me underscore that point that you just made. The assumption that the lawmakers in California had is that, “Oh, we’ll pass AB5. You’ll have to reclassify all of these independent contractors as employees and hire them.” But employers, they can’t absorb the cost of 30% increase in providing, not just pay, but also the benefits that come with a W2 employee. And so they ended up eliminating their independent contract workforce entirely. And that left regular folks out in the cold right before the pandemic hit, and then everything shut down. It has been incredible to watch the devastation, even as things have reopened over the past year. But people in industries, like you said Karen, are just decimated. The work has gone out of state and independent contractors are left with nothing, pretty much as a result.

Karen Anderson:

In my group, I have a collection of almost 400 termination letters that people uploaded into my group in the beginning from various platforms or clients or whatever. Said, “We can’t continue to work with you. We can’t afford to hire you on as an employee.” And even if like a Pilates studio or something did decide to have to convert their independent teachers, for example, to employees, they had to reduce their staff, reduce the pay. The teachers didn’t want to become employees to begin with. And it was just a giant mess.

Like I said, a lot of companies just will not convert. The law does not require you to convert. It doesn’t force you to hire that person, and it doesn’t force you to hire them as a full-time employee either. But it would if you want to continue working with that independent contractor even for a day, you’d have to put them on payroll, which is ridiculous and impossible for a lot of different sectors, like independent filmmaking, event planning, wedding planners, massage therapy and wellness community, healthcare industry. And like I said, community theater has been devastated by AB5.

Patrice Onwuka:

That’s another good point you brought out, Karen, which is that, you have small businesses that depend on independent contractors. We actually told the story of a florist who is also an event planner, and she said she hires moms for her event. It’s an event planning business. So it’s not like a regular job with steady work. It’s based on the event. And so she needs people based on an event and she can’t support having them full time every week or every day.

And so when you eliminate independent contracting, when you restrict it, which is now, let’s bring it to the federal level with this Department of Labor regulation. This would have national implications, and this is going to hit women, stay at home moms who love flexible work, who need flexibility. You talked about seniors, people who would be out of the workforce if not for independent contracting, maybe because they’re caring for an aging spouse, or maybe they have medical conditions that keep them out of the workforce. So this is going to have national implications.

Karen, can I flag that you have a great blog series that’s going to be going live by the time this podcast goes up, where you do a myths versus fact about AB5 and what’s happened two years later. Can you just tell us, give us a little preview. What’s one thing that people don’t know about AB5 or have a misperception about AB5?

Karen Anderson:

Well, AB5 has not been repealed. It’s alive and well and wreaking havoc on people continually as we speak. It’s not a thing of the past. The exemptions that were brought forth nine months later, did not solve the problem for a lot of freelancers. There’s this mythology out there that most professions are exempt now. Well, it’s not true because the exemptions are partial. They’re smoke and mirrors. They come with 11 or 12 different requirements that you have to jump through. So for example, a tutoring company cannot meet the requirements of the referral agency category of exemption. So tutoring, online tutoring is another sector that’s been impacted by AB5. They play around with words and they make things ambiguous in the law. A lot of employment law attorneys are just advising their clients, don’t even touch an independent contractor with a 10 foot pole because the fines and penalties are so, so onerous and massive.

That’s another dirty little secret about AB5. It’s the audits. And the audits are not just taking place by the Employment Development Department on larger corporations. They’re taking place on mom and pops and one person businesses who happen to get caught up in, like an independent contractor that they hired as a videographer maybe for a couple of months or whatever, applied erroneously for unemployment insurance during the pandemic and it triggered an automatic audit. And all of a sudden, the hiring entity is facing tens of thousands of dollars in fines and penalties and back taxes and all the rest. So it’s really, really putting a damper on anybody even wanting to hire independent contractors, even if there’s a pathway for an exemption.

Patrice Onwuka:

Wow. Well, this is just the experience in California. Karen, thank you for sharing it. As we wrap up today, I just wanted to, number one, plug that you have a great blog series that demystifies some of the myths about AB5. You laid out a couple of them just now, but there’s more coming. And so definitely check out our website, everybody, at IWF to see that.

And then if you want to do something about it, Independent Women’s Network, I’m wearing my trusty pin today. We have an opportunity for you to be able to do something. This is not a done deal yet. And so it’s important that Washington hears our voices. So if you go to IW Network, Independent Women’s Network, we have some ways for you to be involved and engaged in this battle. But most importantly, tell other people, this is coming, this is happening, and we need to protect entrepreneurship in this country. We need to protect all of these flexible work opportunities that people, women, retirees, seniors, students, people of all races and backgrounds and economic statuses, they depend on this. And so our government should not be for limiting opportunity. It should be for expanding it. Karen, thank you for joining me on She Thinks today.

Karen Anderson:

Thank you. And I just want to add that the public comment period for this proposed rule ends on the 13th of December. So we have 13 more days to submit our comments. So I encourage all of your listeners to investigate that and make sure that the USDOL understands that people are not wanting this kind of draconian, onerous restriction on our freedoms.

Patrice Onwuka:

Very good. Thank you so much. That’s December 13th. We’ll make sure we have some links to all of these things at the bottom of this podcast. But thank you for joining us on She Thinks, and on this popup edition, I’m Patrice Onwuka, the Director for the Center of Economic Opportunity. Thanks for tuning in.