In summer 2021, Entrepreneur hired me to write a series of articles opposing the Protecting the Right to Organize Act. It was the magazine’s first-ever advocacy journalism campaign, and it focused on two parts of the PRO Act that directly threatened the livelihoods of Entrepreneur’s readers: freelance-busting language called the ABC Test that targets independent contractors, and language known as “joint employer” that targets franchises.
That series ended up including nine stories that are all viewable from links at the bottom of this kickoff piece. It won a FOLIO: Eddie for being the Best Series of Articles, Consumer/General, in any magazine that whole year.
In large part, that series succeeded because of all the great sources I interviewed—including an attorney named Michael Lotito. He came recommended as someone who could talk me through the joint-employer language, so I’d understand it as well as I understood the independent-contractor language. His title was co-chair, Littler Workplace Policy Institute and Shareholder. Littler is one of the most powerful labor and employment law firms in the nation.
After that series of articles ran, Lotito emailed to thank me for taking such care in reporting the details accurately—a gracious gesture that, I can tell you after 30 years as a writer and editor, almost nobody ever takes the time to offer. Lotito also said that if I ever needed anything else, I could feel free to call him.
Fast forward to December 27, 2021. The National Labor Relations Board put out a call for amicus briefs about independent-contractor policy. I wanted to write and file one on behalf of a grassroots group I had co-founded, Fight For Freelancers.
There was just one problem: I didn’t know what an amicus brief was.
I emailed Lotito, who sent me PDFs of amicus briefs so I could learn the format. I built a fire in my den, cranked up my laptop on a weekend afternoon and got to work writing the first draft, which Lotito’s team later helped us, pro bono, to file.
Lotito, at about 37 minutes into this podcast, described how when he read that amicus brief, he was “absolutely stunned at its persuasiveness.” That brief also got the attention of attorneys at the Pacific Legal Foundation, who were suing the state of California over AB5 at the time. They asked if I’d consider turning the National Labor Relations Board brief into one that could be filed before the U.S. Supreme Court.
My response amounted to: Sure. But how do I do that?
Lotito—again, pro bono—connected me with a team from Littler to help me get the Supreme Court version properly formatted and filed. My fellow freelancers and I even added amici representing more than 275,000 Americans—after Lotito taught me that amici is a fancy lawyer word for co-signers and that, well, co-signers were something we needed.
I’ve gotten to know a bunch of people at the Littler firm since that first interaction with Lotito. From the assistants and paralegals to the top attorneys, they are all smart, helpful and deeply dedicated to protecting our freedom to be self-employed.
One of my favorites is Alex MacDonald, whose title is co-chair, Littler Workplace Policy Institute and shareholder.
He just sent me a copy of the powerful 26-page public comment he wrote for Littler in opposition to the New Jersey Department of Labor & Workforce Development’s proposed independent-contractor rule.
You can read the Littler public comment in full here:
This public comment comes out swinging hard, right from page one, where MacDonald wrote:
“The rule takes many positions that are incompatible with independence and flexibility. These positions are unjustified by caselaw or statutory text. They conflict with federal law. And perhaps worse, they threaten work opportunities in high-growth industries. Together, they pose an existential threat to flexible, independent work. If they are adopted as written, they could chase whole industries out of the Garden State.
“We therefore urge the Department to reconsider the rule. The rule would be bad law and worse policy. It needs serious rework. Nothing less than a total rewrite will preserve independence and flexibility in New Jersey.”
No ambiguity there. Our friend and mentor Michael Lotito, who died in December 2024, would be very, very proud.
Here’s my Q&A with MacDonald about the public comment that he wrote and filed in New Jersey on behalf of the Littler law firm.
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Q&A with Alex MacDonald
Your public comment states that while New Jersey’s Labor Department describes its proposed rule as, in part, an effort to codify existing case law, it in fact “would stretch the caselaw in significant ways. It would contradict controlling decisions. It would narrow compliance options. It would restrict novel work arrangements. And in total, it would make it harder for independent workers to pursue or find opportunities in New Jersey.”
