As we start the new year, many workers face uncertainty from the outgoing Biden administration’s effort to force the end of flexible working opportunities.
Independent contractors experienced great challenges in 2024, even as the number of people seeking part-time or full-time flexible work increased. However, there have been some policy bright spots.
As we start 2025, here’s a status report on the threats to independent work and the opportunities ahead.
The Biden IC Rule
Currently, the Department of Labor’s 2024 Independent Contractor rule is in effect.
In January of 2024, the Biden administration finalized its rule establishing a more stringent standard to determine which workers can be classified as independent contractors or employees. The new rule, which imposes a six-plus factor test, introduces ambiguity and confusion for both independent contractors and the companies that hire them.
The 2024 Biden IC rule overturned the previous Trump-era rule (a simpler, clearer standard) that prioritized two factors among several others. The Trump IC rule was considered more friendly to independent contractors.
Louisiana Senator Bill Cassidy, the incoming chairman of the Health, Education, Labor, and Pensions (HELP) Committee, and California Representative Kevin Kiley introduced a joint Congressional Review Act resolution to overturn the Biden IC rule. The House bill passed out of committee but was not voted on by the full House of Representatives. The Senate bill was never brought up for consideration by the Democratic leadership of the HELP committee. The expiration of the CRA was an unfortunate missed opportunity.
The Biden rule was finalized in March 2024. If the rule is enforced on large or small companies, many independent contractors will find that they do not meet the new standard and could be reclassified as employees against their will (losing their independence and flexibility) or lose their flexible opportunities (losing incomes and livelihoods). Companies face penalties for misclassifying workers under this new standard and will incur increased labor costs if forced to hire their independent workers.
As we explained just before election night, the impact of the 2024 election would be consequential for independent contracting:
As Americans decide who will lead the nation over the next four years, they must consider how the crackdown on independent contractors—in a bid to boost unions—could erode their economic freedom.
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Over 70 million Americans today engage in independent work. These individuals are self-employed entrepreneurs, small business owners, and gig workers. They may work full-time, part-time, or hold side hustles. Independent workers are not employees but independent contractors, and they like it that way.
IWF has written many op-eds (such as here, here, here, and here) about the devastating impact this rule could have on women in the workforce. Women seek flexibility to balance other priorities such as raising children, caring for aging parents, and managing health conditions.
The incoming Trump 2.0 administration must prioritize overturning the Biden IC rule.
Courts
Several lawsuits were filed in 2024 against the Biden administration over the IC rule. One of the cases filed by the founders of the group Fight For Freelancers faced a setback last fall when a federal judge halted the case.
Four additional federal lawsuits against the DOL’s rule are pending, including cases in Texas, New Mexico, Louisiana, and Tennessee. In several of these cases, the plaintiffs are companies suing from the position of hiring entities, which legal experts believe might better position them to overcome the standing hurdle.
We await the courts’ decisions in those cases which could also overturn the Biden IC rule.
The PRO Act
The Protecting the Right to Organize (PRO) Act was a massive union-boosting federal bill that would have imposed a sweeping reclassification of millions of independent contractors as employees.
The PRO Act proposed using an ABC test, the same standard by California’s Assembly Bill 5 (AB5). This test is more restrictive than the Biden IC rule and would have nationalized the immense hardship of California’s AB5—lost incomes, contracts, and livelihoods. After California implemented its ABC test, self-employment fell by 10.5% and overall employment by 4.4% in affected industries, according to an analysis by the Mercatus Center.
The PRO Act never passed Congress and is effectively dead. Nonetheless, we must be vigilant that elements of the PRO Act don’t re-emerge in the future.
Portable Benefits
A positive development in 2024 was the expansion of portable benefits by two states. As we explained in a policy focus last year, “Unlike traditional employer-provided benefits, portable benefits are attached to a worker instead of a specific employer. This offers workers the ability to maintain coverage no matter how they choose to work or who pays them.” Portable benefits may range from healthcare benefits to retirement benefits and beyond.
Independent contractors forgo workplace benefits that employees receive. Portable benefits are a way to give them access to benefits untethered from employment with one employer.
Utah and Pennsylvania expanded access to portable benefits for gig workers and independent contractors by reducing the regulatory barriers for companies to offer portable benefits to their independent workforce without triggering a reclassification of those workers as employees. We expect other states to follow suit as they look for ways to meet the needs of their independent workforces.
Bottom Line
Americans should be able to work as they choose. Independent contracting offers flexible work to those who want fulfillment and work-life balance. The federal government should not destroy flexible work or force Americans into outdated models of work that do not suit their unique circumstances. Positively, states are realizing that instead of cracking down on freelancers, they should protect their independence and find ways to meet their needs.