With PRO Act, Congress Readies National Version of California’s AB5 Fiasco – Competitive Enterprise Institute

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California’s AB5 law, which was meant to prevent worker misclassification, faced a popular backlash when it disrupted the livelihoods of freelancers and gig economy workers across the state. Yet Congressional Democrats now seek to pass a national version of the legislation, the Protecting the Right to Organize Act. The House has already passed it and the Senate Health, Education, and Labor Committee held a hearing on it Thursday.

The PRO Act would, among other things, effectively ban many freelance jobs and most jobs in the so-called gig economy, such as ridesharing. The legislation would do this by redefining the term “contractor” under the National Labor Relations Act, the main federal law covering collective bargaining, to use the same standards used in AB5.

Never mind that California Lawmakers were forced to carve out numerous exceptions to AB5 when they belatedly discovered it extended to numerous traditional freelancing professions like photographers, journalists, and musicians. Then Golden State voters approved Proposition 22, which stripped out the law’s main provision, covering rideshare drivers, thus leaving AB5 a shell of itself. You’d think such a fiasco would serve as a warning.

At the very least, you’d think PRO Act’s backers would try to prevent repeating the mistakes of the California law. But no. “AB5 ended up being amended to allow exemptions for certain categories of workers. The PRO Act contains no workers’ exemptions,” noted Kansas Senator Jerry Moran during Thursday’s hearing. “Does that seem like an appropriate standard for the federal government?”

The PRO Act would limit contract work to jobs “performed outside the usual course of the business of the employer” and to cases in which the worker is “customarily engaged in an independently established trade, occupation [or] profession.” In other words, businesses could only hire contractors for jobs outside of their central operations, while workers could only do contract work for their main means of earning a living.

For example, a rideshare company like Uber could not continue to use drivers for individual trips because facilitating transportation is Uber’s main business. Each driver would have to be a regular employee. Uber could hire a contractor to do something like renovate an office because that is not directly related to its business. An independent worker could get that contract only if office renovation was something that the worker ordinarily does. In short, it amounts to a severe restriction on what type of work people can do.

In short, the PRO Act would eliminate most workers’ side hustles. Companies would not be able to afford to keep employed people who only want to work sporadically. Even if a worker was established as a freelancer, a business may not be able to use him or her if the work relates the companies’ “usual course of business.” For instance, could a news website contract with a freelance photographer under the PRO Act? If the site regularly publishes photos, maybe not.

Currently, contractors and freelance workers are legally considered to be independent businesses. Therefore, contractors are generally not subject to federal laws covering workplace matters like overtime, the minimum wage, or health insurance. Instead, contractors negotiate their own terms with the business to which they offer their services. This affords a great deal of freedom to both the business and the contractor to reach agreement on terms like hours and pay.

Contract work can be done quickly and with a minimum of red tape. The contractor and the business can approve a quick, short-term arrangement and get the job done. In a situation involving traditional employees, federal regulations require the employer to set and control the worker’s schedule and other work conditions.

Most so-called gig economy companies, such as Uber and Lyft, use contract workers exclusively, arguing that being able to quickly arrange short-term work is key to their business model. Rideshare drivers work as much or as little as they want. Many drive part-time, some as little as few hours a week. Including part-timers ensures a large pool of potential drivers, which makes it possible to serve passengers quickly.

Critics of contracting, especially unions and their allies in Congress, argue that this has been abused by businesses and that most contract workers are actually employees who are misclassified. Contractors are also much harder to unionize because federal laws relating to collective bargaining were written with employees in mind. “For workers to succeed, unions need to succeed,” said Washington Senator Patty Murray, chairwoman of the HELP Committee. “That’s why we need to pass the #PROAct.”

The problem with AB5 was that it’s hard to write a law that covers so-called gig economy companies that doesn’t also cover most other people who work in professions that traditionally have been done by freelancers. That’s because both groups of workers basically do the same thing. Freelancers work when they want, for however long they want and for whomever they want. They can work for multiple companies, even competitors, at the same time. Anyone who has gotten a ride through Uber has probably seen a sticker for Lyft on the car that picked them up, or vice-versa. If the drivers are truly employees then why are their employers allowing them to drive for their direct competitors?  

If the rideshare companies had to classify all of their drivers as employees, they would only be able to retain the ones that drive full time. That would undermine the ability to provide the fast, affordable service that distinguishes them from traditional taxicab companies. Drivers would have to pick one company and be subject to its work scheduling.

That’s a loss of freedom that a lot of gig workers say they value. In a survey of its drivers in California, Uber found that only a minority chose to drive for 40 hours or more hours a week and many only drove a few hours in a week.

The Biden administration’s stated intention in supporting the PRO Act is to push workers into doing these gig-type jobs full time. Secretary of Labor Marty Walsh told Reuters in April, “We are looking at it but in a lot of cases gig workers should be classified as employees. … I think it has to be consistent across the board” to ensure that gig workers get “all of the things that an average employee in America can access.”

Even if one thinks that this will benefit those gig economy workers, the PRO Act will, as AB5 did, sweep along with it all manner of other workers who have always been understood to be freelancers.  Should the law pass Congress, it will be a rude awakening for a lot of people.

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