One of your first examples is how the rule would treat part B of the ABC Test to determine independent-contractor status. Part B is one of the things they monkeyed with in California, leading to all kinds of chaos and harm. The New Jersey version of the ABC Test has two elements in part B. California made it just one.
Your public comment states that New Jersey’s proposed interpretation effectively eliminates that same second element in part B of the ABC Test—meaning that without changing the actual regulatory language on paper, New Jersey’s Labor Department is trying to interpret it out of existence.
How on earth is that even possible?
Under prong B, a worker can be an independent contractor when she works outside the hiring entity’s usual course of business, or places of business. This has long been understood to protect the independence of remote or ambulatory workers—installation crews, delivery drivers, salesmen going door to door, and so forth. These people satisfy the second prong-B option because they do not report to any fixed place of business, where they could be managed or supervised. Instead, they work in the field or locations of their own choosing, away from any direct oversight.
The rule proposes to narrow that approach. It asserts that when companies do not have fixed places of business, their places of business are wherever their services are performed. Their places of business are wherever any “essential” or “integral” services are performed. For example, the rule says that for some app-based companies, like rideshare or delivery-network companies, the places of business include a worker’s car. That means a driver invariably fails the “places of business” option.
That is not, however, what the statute says. The statute sets out two options for workers who want to work independently: a worker can be independent when she works outside the normal course of business or the usual places of business. And under normal rules of statutory interpretation, each option must mean something.
The Department cannot read one option out of the statute under the guise of interpreting it. It cannot delete words from the statute and rewrite the law.
You also wrote that eliminating the “places of business” option from part B of the ABC Test in this manner would be “unprecedented.”
That sounds really, really bad. Especially since that’s a part of the ABC Test regulatory language that California changed, and that hurt so many independent contractors out there.
The ABC Test has a long history in unemployment-compensation law. At least one state, Maine, has used the test for unemployment purposes since the 1930s. But in unemployment law, the test has traditionally included the “places of business” option.
The first state to use the test without that option was Massachusetts, which adopted a new, narrower ABC test in 2004. But that new test applied only to Massachusetts’s wage-and-hour laws. It did not apply to Massachusetts’s unemployment law, which kept the traditional prong B.
The first state to eliminate the “places of business” option for unemployment purposes was California. In 2020, California enacted AB5, which established a strict ABC Test for most purposes, including unemployment.
Right—and that’s when this whole current wave of freelance busting began, including with New Jersey’s first attempt to copy AB5 via legislation. That attempt failed in large part because so many of us independent contractors showed up at the State House in Trenton and raised the roof with opposition.
Now, based on what you wrote in your public comment—and based on what numerous lawmakers here in New Jersey have written in letters to the Labor Department—we have an attempt to achieve a version of what the New Jersey Legislature rightfully rejected after seeing the mess unfolding in California, only this time the attempt is through regulatory rule-making by the Labor Department.
Even in California, the legislature collected feedback from the business community, realized that its rules could harm legitimate contractors, and exempted dozens of industries from the harshest effects of its new test. What’s more, voters overwhelmingly rejected the narrow test for certain app-based drivers, who work mainly in their cars. California also made numerous exceptions to the general rule, providing a more lenient test for certain referral businesses, independent professionals, and others.
So even California—until now the strictest state in the country—allows some off-site workers to provide services as independent contractors.
No such exceptions appear in the New Jersey rule. So if the rule were passed, New Jersey would stand alone.
It would be the only state to classify a worker as an employee under prong B merely because the worker provides services in a place often associated with those services (though outside the business’s control), such as a car or customer’s home or business. That result would be unprecedented, unjustified, and unwarranted.
Your public comment also takes issue with what the State of New Jersey is trying to do with regard to Part A of the ABC Test.
You wrote that what’s proposed with that section of the regulatory language would introduce novel forms of “control.” What does that mean?
