Yesterday, the Department of Labor released its final rule to determine who can be classified as independent contractors. This rule will be devastating to freelancers nationwide and will have negative economic consequences for entrepreneurs, small businesses, and people who value flexibility, particularly women.

IWF believes that this final rule undermines worker freedom in America by disrupting the work arrangements that provide many benefits to women and workers, including control over one’s time and labor, work-life balance, health and wellness, and fulfillment.

The Biden administration is prioritizing traditional employment over independent work and is willing to force many individuals into those jobs even if they choose not to or cannot work in them. The goal is to have as many individuals in jobs that can be unionized because independent contractors are not unionizable.

This new rule nationalizes the hardship that resulted when California reclassified millions of independent contractors.

What happened

After two years, DOL released its final rule governing the classification of workers as either employees of businesses or independent contractors. The new rule sets new standards that are more confusing, opaque, and open to interpretation by government agencies.

This rule replaces the 2021 rule established by the Trump administration, which generally made it easier for a person to be classified as an independent contractor. As my colleague Gabriella Hoffman explained:

The Trump-era rule clarifies a worker’s status under the Fair Labor Standards Act to not make workers default employees. Worker status, in turn, can be determined by an economic reality test using the following factors: “degree of control of work”; “the individual’s opportunity for profit or loss”; “the individual’s investment in facilities and equipment”; “the permanency of the relationship between the parties”; “the skill or expertise required by the individual; and “whether the work is part of an integrated unit of production.”

However, the Trump rule gave greater weight to some factors.

The new Biden rule relies on a broader economic test that includes six factors:

(1) opportunity for profit or loss depending on managerial skill;

(2) investments by the worker and the potential employer;

(3) degree of permanence of the work relationship;

(4) nature and degree of control;

(5) the extent to which the work performed is an integral part of the potential employer’s business; and

(6) skill and initiative.

Under the new rule, the agency says “the economic reality factors are all weighed to assess whether a worker is economically dependent on a potential employer for work, according to the totality of the circumstances.”

If this sounds confusing, it is and will likely invite more confusion rather than greater clarity over the work status of an individual.

This new rule becomes effective on March 11, 2024.

What does this mean?

Independent contractors nationwide have good reasons to fear that they may be reclassified as employees under this new rule—even if they do not want to be.

According to MBO Partners’ most recent report, a record 72 million Americans engage in some form of independent contracting—full-time, part-time, or occasionally. Upwork puts that number at 64 million people, or about 38% of the U.S. workforce. Over half of freelancers are women.

Women and freelancers overall overwhelmingly choose independent contracting for flexibility. They also enjoy numerous other benefits that increase their work-life balance, health, financial security, and the ability to balance other important priorities such as raising children, caring for aging parents or sick spouses, and managing their own mental and physical issues and disabilities. A significant proportion of freelancers say they cannot work in a traditional employee job because of their unique situations.

Companies are not likely to just hire their freelance workforce overnight. They may be unlikely or financially unable to incur the costs of hiring individuals who are only needed to work on time-limited projects, events, or specific tasks. That would increase labor costs by as much as 30% or more for businesses. The American Action Forum estimated that businesses would see labor costs rise by a steep $18–$61 billion weekly if a similar national reclassification effort occurred.

History tells us this is the case. When California passed Assembly Bill 5 (AB5) in 2019, freelancers lost incomes, businesses, and livelihoods. IWF visiting fellow Karen Anderson described the decimation of an entire occupation because of AB5:

When California’s anti-freelancer law AB5 went into effect on January 1, 2020, hundreds of thousands of independent professionals lost their careers overnight across a vast swath of professions. Many freelancers have yet to regain work, especially in the freelance transcription profession, which is all but extinct in California due to AB5.

IWF is deeply concerned about the loss of flexible opportunities for women, and we submitted a public comment in opposition to the proposed rule. Our arguments were cited multiple times in the final rule. IW will not sit by idly.

What happens next?

The final rule is set to take effect on March 11, 2024.

We can expect groups to speak out about this rule and educate the public about the ramifications.

Congress has remedial tools at its disposal. Already, two members have committed to repealing this rule using the Congressional Review Act.

Republican Representative Kevin Kiley of California knows all too well the harms of AB5 and tweeted:

In the Senate, Republican Senator Bill Cassidy of Louisiana noted in his statement:

Independent contractors, or freelancers, are shielded from forced or coerced unionization that would strip their flexibility away. This has made eliminating freelancing a top priority for large labor unions that want more workers paying forced union dues.

We can also expect legal challenges to the rule as individuals turn to the courts to seek to overturn the rule.

While some do not expect changes overnight, the DOL will likely step up enforcement, particularly against bigger companies that depend on their independent workforce. Other companies may proactively slash their independent contractor workforce.

We can be assured that this rule could upend the freelance world and rob hardworking Americans of their ability to make a living or earn income for themselves, regardless of their personal circumstances. This is an attack on freelancers, flexible work, working women, and worker freedom.