The issue of “worker misclassification” is becoming key to the Democratic Party’s campaign plans this election year, both at the federal and state levels. Presidential candidates Joe Biden, Pete Buttigieg, Elizabeth Warren and Bernie Sanders all have voiced support for a federal version of California’s recently enacted AB5, which would make everyone an employee until proven otherwise.
The candidates all say the idea is to protect workers against exploitation in the form of misclassification, which happens when a company wrongly calls someone an independent contractor to weasel out of paying the salary and benefits that W2 employees receive.
But empowering misclassified workers is not what laws like California’s AB5 actually do once they’re freed from think tanks and union lobbyists to be set loose in the real world. Since AB5 went into effect on January 1, companies haven’t magically reclassified thousands of workers as full- and part-time W2 employees. Instead, previously happy and thriving independent contractors have been losing their clients and, in some cases, their entire livelihoods overnight.
The reason things aren’t working out the way proponents of the California law planned is the language at its heart—the same language now also in a proposed federal law called the PRO Act. This problematic language is known as the ABC test.
The ABC Test
Written during the 1930s to reflect the needs of the U.S. workforce during the Great Depression, the ABC test is far stricter than the modern test the Internal Revenue Service uses to determine who is a legal independent contractor. The ABC test forces people to meet all three “prongs” (A, B and C) in ways that are, quite simply, impossible for creatives and other highly specialized professionals to do if regulators use the most stringent possible interpretation of each prong.
In other words, Democrats may say they’re only trying to help misclassified, exploited workers by embracing the ABC test as a regulatory tool, but they’re actually giving overzealous regulators a way to attack and destroy the careers of America’s successful independent writers, photographers, editors, musicians, interpreters, therapists, teachers and more.
Here is the ABC test as adopted in California’s law, and that is essentially identical to the PRO Act federal legislation:
A: The person is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact; and
B: The person performs work that is outside the usual course of the hiring entity’s business; and
C: The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.
ABC Can Stop the Music
So, let’s say you’re a musician who plays the French horn in a pit band at the local theater in San Antonio two shows a week. Sounds perfectly legit, right?
You’re working maybe six hours total—certainly not enough time to make sense as even a part-time employee—but you have to show up at 6:30 sharp on those two nights, because the curtain goes up at 7, a fact that an overzealous regulator might say is the same as having to punch a time clock in a factory. And, you’re told to wear all black to blend in with the rest of the band, an outfit that an overzealous regulator might interpret as a required uniform. And, you have to keep the beat the way the conductor tells you to play, an action that an overzealous regulator might say is a form of direction by the hiring entity, as opposed to a creative collaboration among musical professionals.
Thus, according to the strictest interpretations under the letter of the law, the state could argue that by hiring you to play your French horn two nights a week, the theater violated prong A of the ABC test. The state could say that you are a misclassified worker, which means the government could slap the theater with hefty fines unless it made you an employee and gave you all related benefits.
ABC Can Silence the Press
Or, let’s say you’re a freelance journalist near Albany working for a number of magazines and newspapers, earning a total of $75,000 a year. You accept an assignment from one of your regular clients, a local paper, to cover a school board meeting. Seems innocuous enough.
But you have to show up at 7 p.m. for the meeting, interview a school board member the editor has lined up for you as a source, and file your story by 11 p.m., which is the deadline for the next day’s print edition. And you have to work with the editor on changes after you write your draft, because that’s part of the newspaper’s standard editing process to ensure accuracy.
You may think you have a great, collaborative relationship with a fellow journalism professional, but based on those facts, an overzealous regulator could argue that you just violated prong A of the ABC test too. And, on top of that, you are a freelance journalist doing work for a journalism-based business. The state could argue that you failed prong B of the ABC test as well. The newspaper could be fined, with the state saying you are misclassified.
ABC Can Hurt Moms and Kids
Or, let’s say you’re a stay-at-home mom in Chicago who works for two or three hours some mornings teaching English as a second language to kids in China, via the internet.
You love the work because you can do it before your own kids wake up, and it helps to pay for your family’s expenses. You get to use your “grown-up brain” before succumbing to the day’s ritual of spilled juice boxes and dirty laundry. And, on days when you can’t fit in any teaching time, you don’t have to teach at all.
But alas, dear teacher, an overzealous regulator could argue that you violate all three prongs of the ABC test. You’re using the company’s online curriculum to do the teaching; you’re working as a teacher for a teaching company; and you’re not “customarily engaged” in anything (regulators can interpret that C-prong language as having more than one company paying you to do the same kind of work). The company could face steep fines if it keeps hiring you to teach.
Millions of Careers on the Line
Now, I know what you’re thinking, having just read those three examples alone: It would be madness for regulators to interpret the ABC test in these ways.
First, none of these workers is actually being exploited or harmed. And second, interpreting the ABC test in these ways would terrify any company that tries to hire independent contractors at all. This approach to the ABC test could senselessly throw millions of people out of independent contractor work that they choose and love because it fits into their lifestyles.
I mean, the sheer number of people who could be unfairly harmed by these interpretations would be enough to swing a whole election. Independent contractors make up at least 10 percent of the U.S. workforce, and 79 percent of them say they prefer what they’re doing to a traditional job. They wouldn’t see these types of interpretations as “worker protection”; they’d see them as an assault on their chosen way of life.
And an awful lot of those people would be women of a certain age who tend to vote, because a lot of Americans turning to independent contract work in the past two decades have been women and people 55 and older. It makes sense that they would choose this kind of work, because they often face gender and age discrimination in the full-time workforce. As independent contractors, they can thrive; one in five independent contractors earns six figures a year.