Under prong A, a worker may be an independent contractor when she is free from control under her contract and in fact. This “control” factor is based on common-law principles: it incorporates a context-based approach on longstanding agency law. Under those principles, the relevant “control” is control exercised by the hiring entity: the entity is an employer when it dictates how the work is done.
The rule, however, would turn that principle on its head. It would consider not control resulting from the entity’s own decisions, but also control resulting from legal requirements. The result would be both illogical and unprecedented.
There’s that word “unprecedented” again.
And again, that sounds really, really bad.
Logically, legal compliance has nothing to do with a worker’s status. That’s because the law often requires a company to take the same precautions for both its employees and its contractors. Contractors and employees have no different status under the law; both must follow the same rules. Courts, therefore, have consistently disregarded legal compliance in their analysis.
The rule, however, would treat compliance as control even when a company has no choice but to ensure compliance. The company could not require its contracting partners to follow the law without converting those partners into its employees.
Every regulation, then, would become an implicit classification test. Every legal requirement would become evidence of employment.
You then enumerate some of the ways the State of New Jersey wants to interpret the meaning of “control.”
One that I thought was easy to understand was “reporting” as control. It sounds as if an editor doing something as simple as asking me, a freelance writer, when I might have a file ready to go could be considered a form of control under New Jersey’s proposed interpretation.
Which is, of course, ridiculous.
The rule takes an overly broad approach to reporting. The rule treats reporting as control whenever it relates to “an aspect of the individual’s services” and is required at “prescribed times of intervals.” That formulation threatens to upset thousands of common and uncontroversial reporting requirements in commercial contracts.
Contracting parties almost always require some kind of reporting: general contractors must report on the progress of construction projects; business consultants must submit regular invoices; lawyers must give their clients monthly summaries of their time. Yet under the rule, all of these standard reports would be treated as evidence of control.
And then, the public comment moves into your analysis of New Jersey’s plans for part C of the ABC Test—which you call “unworkable.”
In a court ruling known as East Bay Drywall, the New Jersey Supreme Court explained that prong C focuses on whether a worker has a business that will survive the end of the contract. If the worker will continue to offer similar services to other clients, she has an independently established business, profession or trade. But if she will effectively stop providing services, she will “join the ranks of the unemployed.” She has no independent business and should be considered an employee.
That formulation is longstanding and workable. The proposed rule, however, would replace it with an unrealistic and unworkable standard.
The proposed rule would state that a worker has an independent business, profession or trade only when she in fact has other clients. It would not be enough that she can provide services to other clients, or even that she has tried to provide services elsewhere. She would have to actively and regularly provide similar services to others.
The rule, then, would ask not whether she is independent, but whether she is successful. Only successful workers could remain independent contractors. Others would have to work as employees.
Yeesh. How could a person even become an independent contractor in the first place if that’s the way this part of the ABC Test is interpreted?
It disadvantages new contractors who may have trouble finding clients. Few clients will want to be the first, as none of them will want to take on liability as the worker’s de facto employer.
This also puts an impossible burden on contracting businesses. Businesses do not often ask their contractors for a list of the contractors’ other clients. Nor could they without running afoul of another restriction—reporting requirements under prong A. So the rule would force them to either independently research each contractor’s clients or to roll the dice on misclassification.
You also wrote that this proposed rule “creates tension with federal unemployment law and threatens New Jersey employers with a tax hike.”
How so?
Since the 1930s, the unemployment-insurance system has been a partnership between the federal government and the states. While the states administer their own programs, the federal government provides much of the funding.
The federal government also offers state employers a generous tax credit. Federal law taxes the first $7,000 in wages that an employer pays to an employee at 6%. But if the employer also pays taxes to an approved state program, the employer can offset up to 5.4%.
Those benefits, however, come with conditions. State programs must conform to certain minimum federal standards. For example, with limited exceptions, a state may spend money from an unemployment trust fund only to pay out unemployment benefits. Unemployment benefits are the compensation an “employee” receives when she becomes “unemployed.” In other words, a state must use funds only for unemployment benefits; and unemployment benefits must go to employees.
