Two congressmen plan to take action to prevent the enactment of a new U.S. Labor Department rule that some detractors say could affect the livelihoods of independent contractors in the promotional products market and other industries, while harming the businesses that rely on those freelancers.

Separately, another federal lawsuit has been filed against the regulation by freelancers.

Spokespeople for Rep. Kevin Kiley, a California Republican, and Louisiana Republican Sen. Bill Cassidy told ASI Media that the congressmen will introduce Congressional Review Act (CRA) resolutions to repeal the Department of Labor’s new rule establishing how to classify workers as employees or independent contractors.

The exact timing of when Kiley might introduce a resolution in the House of Representatives and Cassidy in the Senate wasn’t immediately known, spokespeople said. Still, the clock is ticking.

Adopted in January, enforcement of the rule is set to begin March 11. The regulation could result in certain independent contractors in the promo market and many other industries having to be reclassified as employees under the Fair Labor Standards Act (FLSA).

Kiley and Cassidy believe the rule threatens the ability of the tens of millions of independent contractors in the United States to stay independent and obtain work.

“The Biden Administration and Department of Labor continue to target gig workers and independent contractors,” Kiley said on X, formerly Twitter. “My CRA will stop this government overreach and protect independent workers’ right to pursue their dreams.”

What’s the CRA? How Does It Work?

The Congressional Review Act is a tool Congress can use to overturn certain federal agency actions, such as potentially the independent contractor rule from the Labor Department. Enacted in 1996 as part of the Small Business Regulatory Enforcement Fairness Act, the CRA requires agencies to report rules it issues to Congress.

Congress then has options that include doing nothing with the rules – or passing a joint resolution of disapproval that would overturn them.

20
Number of federal rules that Congress has overturned using the CRA.(Congressional Research Service)

For the Labor Department rule to be kiboshed via CRA, Kiley’s or Cassidy’s repeal resolutions would have to pass in the House and Senate and be signed by President Biden. Were Biden to block the resolution, Congress would have to override the presidential veto to keep the rule from taking effect or continuing to be enforced if it's already in play. Congress can beat a veto by passing the act by a two-thirds vote in both the House and the Senate.

Whether the repeal effort will get the required legislative and executive branch support to survive is uncertain. Some analysts think it’s a longshot at best, as the Biden administration has advanced the rule change. Republicans control the House and Democrats the Senate.

The CRA has been used to overturn a total of 20 rules: one in the 107th Congress (2001-2002), 16 in the 115th Congress (2017-2018), and three in the 117th Congress (2021-2022), according to figures from the Congressional Research Service.

Some in the #promoproducts market say this just-approved Labor Department rule could lead to job loss and higher labor expenses in the promo industry, but others say it will protect sales reps who've been exploited. See where things stand.https://t.co/JuMCwu1YJa

— Chris Ruvo (@ChrisR_ASI) January 9, 2024

Lawsuits Challenge Labor Department Rule

A pending CRA repeal resolution isn’t the only opposition the Labor Department’s rule is facing; multiple legal disputes are in play.

The latest came this week when The Beacon Center of Tennessee, a pro free-market nonprofit group, filed a federal lawsuit in Nashville on behalf of freelance journalists Margaret Littman and Jennifer Chesak.

The suit names the Labor Department, its wage division and a few top officials as defendants, and claims the rule will strongarm freelancers into “undesirable employment relationships” or compel them to give up working. In part, the suit asserts that the Labor Department lacks the authority to change a prior rule regarding independent contractor vs. employee classifications that was put in place during President Donald Trump’s administration.

“I’ve chosen to be a freelance writer for nearly 30 years because of the flexibility, control and opportunity it provides me,” Littman said in a news release. “I’m fighting back against the Labor Department’s rule because it threatens to destroy my livelihood and right to earn a living as a freelancer.”

#promproducts news.

Labor Department Sued Over New Rule That Stands To Impact Independent Contractors in Promo https://t.co/oYDI9ts0JR

— Chris Ruvo (@ChrisR_ASI) February 5, 2024

In another suit filed earlier this year, freelance writers Karon Warren, Deborah Kaplan, Kimberly Kavin and Jennifer Singer sued the Labor Department, asking a judge to place a preliminary injunction on the regulation that, upon enaction, would immediately prevent its enforcement.

The writers, who are the co-founders of Fight For Freelancers USA, a nonpartisan grassroots group that advocates to protect the choice of self-employment, ultimately want the court to declare the Labor Department’s rule unlawful and thus void. They fear the rule will wipe out their freelance work by making it prohibitive to impossible for clients to work with them.

Meanwhile, a coalition of business groups is trying to have lifted a court-ordered stay on a ruling that would have temporarily reinstated the regulation on independent contractors that was implemented by Trump. Some businesses and independent contractors favor that Trump-era rule, saying it doesn’t get in the way of organizations and freelancers working together.

Freelancers contributed
$1.27 trillion
to the U.S. economy in annual earnings in 2023.(Upwork)

The Rule & Reasoning Behind It

The Labor Department says its new rule will clarify who should be an employee and who should be an independent contractor under FLSA and will help workers currently classified as independent contractors when they should be employees, who generally enjoy greater protections under the law.

Certain labor advocates have come out in favor of the rule. They argue it will prevent unethical employers from underpaying and otherwise exploiting workers by misclassifying them as independent contractors when they should rightly be employees.

“Misclassifying employees as independent contractors is a serious issue that deprives workers of basic rights and protections,” Acting U.S. Secretary of Labor Julie Su has said. “This rule will help protect workers, especially those facing the greatest risk of exploitation, by making sure they are classified properly and that they receive the wages they’ve earned.”

Some who have worked as independent distributor sales reps in the promo products industry are in favor of the rule, saying it will help ensure such professionals are properly compensated. One rep shared a story in which he was taken advantage of by a distributorship for which he worked as an independent contractor.

“I was not paid for any of the extra work that I did to help build the company,” the sales professional told ASI Media. “I spent countless hours meeting with potential clients, building relationships with those clients, etc. Some ordered big, some did not, but I was still out there prospecting in the name of my company. So, my company got countless hours of advertisement, and I got nothing in return. Not even minimum wage or health benefits.”

64 million Americans
performed at least some freelance work in the past year, an all-time high, representing 38% of the entire U.S. workforce.(Upwork)

Broadly speaking, the Labor Department regulation says that a worker is not an independent contractor if they’re economically dependent on an employer for work. From there, the rule establishes six nonexclusive factors that must be analyzed to determine if a worker is an employee or independent contractor under FLSA.

The factors are the degree to which the worker has the opportunity for profit or loss depending on managerial skill; the financial stake and nature of any resources a worker has invested in the work; the degree of permanence in the work relationship; how much control the employer has over the work; the skill and initiative required of the worker; and the extent to which work performed is an integral part of the employer’s business.

Critics call the rule “clear as mud,” asserting it creates confusion for companies and freelancers that’s likely to choke business relationships between those groups.

Concerned professionals in promo worry that the rule will lead to job loss, heavier bureaucracy for industry businesses and greater labor expenses. A primary concern is that distributorships may break off relationships with independent contractor salespeople, rather than risk potentially violating the regulations or incurring the added expense that would come with making the worker an employee.

“While the Labor Department believes the new rule will merely result in the independent contractor becoming an employee, insignificant consideration is given to the other alternative: namely, that the employer could opt to end the position,” attorney Chuck Machion, senior vice president and senior counsel at ASI, has said.