The Big Story: PRO Act would limit startups’ access to independent contractors. House lawmakers this week passed legislation—known as the Protecting the Right to Organize (PRO) Act—that would, in part, change the definitions of employees and independent contractors. By expanding the definition of an employee, the bill would make it more difficult for startups and other small businesses to hire the outside contractors they need to launch and grow their companies.
The PRO Act would nationalize California’s ABC test for determining when workers should be classified as employees. Under the test—which California codified in 2019 as part of Assembly Bill 5 (AB5), the state’s sweeping changes to its labor laws that was changed via a ballot measure last year—a worker is considered a full employee unless: “A) the individual is free from control and direction in connection with the performance of the service, both under the contract for the performance of service and in fact; (B) the service is performed outside the usual course of the business of the employer; and (C) the individual is customarily engaged in an independently established trade, occupation, profession, or business of the same nature as that involved in the service performed.” This standard, which requires workers to meet all three criteria in order to maintain their independent contractor status, would likely eliminate most types of contract work.
By expanding the ABC test to U.S. companies of all sizes, the government would be forcing nascent companies with shoestring budgets to sharply curtail the type of outside contract work they rely on to grow. The average startup launches with roughly $78,000, and many entrepreneurs are especially dependent upon the services of independent contractors to design, create, and market their products before they are able to hire full-time talent. And while California’s AB5 was focused on gig companies, reports following its implementation found that it affected a variety of non-gig industries in the state that depend upon freelancers and outside contractors to function. The PRO Act, however, does not exempt any occupations from the new requirements, meaning that companies of all sizes and types would be required to abide by the ABC test. Rather than codifying this classification standard, policymakers should instead be finding ways to further embolden long-term startup growth and formation so early-stage companies are well positioned to drive the country’s economic recovery.
Policy Roundup:
Stimulus package signed into law. President Joe Biden signed Congress’s $1.9 trillion stimulus package into law yesterday, providing much-needed relief to Americans and small businesses affected by the pandemic. While the stimulus sets aside funding to support struggling entrepreneurs, the startup community is hopeful that policymakers will continue to offer more targeted relief proposals to support early-stage companies in need of federal assistance. And certain provisions in the stimulus plan—such as reductions in the threshold at which gig economy companies have to report their users’ earnings to the IRS—threaten to harm the startup ecosystem by imposing burdensome reporting requirements that could drive away new and existing gig workers. While efforts to support struggling small businesses are worthy, policymakers cannot offset their relief proposals with provisions that are likely to have a chilling effect on the long-term growth and success of the U.S. startup ecosystem.
Lawmakers introduce legislation to boost Internet access. A coalition of House and Senate Democrats this week introduced a $94 billion broadband infrastructure package to help narrow the digital divide by expanding Internet access and connectivity speeds across the country. The proposal—known as the Accessible, Affordable Internet for All Act—comes as policymakers continue to prioritize funding for broadband expansion efforts, with Congress allocating billions of dollars in the recent stimulus plan to broadband infrastructure projects. Yesterday, all 32 Democrats on the House Energy and Commerce Committee also introduced legislation that would, in part, allocate billions of dollars towards the nationwide deployment of reliable, accessible, and affordable high-speed broadband services.
Labor Department proposes eliminating the Independent Contractor Rule. The Department of Labor announced this week that it plans to solicit public feedback on a proposal to eliminate a Trump-era regulation, known as the Independent Contractor Rule, that would have established a five-factor test for determining the classification of independent contractors. The rule would have provided startups with the clarity and certainty needed to navigate regulatory ambiguity when it comes to contract work. As Engine noted in comments to DOL last year regarding the rule, “any effort to distinguish between an employee and an independent contractor needs to take into account the lifecycle of an American startup.”
Startup community pushes White House to implement International Entrepreneur Rule. Startups and entrepreneurs are calling on the Biden administration to revive the International Entrepreneur Rule, an Obama-era program that created a pathway for immigrant entrepreneurs to launch and scale new companies in the U.S. Despite the Trump administration’s desire to eliminate the program, the rule remains in effect, and the startup community is urging President Biden to implement the rule and take additional steps to welcome immigrant entrepreneurs into the country.
Startup Roundup:
#StartupsEverywhere: Bellevue, Washington. Empathy Rocks is a startup that’s using technology to teach people to be empathetic. We recently spoke with Dr. Grin Lord, the Co-Founder and CEO of Empathy Rocks, to learn more about her startup’s work, how she’s working to combat AI bias, and her experiences as a woman founder.
Survey: COVID-19, Startups, and Barriers to Success. Engine is conducting a survey of startups in our network to gather feedback on some of the ways policymakers can work to support entrepreneurs affected by the pandemic. We’re asking startups in our network to fill out this survey (approximately 10 minutes) by Sunday, March 14th.
