California Contractor Laws state that an independent contractor is a person or business that provides a particular service to another business in exchange for compensation. It further states that the independent contractor has control over the results, not how they perform the work. Signed at Washington, DC, December 31, 2020. Many commentators have expressed concern about the misclassification of workers as independent contractors, which occurs when a person economically dependent on an employer is classified as an independent contractor by that employer. Misclassification of the RSA may be unintentional or intentional, and its direct effects could include transferring the employee to the employer if the employer does not pay the minimum wage and overtime pay to which the employee is entitled. Conversely, reducing misclassification could lead to a transition from employers to employees. Assuming that IBO contracts increase under this Final Agreement, it is not clear to what extent this would occur due to the subsequent classification of current employees as independent contractors or due to the recruitment of new employees as independent contractors. This will have an impact on transfers. If current employees change classification, transfers may take place. Employers could only change the classification of current workers if they could already have been classified as independent contractors or if the working conditions are changed so that the relationship becomes a true independent contractor relationship, provided that this is consistent with employment contracts, collective agreements or other applicable laws.
 Lim et al. (2019) found in the status quo that there is “little evidence that firms are increasingly reclassifying existing employee relationships as [independent contractors] relationships,” but noted that “firms hire more new employees than [independent contractors] than employees.”  The Ministry does not expect this phenomenon to cease with the final regulations. As discussed below, the limited number of firms with employees whose roles meet the requirements of being independent contractors will likely have an incentive to maintain the status quo for these workers, but there will likely be some degree of innovation in the labour market in response to the rule reinforcing the current trend towards more independent contractors. For more information on how employees may be affected by transfers, see the discussion on workplace transformation in Section VI (D) (7). By reducing uncertainty and opening up new opportunities for businesses, businesses can hire independent contractors they wouldn`t have hired otherwise. In this case, there may be a decrease in unemployment, an increase in the labour force, or both. In a study of respondents from Europe and the United States, the McKinsey Global Institute found that 15% of those not working are interested in becoming an independent contractor as their primary role.  Attracting these individuals to the labour market would be considered a social benefit rather than a transfer. These impacts are assessed in more detail below as part of the discussion of cost savings and benefits. NPRM expressed concern that legal uncertainty resulting from shortcomings in the multifactor economic reality test described above could discourage innovative and flexible working arrangements that benefit businesses and workers.
Some commentators have questioned this assumption. The Coalition of Attorneys General, Cities and Local Authorities (Crown Corporations), for example, claimed that the ministry “provides no empirical evidence or data showing that employers are now reluctant to engage in innovative agreements,” further asserting that “digital platforms have become part of the modern economy. They have not been stifled by the current test. However, the mere existence of certain types of firms is not sufficient evidence that other such firms are not being stifled, and it is not clear what empirical data could measure innovations that do not take place due to legal uncertainty. Commentators representing tech companies explained that the legal uncertainty surrounding worker classification actually prevents them from developing innovative and flexible work arrangements. See, for example, CWI; TechNet. In addition, economists studying the impact of labour regulation on entrepreneurship have noted that clear regulations for independent contractors would help start-ups. Dr. Liya Palagashvilli (“71% of startups relied on independent contractors and felt it was necessary to use contract labor in their early days”); Dr. Michael Farren and Trace Mitchell (“Greater legal clarity for employers and employees will enable more efficient production processes and reduce wasted resources determining an employee`s job classification through the legal process.”). Several commentators have said that expanding the range of independent contractors will “fuel a race to the bottom” in which companies will feel compelled to classify workers as independent contractors in order to reduce labour costs in order to compete in their market.
UPS claimed that companies that misclassify workers as independent contractors outsource their costs and harm other businesses through unfair competition.  The Ministry considers this unlikely, as the risk of loss of workers is likely to prevent businesses from reducing total compensation, which includes the fully billed wage rate (i.e., including taxes and social benefits).