US President Donald Trump this week fired what he believes will be a killer blow to his opponents Joe Biden and Kamala Harris. He has challenged head-on their plan to attack American small business and independent contracting. Trump believes his clarity on what constitutes independent contracting will save the American spirit of entrepreneurship. Coincidentally, while the Trump entrepreneurial rules are similar to current Australian rules, in Australia Treasurer Josh Frydenberg is set are set to save countless thousands of entrepreneurs by adopting a system on bankruptcy protection that is similar to America.
The well timed Frydenberg plan is being widely publicised, but in the US the bulk of the American media is besotted with the Supreme Court manoeuvres, and did not understand the significance of the Trump actions. But the Democrats and their key supporters - the unions and the case funders - certainly did.
Two weeks ago I alerted my Australian readers to what Trump was planning.
In California the AB5 law- promoted by Harris - severely curbs independent contractors and the gig economy. Biden and Harris plan to introduce AB5 around the US so it was an obvious area of Trump attack.
Careful planning
What I did not anticipate was the incredibly detailed work and careful planning that Trump and his people have displayed. It will be a model not just for the US but the world at a time when work patterns are changing and Uber style operations are rising in importance. As always, I am not in the business predicting the US presidential poll outcome. My job is to highlight important developments that the US media overlooks.
What surprised me (and confused the US media) was that the Trump attack was not delivered by the President but rather by his Department of Labor. It has prepared a 157 page review of the history of American entrepreneurial rules on independent contracting and the difference between an employer relationship an independent contracting relationship.
It is scathing about the Democrats AB5 plan. I have chosen these words from the US Department of Labor chief Eugene Scalia:
“The growth of the ‘gig’ economy, in which cellphone apps provide a ‘platform’ for connecting willing workers with interested customers, has provided new convenience and work opportunities for millions of Americans. But that economy and other developments are seen as subversive by those who believe that for most workers, being a company’s employee — not an independent contractor — is the only proper aspiration.
“That’s the view behind a law California passed last year - AB-5 - which requires companies to treat as employees a broad range of workers who previously would have been recognised as independent contractors. In response, some businesses stopped hiring Californians; Uber and Lyft announced they were suspending operations in the state, before a court-ordered stay gave them a reprieve from the law while they pursue appeals.
“As originally enacted AB-5 was so unworkable that the state Legislature felt compelled to riddle it with amendments, establishing dozens of job-specific exemptions.
“Unlike AB-5, our rule doesn’t propose radical changes in who’s classified as an employee or independent contractor. Instead, our rule aims to simplify, clarify and harmonize principles the federal courts have espoused for decades when determining what workers are “employees” covered by the minimum wage and overtime pay requirements”
The Department of Labor study goes back around 60 years and shows how the old days of lifetime jobs have gone. Many Americans are basking in the flexibility of running their own businesses. The US rule as to whether a person is an independent contractor or employee revolves around whether they are in business for themselves or are economically dependent on a potential employer for work and therefore an employee.
There is an “economic reality test”, including the nature and degree of the worker’s control over the work and the worker’s opportunity for profit or loss. The rule emphasises the actual practice rather than what may be contractually or theoretically possible, as well as the severability provisions.
There are only some four weeks for comment so it looks to me as though the Trump plan will be implemented by regulation prior to the presidential election and will replace the Californian AB5 ban. The power of the Trump regulation may be challenged in the Supreme Court.
Trump is hoping that the Democrats take him on, because if they do, he will attract small business America. If they roll over, his actions will not be as effective.
The unions and the litigation lawyers see the Democrat’s plan for a nationwide AB5 as a huge benefit to them. They will be horrified by this new twist. But the army of small enterprises will be celebrating.
Era-making change
Just as the Trump changes are a one in sixty year event, the Frydenberg plan to help thousands of small Australian enterprises survive bankruptcy by continuing to trade is a one in 20 year change.
In very different ways, Trump and Frydenberg are recognising that the nature much of the work in our societies is changing so the rules must be clear and those that take a risk should not be bankrupted at the first failure because they are the nation’s new work generators.
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