The rule ignores that limitation. As written, it would threaten to cover workers who have been deemed independent contractors by federal authorities—app-based contractors. So on its face, it would use unemployment funds to pay nonemployees.
App-based workers have been determined to be contractors for unemployment services since at least 2020. In that year, Congress created the Pandemic Unemployment Assistance program. That program provided emergency benefits to workers who were otherwise ineligible for unemployment insurance. Among the affected workers were app-based “gig” workers, whom the U.S. Department of Labor considered “self-employed.” The Department’s guidance applied nationwide, even in states that used the ABC Test.
Yet now, the rule treats these workers as if they were included. In multiple ways, it singles out app-based platforms and treats common features of app-based work as evidence of employment. It therefore presupposes that app-based workers can receive unemployment benefits—a view directly contrary to the one expressed by federal authorities.
That conflict creates serious risks for New Jersey taxpayers. If New Jersey pays benefits to nonemployees, its system may be deemed noncompliant. And if its system is noncompliant, its employers will have to pay the full federal tax.
The rule could therefore amount to a giant tax hike for New Jersey businesses.
One of my favorite lines of your public comment is where you wrote: “The rule’s jobs analysis is irrational.”
I have to tell you, I feel like the word “irrational” is being kind. I actually laughed out loud when I read this part of New Jersey’s proposed rule myself. I posted about it on X.
This is the actual Jobs Impact section of New Jersey’s proposed rule, in its entirety:
That’s it. That’s the entire Jobs Impact section of this proposal that threatens the incomes and careers of an estimated 1.7 million independent contractors across the state of New Jersey.
The Department did not explain its conclusion, provide any rationale, or cite any evidence. As you showed above, its entire analysis consisted of a single sentence.
Presumably, the Department believes that the rule will not affect jobs because the rule merely codifies existing law. But that presumption is wrong for three reasons. First, it mischaracterizes the rule. Second, it is self-contradictory. And third, it ignores a large and growing body of research to the contrary.
Let’s take those three reasons one by one, in terms of why you believe the Jobs Impact section of this proposed rule is just plain wrong.
Start with the rule itself. The rule would do much more than “codify” existing law. It would take unprecedented and unsupported positions on topics ranging from legal compliance under prong A to the relevance of earning levels under prong C. And again, for many businesses, it would effectively eliminate the “usual place of business” option under prong B. These changes shift the legal landscape, which will inevitably reclassify some workers. It is therefore incorrect to say that the rule merely codifies existing law.
Second, even if the rule only codified existing standards, it would still affect jobs. Rules work in part by informing the regulated community about legal requirements. And by providing that information, they inform and influence real-world decisions. Here, the rule focuses on worker classification; it tells businesses when and how they can engage independent contractors. Some businesses will react by replacing their contractors with employees. Others will react by discontinuing their services.
But either way, these reactions will affect jobs—even if the rule does nothing but inform businesses of existing legal rules.
This is where you wrote exactly what we all learned from the fallout after California’s attempt at this kind of freelance busting: “And make no mistake: businesses would react by eliminating jobs.”
The rule would reduce operational flexibility and increase costs, especially for digital work platforms. Those platforms work in part by distributing work opportunities on an open digital market. On many platforms, workers can access the market on any day at any time. That flexibility allows them to find work when it fits the schedule, and it allows the platforms to offer open access.
But under a strict classification regime, the open model becomes impractical. The workers may become employees, and their access to the platform raises questions under employment laws. They may be entitled to pay while merely browsing the platforms for work. They may also create additional liability for the platforms, raising insurance costs. Those dynamics lead platforms to restrict access, tighten controls, and eliminate opportunities.
And then what is the third reason you cited, that this Jobs Impact section of New Jersey’s proposed rule ignores a large and growing body of research to the contrary?
The Department’s rationale contradicts the weight of economic evidence. A large and growing body of literature has shown that strict classification rules destroy jobs.
