Protect the Rights of Independent Contractors

Of all the economic changes the United States has experienced over the past decade, none have been so profound as full-time employees shunning traditional 9 to 5 employment in favor of the flexibility offered by independent contract work. In 2020 alone, 3 in 10 full-time workers left traditional employment in favor of freelancing. In total, it’s estimated that 59 million American workers engaged in some form of independent contracting, generating $1.2 trillion in earnings. Even with the market tightening in some areas due to COVID-19, the number of independent contractors is expected to grow throughout the next decade.

Despite the increase in independent contractors, some states have taken steps to clamp down on the ability of workers to participate in an employment structure that has provided millions of people the opportunity to earn additional income, and one that workers overwhelmingly approve.

The most notable of these efforts occurred in California, when the state passed AB-5 in a move that effectively banned the use of independent contract workers, leading to a significant number of job losses and reduced income for millions of Californians. Similar job-killing legislation has been proposed in New York, New Jersey, Illinois, and even in the U.S. Congress.

While some states have sought to kill the gig economy, Virginia has a golden opportunity to move in the opposite direction and become a model for protecting the rights of independent contractors and ensuring a flexible and dynamic economy.

There is currently a bill before Virginia’s Senate Judiciary Committee that would do just that. Introduced by Senator Dunnavant, Senate Bill 1323 would preserve the rights of businesses and independent contractors to participate in the gig economy while also ensuring workers are properly classified as either an independent contractor or a traditional employee. Most importantly, SB 1323 would not impose an overly stringent definition on independent contractors that could jeopardize thousands of jobs in the Commonwealth.

Under Senator Dunnavant’s proposal, classification as either a traditional employee or an independent contractor would be determined by who “has the right to control the manner and means by which the final result of the work is to be accomplished.” Additionally, the bill would consider whether independent contractors can solicit work from other businesses, own most of their work equipment, control their hours worked, select the location where their service is being provided, have a written work contract, and require businesses to present a new contract if new or modified services are required.

The provisions of Senator Dunnavant’s bill will ensure independent contractors can continue to work in this employment structure they overwhelmingly favor while also ensuring their rights are protected from exploitation that has become increasingly common as the use of independent contract labor has grown.

For small businesses, SB 1323 would provide an important clarification as to who is and is not an independent contractor.  This clarification will be particularly important to businesses in need of short-term labor but fear legal action over the misclassification of temporary workers. Failure to properly classify workers results in fines of up to $1,000 and jail time. This fear alone is enough to disincentivize small companies from hiring independent contractors, as they cannot afford either the legal representation or the fines stemming from unintentionally misclassifying workers.

Protecting the rights of independent contractors while preserving their ability to earn extra income is a sensible policy for several reasons. Aside from the substantial growth in independent contractors and their importance to the twenty-first-century economy, independent contract work generally provides workers with more income, enhancing their economic well-being and security. A recent study found that within six months of freelancing full time, 57% earned more than they did in full-time employment within six months. The same study found the average hourly wage for freelancers was $20.00 per hour, well above the federally mandated $7.25 minimum wage.

While other states are taking steps to clamp down on independent contractors, SB 1323 is presenting the Commonwealth of Virginia with the opportunity to move in a better direction and facilitate a dynamic economy that works for businesses and those seeking flexible working conditions – all while protecting workers from the consequences of misclassification.

Published and available in the Economic Standard.

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