A new federal bill that would redefine what constitutes an independent contractor could have far-reaching effects on the promotional products industry.

The main thrust of the Protecting the Right to Organize Act (PRO Act) is to strengthen unions and encourage more workers to organize, which also poses potential implications for companies in the $20.7 billion promo industry.

Still, it’s language in the legislation related to independent contractors that has some industry leaders especially worried.

Introduced in the House of Representatives in early February, the PRO Act would largely wipe out independent contractor status under most scenarios and compel companies across industries in the United States to reclassify contractors as employees.

In particular, the legislation says that an “individual performing any service shall be considered an employee…and not an independent contractor 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.”

That language indicates that a big implication for promo would be that sales professionals, graphic designers and others who work as independent contractors for distributors and suppliers would have to be reclassified as employees.

Some promo executives believe that would be disastrous, as it could exponentially drive up industry firms’ labor costs, making companies less competitive, and/or compel companies to part ways with many of those currently classified as independent contractors, leading to a rash of hard-working promo professionals being put out of work.

“Independent contractors play a critical role in the promotional products industry, with both distributor and supplier firms. This legislation would be a major blow to industry entrepreneurs,” said Dawn Olds, senior vice president of operations for Sterling, IL-based Top 40 distributor HALO Branded Solutions (asi/356000). Olds is also head of Promotional Products Association International’s (PPAI) Government Relations Advisory Council (GRAC), which opposes the PRO Act. “PPAI and GRAC are strongly urging all industry participants to make their voices heard in Congress.”

Craig Nadel, president of Los Angeles-based Top 40 distributor Jack Nadel International (asi/279600), has already had experience with California-specific legislation that compelled reclassification of certain independent contractors to employees. He explained that when the rules went into effect, there were roughly 10 independent contractors working in sales with JNI.

Craig Nadel, Jack Nadel International

“They were pretty much semi-retired people doing a few orders from home who liked us and we liked them,” said Nadel, a member of Counselor’s Power 50 list of the industry’s most influential people. “After the law passed, we had to terminate a couple of them since to make them employees was too much given their sales.”

If the PRO Act were to become law across the U.S., Nadel believes that many promo companies nationwide will similarly move to end their relationships with at least some independent contractors. “We might have to do the same with a few other independent contractors in states other than California,” Nadel said. “That won’t have too much of an impact on JNI, but for some companies in our industry it will be major issue since they rely on a lot of independent contractors.”

The PRO Act’s path to becoming law is uncertain. While the bill enjoys widespread support among Democrats, Republicans have panned the act. The Democrat-controlled House passed a previous incarnation of the bill last year and could do so again. Still, the bill would need to garner at least 10 Republican votes in the Senate, which is split 50-50 liberal-to-conservative, analysts have noted.

“Republican lawmakers and the (U.S.) Chamber of Commerce have argued that the plan would hamstring the economy, making it doubtful Democrats will win the 10 GOP votes needed to push it through the Senate,” CNBC recently reported.

Nadel takes a similar position. “Given some of the challenges the bill faces, I rather suspect it does not get passed,” he said.

Business leaders and industry groups have sharply criticized the PRO Act, saying it would hurt small businesses, derail many work opportunities for gig workers and make it more difficult for employers to obtain legal advice on labor law.

The U.S. Chamber of Commerce vehemently opposes the PRO Act, calling it a “litany of almost every failed idea from the past 30 years of labor policy. The PRO Act would undermine worker rights, drag employers into unrelated labor disputes, disrupt the economy, and force individual Americans to pay union dues regardless of their wishes.”

"It's disappointing to see members of Congress reintroduce this harmful piece of legislation. This bill is a threat to America's workers, employers, and our economy."

Read our full statement on the PRO Act below. https://t.co/p0huL3mpEo

— U.S. Chamber (@USChamber) February 4, 2021

Those who wish to join the Chamber of Commerce’s effort against the PRO Act by expressing opposition to elected officials can do so here. Speaking about the independent contractor provisions in particular, the Chamber says the PRO Act would deny “individuals the ability to work independently, threatening the emerging ‘gig’ economy, and taking away the flexibility that has allowed American businesses of all sizes to grow.”

Rep. Bobby Scott, a Democrat from Virginia who introduced the PRO Act in the House this year, has said the legislation is essential to address what he described as growing income inequality by protecting workers’ rights to join a union and negotiate for higher wages and better benefits.

“The decades-long assault on workers’ rights – led by special interests in state legislatures, courts and employers across the country – has suppressed union membership and eroded America’s middle class,” Scott said in a statement. “The Protecting the Right to Organize Act is a major step toward ensuring that workers can exercise their basic right to form a union and collectively bargain.”

The House version of the bill can be read in full here. If enacted, it would give employees more power to participate in strikes, empower the National Labor Relations Board (NLRB) to bring penalties against companies and corporate directors who violate labor laws, and enable the NLRB to reinstate employees while their grievance against an employer is heard.

The bill would also, among other measures, weaken “right-to-work” laws. Under these laws, employees who work at unionized workplaces are banned from negotiating contracts that require employees who are not union members to contribute to the cost of union representation – something that, if reversed, could hit workers within the promo industry in the wallet. By way of further explanation, right-to-work laws prohibit agreements between employers and labor unions that govern the extent to which an established union can require employees’ membership, payment of union dues, or fees as a condition of employment, before or after hiring.

As of this writing, the PRO Act resides in the House Committee on Education and Labor.