But yes, sadly, these are precisely the people whose careers the ABC test threatens, because the problem is not just the test itself; it’s also the ways that the ABC test is now being interpreted, showing that it can be enforced in increasingly harsher fashion.
It’s Not Just What You Do...
Massachusetts has had different versions of the ABC test on the books since 1990, with hardly a peep from anyone suggesting a concern. Supporters of laws like California’s AB5 often point to that state in the East to say, “See? There’s no problem at all with the ABC test. Everything’s fine.”
The thing is, Massachusetts (and other states that use the ABC test for one purpose or another) has not been enforcing the ABC test with the same overreach that California and some other states are now signaling they intend to make routine. Freelance writers, for instance, weren’t suddenly hurled out of business in Massachusetts when the ABC test was codified there, the way they’re being blacklisted today in California. The fallout we’re seeing in California is new, which means something has changed about the way the ABC test is being understood.
What California and other states are doing differently is saying that regulators intend to use the ABC test as a weapon against the “gig economy.” That means they also are being given the ability to use it as a weapon against any company or industry that they decide deserves punishment. This overzealous approach can unfairly sweep up, and threaten the careers of, the entire independent contractor workforce. The companies hiring independent contractors know it and are reacting accordingly, by eliminating the use of independent contractors altogether in California.
And the most successful independent contractors now know it too, which is why they are banding together and talking directly to their lawmakers, trying to negotiate exemptions in states where similar legislation is being debated.
California is the canary in the coal mine of this new reality. Gov. Gavin Newsom put about $20 million into his 2020 budget to investigate, among other things, “worker status” using the newly enacted AB5, even as, after just a single month of AB5 being in effect, freelance writers, interpreters, musicians and others who have long worked as independent contractors are reeling from lost income or being outright blacklisted. The message from the creative class has been shock and outrage; the response from Democrats supporting the ABC test has been a plan to double down on enforcement and use California as a model for the whole nation.
And California is not alone in this overzealous approach to the ABC test at the state level. Similarly misguided legislation and enforcement attempts are now happening in New Jersey. There, lawmakers are pushing Senate bill 863, which contains the same rotten core of the ABC test (with altered B and C prongs). And, as hard as it is for anyone with common sense to believe, New Jersey’s version would allow interpretation of the ABC test even beyond California’s extreme.
New Jersey courts have been telling regulators that they’re already going overboard with the ABC test, making it “practically impossible to satisfy”; New Jersey politicians, following California’s lead, are now trying to codify that drastic overreach into statewide law. By some interpretations, New Jersey is trying to let its Labor Commissioner use the ABC test to mean whatever he wants it to mean.
At the same time that creatives and other specialized professionals are screaming for relief in California and New Jersey, though, Democrats in New York, Illinois, Colorado, Oregon and Washington state are all saying they intend to move in a similar direction, with legislation based on the ABC test in the works or already introduced. And, in the nation’s capital, Democrats are demanding that Speaker Nancy Pelosi bring the Pro Act to the floor of the U.S. House of Representatives for a vote, so they can enshrine their support for a nationwide ABC test on the public record.
Please, Put Down the Weapon
Now, to be fair, some Democratic lawmakers and other supporters of the ABC test have recently started talking about having to “perfect” or “balance” the language in these bills, with the real-world fallout becoming apparent in California. But nobody has yet figured out how to make those fixes. The sponsor of California’s AB5 has introduced what’s essentially a blank placeholder bill for future damage control, while Republicans in that state are pushing to amend or repeal AB5 altogether.
Meanwhile, independent contractors themselves are now meeting with lawmakers, banding together to defend their livelihoods and working in tandem on social media to amplify their voices. In California, the independent contractors held a Statehouse rally on January 28. As the artistic director of a San Diego-based dance theater group told reporters, “We are not stupid. We do not need to be saved from ourselves. We can negotiate our own contracts. AB5 is insulting.”
The reason that even the most ardent supporters of AB5 and laws like it are having trouble figuring out a good response to independent contractors like him is that there’s no way to fix a broken relic of the past. For creative and specialized professionals facing overzealous regulators in the year 2020, legislation that’s based on the ABC test simply doesn’t work. It’s a bad fit for the modern workforce.
And that bad fit is why the pushback only continues to grow in New Jersey and New York, where creatives and other specialized professionals are seeing AB5’s wreckage in California and saying, “No thank you, not here.” Lawmakers keep promising that the ABC test will protect workers by securing them benefits like the $15 minimum wage, but lawmakers are making those promises in states that have some of the highest-educated workers in the country. To an independent contractor earning $30, $100 or more an hour, promising the minimum wage is regressive, not progressive, to her household’s income.
California’s enactment of AB5 revealed that the ABC test can be used to destroy the lives of people who want to be independent contractors, and who are not being exploited at all. For this reason, Democrats must abandon ABC-test legislation before Election Day this fall. Keep the campaign promises to help exploited workers, of course, but figure out a way to do that without the ABC test.
Not sure how another solution to the exploitation problem might look? Ask Democratic National Committee Chairman Tom Perez for ideas. He was pretty darn good at worker misclassification when he worked as President Obama’s Labor Secretary, using existing IRS rules.
The reality of laws like California’s AB5 shouldn’t be such a hard lesson for Democrats to learn. For anyone who has recently found her career unfairly and squarely in the crosshairs, the lesson is as simple as A, B, C.