For example, earlier this year, economists at the George Mason University Mercatus Center surveyed how the ABC Test affected employment in multiple states. They found that on average, the ABC Test depressed employment by 4.79%. That figure included W-2 employment and self-employment, both of which fell by more than 4%. Those results were consistent and sustained, growing over time. They left no doubt about how the ABC Test affected jobs: It killed them.
Those results confirmed prior studies, which likewise found disastrous job effects. By contrast, other studies have found that independent work boosts both self-employment and W-2 employment.
In 2021, Dr. Robert Kulick studied how the entry of Instacart, a multi-sided delivery platform, affected employment in the grocery industry. He found that Instacart consistently boosted employment in the grocery industry by more than 4%. That effect accelerated during the pandemic, when Instacart accounted for nearly 90% of all job growth in the industry. So even as Instacart was empowering some people to work independently, it was also helping other people find work as employees.
These studies prove what economists have long known: Job growth is not a zero-sum game. When independent workers enter a market, they also support W-2 jobs. Grocery-delivery workers bring new revenue to grocery stores, which can then hire more employees. Meal-delivery workers bring new revenue to restaurants, which can also hire more employees. Rideshare drivers bring revenue to all kinds of local businesses, which can hire even more people. Same-day retail delivery workers bring new revenue to shops, including many small businesses who rely on flexible delivery options allowing them to compete with big-box stores.
What’s more, the companies that power these transactions also employ their own workers—engineers, customer-service agents, salespeople, marketing professionals, and more. In short, self-employment and W-2 employment do not compete with each other; instead, they feed into a virtuous cycle of job growth.
A virtuous cycle of job growth—that sounds like something we should be striving to achieve here in my home state of New Jersey.
The rule would reverse the cycle, with no economic analysis. It would cut off many independent economic opportunities, including opportunities in the app-based services industry.
And by doing so, it will not only destroy those independent jobs; it will also destroy many W-2 jobs in related industries. The economic data on that point is clear. To suggest otherwise is irrational, arbitrary and capricious.
Last, I’d like to talk about the part of your public comment that discusses the proposed rule’s effect on vulnerable populations—especially with regard to women, which economist Liya Palagashvili of the Mercatus Center also discussed in the public comment that she filed, and which the Independent Women’s Forum also discussed in the public comment that IWF filed.
In your public comment, you wrote: “The overwhelming evidence shows that independent work opportunities predominantly benefit women, racial minorities, and people with exposure to the criminal-justice system. It is these same people, therefore, who will be most harmed by the rule.”
Please explain why.
The rule’s main victims will be women.
Studies have shown that women often turn to independent work because they need scheduling flexibility. Women are statistically more likely to have caregiving responsibilities, and those responsibilities often force them to seek out work with more flexible hours.
They cannot simply choose to take W-2 jobs instead, as those jobs come with more rigid schedules. These women must do independent work or no work at all. So if independent work becomes less available, they will bear the brunt of the loss.
But it’s not just women who would be hurt, right?
Right. The rule will also hurt racial minorities, immigrants and people with criminal records. Those groups often face barriers in the traditional employment market, including shorter job histories, language requirements and discrimination. As a result, these groups often turn to self-employment and independent work, which offers less friction and lower barriers to entry.
If independent work becomes scarcer, they will feel a disproportionate share of the pain.
Thank you for sharing your public comment with me, so I could share it here and help other people understand why it’s so important for this New Jersey proposal to be rescinded. And please share my thanks with the whole Littler team for everything you all have done, and continue to do, to try and protect independent contractors like me.
I subscribe to one of Littler’s free e-newsletters that’s really helpful in keeping up with labor and employment policy developments. Where can readers learn more about the Littler firm’s latest activities?
Thanks for asking. Our latest press releases are posted here, and readers can sign up to receive our various newsletters here.
And you post often on LinkedIn, too.
I do. Readers who are on LinkedIn can follow me here. I do my best to respond to comments when I can.
My compliments on your great work on this!
Can incorporating as an LLC and serving as a vendor circumvent these onerous laws?