Representative Kevin Kiley (R-CA) recently joined with Republican members of California’s general assembly to warn against nationalizing the state’s controversial worker classification law. While intended to ensure employees are compensated fairly, the results of California’s experiment have been less than impressive. The law resulted in an overall drop in employment, harm to the economy, and a limitation on people’s freedom to choose the type of employment that works for them.

At the center of the debate is Assembly Bill 5 (AB-5), which requires companies to recognize independent contractors as employees unless they can prove three requirements (often referred to as the ABC Test). First, the worker must be free to perform the tasks they are paid to do without the company’s supervision. Second, the worker must perform tasks that fall outside the work the company regularly does. Third, the worker must already be employed or otherwise participate in the same type of work that they are being contracted to perform. In practice, AB-5 effectively reclassifies most “gig economy” workers as full-time employees.

A recent paper by the Mercatus Center examined the impact of worker reclassification on employment outcomes following the implementation of California’s AB-5. What researchers found was that self-employment declined significantly. Additionally, there is no statistically significant evidence that traditional employment increased. In fact, overall employment in affected occupations declined by 4.4 percent, suggesting that AB-5 had negative consequences.

Reclassification can also drive up the price of labor, which in turn, could harm consumers if businesses are forced to raise prices or eliminate services. The total impact of AB-5 was likely cushioned by the passage of Proposition 22, which defined rideshare app workers as independent contractors, but the results were still a net negative for the state.

Despite these outcomes, the Department of Labor (DOL) proposed a similar worker classification standard at the federal level. Rather than a three-pronged AB-5 test, the DOL rule uses six criteria to decide whether a worker should be classified as an independent contractor or traditional employee. These criteria center around how independent the worker actually is in their role as well as if the duties they perform are essential to the business.

While the exact details of the two rules differ, it is believed the DOL’s rule will operate in much the same way as AB-5, which has many lawmakers sounding the alarm. Specifically, representative Kiley, Republican Assembly leader James Gallagher, and other California Republicans have held several press conferences denouncing the DOL’s proposal and announcing a plan to repeal the law in California. These lawmakers have seen up close what implementing such a rule at the state level means for workers and they want no part of repeating the same mistakes at the national level.  

Attempts to reclassify independent contractors as full-time employees may be well-intentioned, however this does not necessarily translate into good policy. Regulators may believe they are protecting workers from unscrupulous companies, but they are doing more harm than good.

Even if  AB-5 had worked as intended and more workers were hired as traditional employees, the resulting loss of independent contractor status would still be to the detriment of a worker’s freedom. Many workers appreciate having this flexibility and need it to work part-time or supplement their regular income. Removing this ability unnecessarily eliminates opportunities to engage in the labor market, harming both workers and businesses.

While well intentioned, AB-5 was a disaster that put many of the same people the bill’s backers hoped to empower out of a job. The result was not only fewer jobs but also less flexibility for people to decide the work environment that works best for them. Replicating this bad policy at the national level is a mistake.

You can also read the full Economic Standard article here.

Trey Price is a policy analyst with the American Consumer Institute, a nonprofit education and research organization. For more information about the Institute, visit us at www.TheAmericanConsumer.Org or follow us on X @ConsumerPal.

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