You need a lot of people to complete a construction project. From digging a foundation to applying paint, every construction job requires a variety of trades.
Colorado’s building contractors are the general managers of most construction projects. Just like Broncos GM George Paton builds his NFL team’s roster, building contractors assemble the masons, plumbers, electricians and roofers who collectively turn blueprints into buildings.
In construction, business relationships are often short and flexible. A drywall company, for example, may only be on a job for a few short weeks. That same company may also be working for multiple contractors on different jobs at the same time. In that way, construction is nothing like the NFL. The “players” general contractors assemble can play for as many teams as they would like.
Short-term, flexible business arrangements are possible because state and federal labor laws allow for independent contracting. Independent contracting permits contractors to subcontract parts of a job to businesses or individuals that specialize in a trade. This arrangement allows general contractors to keep costs down by only paying for work when it is needed. It also allows subcontractors flexibility, autonomy and the ability to work on multiple jobs.
Independent contracting has been in the news a lot lately due to the rise of the “gig economy” and the creation of so-called “gig” jobs that rely on independent contracting like driving for companies such as Uber and Lyft.
In an effort to change the employment status of these gig workers, activists are pushing policies that would ban independent contracting as it exists today. Unfortunately, their proposals are not aimed exclusively at the gig economy, and if enacted without clear guardrails, promise to do more harm than good.
The policy in question is called the ABC worker classification test. It can be found in legislation being proposed in cities, states and Congress today, including a draft proposal unveiled earlier this year by Colorado's U.S. Sen. Michael Bennet. While different pieces of legislation use the ABC test to achieve different goals, the test’s inclusion in any federal law will have a chilling effect on industries beyond the gig economy if Congress does not get it right.
Under laws using the ABC test, businesses are not allowed to use independent contractors to perform services in their same line of business. Instead, they must treat those workers as employees under that area of law. In building contracting, where jobs are short and subs work for a number of contractors at the same time, this arrangement is just not realistic.
General contractors are not alone in sharing concerns about the ABC test. There are other well-established industries incompatible with the test. Insurance agents often choose to work as contractors to one or more insurers with their own client list. Under a sweeping ABC test, this would no longer be possible. Agents would have to become employees of larger companies and have to answer to a boss. Small business owners in real estate, accounting, architecture, financial services and health care would also be swept up.
If there is any doubt that the ABC test can hurt business and workers, California provides the proof. The state enacted a sweeping ABC test in 2020. Rather than making contractors employees, businesses responded by canceling contracts.
In response to the unintended consequences, California has narrowed the application of the ABC test by issuing dozens of industry-specific exemptions where traditional contracting is still allowed. Contractors in the construction industry have a California exemption, as do many other professionals licensed by the state.
With the ABC test before Congress in several different bills, let’s hope the Colorado delegation, including Sen. Bennet, is willing to learn from California’s mistakes. The ABC test is the wrong way to help workers, but even those who disagree should be able to acknowledge the need for guardrails like the California-style exemptions that preserve legitimate independent contracting in industries where it has historically existed. Let’s do this the Colorado way, not the California way.
Tony Milo is executive director of the Colorado Contractors Association.