The Biden Administration left small businesses worried after taking sides on a hotly contested labor issue that critics say could threaten the jobs of millions of independent workers and thousands of small businesses.
In his address to the nation Wednesday evening, President Joe Biden called on Congress to pass legislation that would ban the use of freelance workers in most instances.
A report from the freelance site UpWork found that about 59 million gig workers make up $1.2 trillion of the U.S. economy.
“So that’s why I am calling on Congress to pass Protect the Right to Organize Act, the PRO Act, and send it to my desk, so we can support the right to unionize,” Biden said in his address.
The legislation would mean that everything from driving for a ride-sharing app to helping a business run their social media accounts to much of the accounting, IT or other consultant work done by independent workers today could no longer be legal in many cases.
The legislation in question says that, “an individual performing any service shall be considered an employee ... and not an independent contractor” except for a few conditions. Those conditions include that “the service is performed outside the usual course of the business of the employer” and that “the individual is customarily engaged in an independently established trade, occupation, profession, or business of the same nature as that involved in the service performed.”
The bill has sparked fierce debate and rallied businesses together to oppose the legislation. Many small businesses rely heavily on independent contractors and cannot afford to hire several full-time employees that take care of the range of services needed to keep their business afloat.
An April poll of small businesses conducted by Alignable found that “61% indicated they would anticipate losing 76% or more of their business,” which would force many to shut their doors.
On Thursday, U.S. Labor Secretary Marty Walsh said that contract workers should be classified as employees in some places, lighting fire under the debate again.
“We are looking at it but in a lot of cases gig workers should be classified as employees... in some cases, they are treated respectfully and in some cases they are not and I think it has to be consistent across the board,” Walsh said in response to a question from Reuters. “These companies are making profits and revenue and I’m not [going to] begrudge anyone for that because that’s what we are about in America ... but we also want to make sure that success trickles down to the worker.”
The comments hurt the stock of several gig-reliant companies Thursday. Those businesses see the measure as an existential threat to their business model. By the end of trading Thursday after Walsh's comments, Uber shares were down 6%, DoorDash down 7.6%, and Lyft down almost 10%.
The freelance site MakeALivingWriting.com conducted a survey that found 73% of freelancers prefer working as a contractor rather than an employee.
Big labor unions have pushed this legislation as a top priority. The American Federation of Labor and Congress of Industrial Organizations, (AFL-CIO) changed its name on Twitter to say “AFL CIO // Pass the #PROAct.”
In what is often referred to as the “gig economy,” one contractor can take on several clients, often making more than they would at a full-time job and maintaining all the flexibility of “being your own boss.”
Critics say the PRO Act threatens that autonomy and that unions are seeking to expand their own influence at the expense of workers.
“Big Labor’s support for the PRO Act proves that unions are unwilling to adapt to the modern economy,” said Director of Labor Policy at the Freedom Foundation Maxford Nelsen. “Instead of providing services that workers want at a price they’re voluntarily willing to pay, unions are looking to offset decades of falling membership by ramming through Congress a policy wish list designed to pressure American workers into accepting unionization and surrendering their personal voice and interests to the union’s.”
After Walsh’s comments alarmed many in the business community, the federal labor office sought to clarify his comments.
“The Secretary was reiterating that misclassification is a pervasive issue that impacts both the economy and workers,” a spokesperson for the office said.
California enacted a similar law in January of last year, leading to a flight of freelancers from the state and countless lost jobs.
U.S. Rep. Mike Garcia, R-Calif., attacked the PRO Act after the president’s address, saying he saw people flee his home state after it was enacted.
“We already saw similar legislation in the form of AB5 fail...” he said. “We need to stop using [California] as the blueprint for America. Did no one pay attention to the census?”
California will lose a congressional seat in Congress next year as a result of its population count not keeping up with the rest of the country.
The legislation passed the House in March but will likely face a tougher fight through the Senate.
“The PRO Act would also undermine individual choice and autonomy by allowing workers to be fired for refusing to pay union dues and declaring war on freelancers and the gig economy,” Nelsen said. “It’s bad for American workers, businesses and the economy. Union bosses and their political allies are the only ones who stand to benefit from the PRO Act’s passage.”