Federal legislators have reintroduced a controversial bill that could potentially threaten the independent contractor (IC) classification of workers in the promotional products market and other industries.

Still, it’s a long shot that the Richard L. Trumka Protecting the Right to Organize Act (PRO Act) will become law given the Republican-controlled Congress and White House. Notably, the bill’s reemergence comes at a time when enforcement of U.S. Department of Labor (DOL) rules regarding ICs introduced under the Biden administration appear to be in doubt. Here’s what’s going on.

The Proposed PRO Act Returns

On March 5, Sen. Bernie Sanders (I-Vermont) led legislators in reintroducing the PRO Act in the U.S. Senate. The main thrust of the bill is to strengthen unions and encourage more workers to organize.

Still, the legislation also contains language that would, in effect, prevent employers from classifying workers as ICs under most scenarios. If enacted, the PRO Act would likely force companies across industries, including promo, to reclassify ICs to employees under the National Labor Relations Act (NLRA).

That’s a concern for the promotional products industry, which relies on ICs, especially as sales representatives.

The PRO Act, as again proposed, would require a worker to be classified as an employee and not an IC under the NLRA unless three parameters – often called an “ABC” test – are met.

Those three factors are that the worker is free from control and direction in connection with the performance of the service and/or work; the service is performed outside the usual course of the business of the employer; and that the worker is customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the service performed.

“If distributors were forced to hire previously considered independent contractors as employees, there will be a significant, and I believe negative, impact on the promotional products industry.” Chuck Machion, ASI

Promo industry leaders have criticized past incarnations of the PRO Act that contain similar language. From an employer perspective, employees reportedly cost approximately 30% more than ICs – what would be a significant fixed-expense spike at a time of other inflationary pressures.

The potential for such a jump could compel merch companies to sever ties with at least some of their ICs, putting people out of work and hurting the sales efforts of promo businesses. Some California promo firms let IC sales pros go following the implementation of Golden State-specific legislation that compelled reclassifications from IC to employee status.

“If distributors were forced to hire previously considered independent contractors as employees, there will be a significant, and I believe negative, impact on the promotional products industry,” said Chuck Machion, senior vice president/senior counselor for ASI. “Most importantly, a large number of independent salespeople would be without work, as the distributors would not have the financial wherewithal to hire them as employees.”

From a worker perspective, many in promo favor the independence that comes with being an IC and don’t want the encumbrances of official employee designation. Some, however, would like the added benefits of employee status.

Either way, the likelihood of the PRO Act becoming law appears slim. Republicans generally oppose the legislation, and the party holds a majority in both chambers of Congress and controls the White House. “There is little chance for this to pass,” Machion opined. Even so, industry groups that strongly oppose the PRO Act aren’t taking its failure as a given.

To wit, Associated Builders & Contractors said in a statement that the legislation, if enacted, would violate workers’ free choice and privacy rights, force unions on employees who have voted against such representation, cost millions of American jobs and threaten supply chains.

“The reintroduction of the PRO Act displays continued disregard for the livelihoods of small business owners, employees and independent contractors,” said Kristen Swearingen, Associated Builders & Contractors vice president of legislative and political affairs. “Congress must reject this ruse to appease union bosses and instead prioritize legislation that protects fair and open competition, bolsters worker choice and preserves employer rights.”

Proponents like Sanders believe the PRO Act will strengthen workers’ ability to join together and negotiate for better working conditions, meaningfully punish employers that exploit workers and close what proponents have described as “loopholes” that lead to misclassifying workers as ICs when they should be employees.

“The PRO Act is long overdue, and I am proud to be introducing this bill in the Senate,” Sanders said.

Labor Department IC Rule Enforcement in Doubt

Last year, the Biden administration’s Labor Department enacted new rules that introduced stricter criteria for evaluating who should be classified as an IC and who an employee under the Fair Labor Standards Act (FLSA). In effect, the rules made it much harder to be an IC under FLSA.

The regulations, which called for at least six factors to be considered in totality to determine IC or employee status, replaced Labor Department regulations on ICs introduced in 2021 under the first Trump administration. The Trump era rules were considered to allow for much wider application of IC status than the newer rules – in promo and across industries.

Promo leveled similar criticisms against the Biden-era Labor Department regs as it did against past incarnations of the PRO Act, citing potential for lost work and freedom of ICs, as well as higher costs and diminished workforces for employers as potential repercussions.

“We can expect that the DOL will drop its defense of the 2024 independent contractor rule.” Katelynn M. Williams, Foley & Lardner

Still, court challenges met Labor Department regulations, and at least some companies that rely on ICs decided to see how things would play out before judges and how last year’s presidential election might influence enactment of the Biden-era rules.

Answers may now be emerging.

The U.S. Court of Appeals for the Fifth Circuit recently granted the Department of Labor’s request to delay until March 25 oral arguments in a case challenging the IC rules enacted in 2024. Keep in mind, the current Labor Department is now part of the Trump administration. The delay was reportedly for the new Republican administration’s labor officials to decide how they want to proceed relative to defending the rule – or whether or not to proceed at all. Some legal experts think the writing is on the wall.

“We can expect that the DOL will drop its defense of the 2024 independent contractor rule,” wrote Katelynn M. Williams, senior counsel for law firm Foley & Lardner. “Incoming DOL leadership might restore the 2021 independent contractor rule or might just let courts analyze classification questions without agency guidance.”

The 2021 IC rule used a five-factor test to determine whether a worker is an IC or employee. Two factors were considered “core”: the nature and degree of the worker’s control over the work, and the worker’s opportunity for profit or loss. Generally, promo executives considered the merch market’s traditional IC models as valid under FLSA per the 2021 rules.

If the Labor Department declines to issue guidance, it’s likely the courts going forward will analyze complaints about IC and employee status on what Williams described as a “fact-intensive and case-specific” basis.

That fact-intensive judicial analysis is still a “good reason to proceed with caution when classifying workers as independent contractors,” Williams wrote, saying that before designating a worker an IC rather than employee companies should consider these questions:

• What is the nature and degree of control that the worker has over their own work?

• What type of opportunity for profit or loss does the worker have?
• Is the relationship with the worker nonexclusive?

• Is the worker providing services on a project-specific or sporadic basis, rather than indefinitely or continuously?
• Are the worker’s services integral to the company’s principal business?
• Do company employees perform the same type of services as the worker?
• Does the worker bring a special or unique skill?
• Is the worker located in a state that has the “ABC” test-like requirements that could classify them as an employee?