SACRAMENTO, Calif. — A state can serve as a “laboratory” of democracy to “try novel social and economic experiments without risk to the rest of the country,” Supreme Court Justice Louis Brandeis wrote in his dissent in an arcane 1932 case involving an Oklahoma commission that declared the sale and distribution of ice to be a public business. Political observers have long used that laudable concept of “laboratories of democracy” to defend our nation’s system of federalism.
As laboratories go, California’s resembles Dr. Frankenstein’s lab — as lawmakers concoct hobbled-together measures that cause widespread harm and result in unforeseen (but predictable) consequences. Our state specializes in laws that one should best witness from afar. Those of us who live here just have to deal with the results, but people elsewhere can watch and learn what not to do. So what explains the Biden administration’s refusal to learn from California’s colossal screw-up of its independent contracting rules? The president is trying to replicate California’s widespread disaster surreptitiously, through a proposed Department of Labor rule that echoes — albeit in a more limited form — the state’s failed Frankenstein-like experiment. One of the president’s top labor leaders is deputy labor secretary Julie Su, who led California’s Department of Labor. She might have been asleep at the switch while one of her departments sent out billions of dollars in unemployment claims to fraudsters, but she surely followed the fracas concerning the state’s effort to clamp down on contracting.
AB 5 continues to apply to truck drivers (by banning owner-operators) and wreak havoc not just on California’s economy but nationwide.
First, some background. In 2019, Gov. Gavin Newsom signed Assembly Bill 5, which codified a state Supreme Court ruling (Dynamex) that allowed companies to use freelancers only in tightly limited circumstances. The new “ABC Test” allowed employers to use contractors only if the worker a) is free from company direction; b) performs work outside the company’s usual sphere; and c) is genuinely running an independent business. As I’ve documented for The American Spectator, the law did not result in what its backers predicted. They claimed that it would end worker “misclassification” and would lead to better wages, better jobs, and better benefits. In reality, it obliterated existing jobs, shuttered musical gigs and other creative endeavors that rely on freelance labor, caused widespread angst among lower-income workers, and threatened rideshare platforms’ existence. Because of the intense blowback, lawmakers exempted 100-plus industries from AB 5’s restrictions. Voters overwhelmingly approved a statewide ballot initiative (Proposition 22) that exempted ridesharing drivers — although a notoriously liberal court (Alameda County) declared it unconstitutional and the matter is on appeal. Meanwhile, AB 5 continues to apply to truck drivers (by banning owner-operators) and wreak havoc not just on California’s economy but nationwide. Given that economic woes are boosting Republicans’ midterm prospects, one might think that the Democratic administration would notice the problem. “Now AB5’s legal chaos threatens to spill over into the broader economy and amplify a supply chain crisis that has already driven record inflation in 2022,” wrote the Pacific Legal Foundation’s Wilson Freeman in the Orange County Register. “The protests at the Port of Oakland — the state’s third busiest — saw a 28 percent decline in loaded container volumes, exacerbating the impact of factory shutdowns in China.” The Department of Labor proposal would revoke a Trump administration test that loosened the federal standard for determining — for wage and hour purposes — whether a worker should be classified as an employee or a contractor. I personally believe that workers and employers should be free to determine their own arrangements, but federal regulators have been involved in such determinations for decades. “The proposal by the Biden Labor Department argues that several factors must be weighed when assessing whether a worker is a contractor or an employee, and that none of them are necessarily more important than the others,” according to a New York Times report. “Among the additional factors are whether the work being performed is central to a company’s business, and what kind of investments workers make to do their jobs, such as buying equipment.” In other words, the administration is pushing the feds to embrace something that more closely tracks the inflexible ABC Test that has caused so many problems in California. The rule would apply to determinations regarding the application of the minimum wage (which is far lower federally than in California, anyway). But the rulemaking clearly is designed as a first step, given that “many employers and regulators in other jurisdictions are likely to consider the department’s interpretation when making decisions about worker classification, and many judges are likely to use it as a guide,” per the Times report. Uber and Lyft have argued that the rules won’t affect their businesses. But expanding AB 5–like wording to federal agencies would almost certainly pose an existential threat to their business model. The companies and other interested parties have until Nov. 28 to comment, but expect the agency to be inundated with union support. The author of California’s law, who now heads a large labor federation, was obviously quite happy with the proposal. The proposal not only highlights the Biden administration’s tone-deaf approach to the economy but also reminds us of Justice Brandeis’ insights. It’s bad enough for a state with nearly 40 million people to hatch such a bad idea in its Capitol laboratory, but it’s far worse when regulators can quietly adjust the law and impose it on a nation of 330 million people.

Featured Publications