The Big Story: Independent contractor proposed rule risks startup growth
More than two dozen startups and ecosystem support organizations are warning policymakers about a proposed change that would impact access to flexible talent. In comments this week to the Department of Labor (DOL), Engine and 28 members of the startup ecosystem spotlighted the important role independent contractors play in the startup ecosystem and the likely negative impact on innovation if startups’ ability to hire contract labor is restricted.
The comments were in response to the Department of Labor’s proposed rule on independent contractor and employee classification that was released in October. The proposed rule comes at the heels of multiple federal and state efforts to restrict gig workers and contract labor, including California’s codification of the ABC test and Congress’ Protecting the Right to Organize (PRO) Act, which both threaten a startup’s ability to use flexible labor.
Contract labor plays a critical role in the startup ecosystem. According to one study, 79 percent of startups have hired at least one independent contractor. Unlike larger companies, which have both the funds and workload for full-time staff and can deal with shifting regulations, many startups often aren’t equipped to do so and instead rely on contract labor to fill talent gaps for one-off projects or specialized needs. As Grant Leah, the co-founder of Woodland-based startup Nytch explained to Engine, “The reality is that startups are so small and so lean that we can’t really hire employees. . .Without the ability to hire independent contractors to fill these voids, most startup ideas would never get off the ground.” The DOL should reconsider efforts to replace the 2021 independent contractor rule, and at minimum, consider the overwhelming burden the proposed rule would have on the innovation ecosystem.
Policy Roundup:
Trade associations petition Supreme Court on Texas social media law. This week, NetChoice and the Computer and Communications Industry Association asked the Supreme Court to review a lower court ruling upholding a Texas social media law that prohibits Internet companies with over 50 million users from moderating content based on the user’s “viewpoint.” Though the Texas law is aimed at large Internet companies, Engine has opposed the law, which upends intermediary liability frameworks that have enabled Internet companies to host and moderate content.
Transparency important for patent system, innovation. In a new blog post this week, we explore recent developments that move toward greater transparency in the patent system, and how that might help reduce the likelihood of startups encountering bad faith patent litigation. Last week, a federal appeals court allowed a judge to collect information about some of the companies and attorneys appearing before him, including their financial relationships. Without the ability to seek such information, the ultimate parties behind those suits may be able to avoid the consequences if they are found to be acting in bad faith. And this week, the Senate Judiciary Committee had been scheduled to consider a bill to increase transparency by encouraging patentees to register their ownership interests with the U.S. Patent and Trademark Office. We’ve repeatedly highlighted how startups stand to benefit when others know, with confidence, that they own high-quality patents, and when they are able to avoid bad faith litigation invited by low-quality patents that should not have issued.
Draft adequacy decision another step forward for transatlantic data flows. This week, the European Commission published its draft adequacy decision regarding EU-U.S. transfers of personal data. Those transfers have been shrouded in uncertainty since the invalidation of the Privacy Shield in July 2020, which led to increased costs and lost opportunities for startups. The draft decision comes after changes to U.S. law through an Executive Order signed earlier this year by President Biden and finds those changes create an adequate level of protection for EU citizens. The decision now will proceed through the EU’s adoption process, expected to last several months.
Industry group sues to block law that could threaten content moderation. A tech industry group sued to block a California law this week, alleging that the law violates the First Amendment by dictating what content Internet platforms can host or must remove. While the California law—the Age Appropriate Design Code Act—is aimed at increasing protections for children online and passed unanimously, critics in academia and industry are concerned the law would actually incent more intrusive data collection, disempower parents, burden innovation, and—as outlined in the legal challenge—undermine content moderation.
The long fight over an FCC confirmation. Startups are still waiting for the Senate to confirm President Biden’s Federal Communications Commission (FCC) nominee Gigi Sohn, following a level of vocal opposition and advocacy from conservative groups that is rare for FCC nominees. The FCC has been deadlocked 2-2 for the entirety of President Biden’s term, unable to advance key priorities for startups like net neutrality rules. Sohn’s nomination has been held up by opposition from Senate Republicans and some moderate Democrats. If she is not confirmed before the end of this Congress, she will have to be renominated in the New Year.
