PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

Regulatory Threat to Freelancing and Independent Contractors is the Latest Hit to U.S. Startup Ecosystem

By at 14 December, 2022, 3:07 pm

NEWS

FOR IMMEDIATE RELEASE

Washington, D.C. – Yesterday, the U.S. Department of Labor (DOL) closed the comment period on its proposed “new” regulatory framework for independent contractor classification. The proposal would rescind and replace the clearer and simpler set of rules that took effect in March 2021 with an “archaic, inappropriate, complex and inflexible regulatory framework,” according to comments filed by the Small Business & Entrepreneurship Council (SBE Council) opposing the proposed rulemaking.

In the comments, SBE Council president & CEO Karen Kerrigan wrote that the proposed changes would make the business ecosystem more rigid, more costly, less flexible and more concentrated. She noted that freelancers and independent contractors cherish their independence and flexibility, and the new rule directly threatens the economic freedom and opportunity that self-employed Americans enjoy. Kerrigan wrote:

“The proposed DOL rule, if enacted, would be a massive step backwards for women and all self-employed freelancing Americans. The proposal revives an outdated approach that works against flexibility and regulatory certainty. The proposed rule – with its multitude of equally weighted economic reality factors – is much too broad, unwieldy, arbitrary and confusing, which means it will drag countless numbers of independent contractors and freelancing individuals into a ‘misclassified’ pit, if enacted.”

In the comments, Kerrigan noted that the DOL did not conduct a thorough and realistic cost analysis of the proposed rule, as government regulators estimated that the complex and 200-page rulemaking would cost small businesses a mere $25 annually to read and understand, and the cost to independent contractors would amount to $5 per year. Kerrigan pointed out that a wide range of other likely costs – such as the cost to a small business or small entity if an independent contractor is determined to be “misclassified,” or if a small business loses business revenue due to the loss of human capital, or the cost to comply with the new rule, or if an independent contractor loses business due to potential or actual misclassification – were not considered or quantified.

The DOL itself estimated that 6.5 million small businesses or small entities could be affected by this rulemaking, along with 22.1 million independent contractors.

Kerrigan said:

“The minimal cost findings are preposterous and insulting. Not only is the DOL way off-the-mark with their cost estimates, regulators have not even made a rational case for tossing out the March 2021 rule, which provides more clarity and certainty for small businesses and independent contractors. I’ll repeat what I wrote in our comments – we urge the DOL to withdraw the independent contractor proposal and allow the March 2021 rule to stand.”

Regulatory Hit to Freelancing Only the Latest Government Action Damaging to Business Ownership, Startup Growth, and a Better Economy

NLRB’s Expanded Joint Employer Standard Threatens Business Independence and America’s Franchise Model: According to Kerrigan, the DOL’s damaging proposal targeting America’s independent contracting system is only the latest in a string of policy attacks that will erode the path to startup activity, business ownership and wealth building. Last week, the National Labor Relations Board (NLRB) closed its rulemaking on an expanded joint employer proposal. As Kerrigan noted in comments, the worn and outdated standard would not only emasculate the franchise model, but also harms small businesses and entrepreneurs across critical sectors that are “in jeopardy of losing independence, along with the financial investment and sweat equity they put into their businesses.”

As with the DOL’s new proposal for independent contractors, Kerrigan urged the NLRB to withdraw their costly and ambiguous standard and allow a 2020 rule to stand.

FTC Hammers Startup Ecosystem: Moreover, the Federal Trade Commission’s (FTC’s) aggressive attack on the productive M&A system is destabilizing the U.S. startup ecosystem. FTC efforts aimed at stopping or hamstringing acquisitions that pose no consumer harm are a direct threat to the productive startup ecosystem that counts on M&A activity to scale promising startups and bring their innovations to the mass marketplace. As noted by Kerrigan in a recent Small Business Insider blog post:

“Khan’s FTC is doing exactly what our international competitors love to see – self-administered domestic policies that erode U.S. leadership in startup activity, tech innovation, and general economic prowess.” (Also, see: Innovation and Startup Ecosystem at Risk: Revamping the U.S. M&A Regulatory Framework.)

Kerrigan said:

“In his Economic Blueprint released in September 2022, President Biden stated that he is working to advance policies that will make the economy ‘more competitive, less concentrated and more resilient.’ FTC’s aggressive actions and the proposed NLRB and DOL regulations will do the exact opposite. These will lead to fewer businesses, higher business concentration, and vast uncertainty, which undermines business and economic resiliency.”

According to Kerrigan, policies need to expand economic choices and opportunity, and to preserve the models that drive startup activity, new business creation and successful small business growth.

“So, first do no harm to these models. Please, please, please understand the downstream impact and unintended consequences of upending these successful models,” added Kerrigan.

On a final note, Kerrigan said that she looks forward to a new Congress that will be sworn in early January 2023 and hopes key committees will flex their oversight arm.

CONTACT:

Karen Kerrigan, kkerrigan@sbecouncil.org

Raymond Keating, rkeating@sbecouncil.org

SBE Council is a nonpartisan advocacy, research and education organization dedicated to protecting small business and promoting entrepreneurship. For 28 years, SBE Council has worked on and advanced a range of private sector and public policy initiatives to strengthen the ecosystem for strong startup activity and small business growth. Visit www.sbecouncil.org for additional information. Twitter: @SBECouncil

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