Newly proposed legislation in the U.S. House of Representatives would effectively ban independent contractor classifications under federal labor law. H.R. 2474, the Protecting the Right to Organize (PRO) Act, amends the National Labor Relations Act to establish a new definition of employees that expressly eliminates independent contractors in the U.S. The new legislation makes a broad presumption that all workers in the U.S. are employees unless each requirement of a newly established “ABC” test can be met.
The legislation also sets new criteria for determining occupational status as an independent contractor rather than as an employee. The ABC test outlined in H.R. 2474 is reportedly vague, and the proposed legislation does not provide a specific method to meet the requirements implemented by the test. If signed into law, the PRO Act would significantly change how thousands of promotional products companies operate and do business with each other.
Like other industries, promotional products companies rely on the services provided by independent contractors. This popular business model is mutually beneficial for host companies and contractors in circumstances where traditional employment relationships are not pragmatic for either party. Promotional consultants in the U.S. are mostly small-business owners—they set their own hours and schedules, set their own rates, select their clients and market under their own brands.
Promotional consultants remain independent because they can run a business as their own, decide their own career path, and be involved in their family and community, among other incentives. These contractors are self-employed even though they may sell on behalf of a single company. Without the support of a distributor firm essentially acting as a lender to the consultant, the promotional consultants would either have to require payment from end buyers in advance or have to finance the orders themselves. Many independent contractors in the promotional products industry run very small businesses, are often sole proprietors and are unable to self-fund these transactions.
This proposed federal legislation comes on the heels of California’s Assembly Bill 5 which addresses employee classification and became law on January 1. Under that law, workers are considered employees unless they can meet all three conditions that would classify them as independent contractors. The federal bill is very similar to California’s law, so much so that the language is nearly identical in some places.
PPAI’s sources indicate the PRO Act will be scheduled for a full vote on the House floor very soon. The Association urges industry practitioners to reach out to their House representative to educate them about why independent contractors in the promotional products industry do not want to be forced to reclassify as employees. Click here to take action.
