Every American deserves the freedom to create the work and business relationships that fit their needs. That’s why the Goldwater Institute is backing two proposals by the U.S. Department of Labor to bring clarity and uniformity to how federal agencies treat various forms of non-traditional employment.
For years, federal agencies and courts have struggled over how to classify workers and business relationships under federal labor law. The question affects whether Americans can work independently, start small businesses, operate franchises, hire contractors, and build careers outside the traditional employment model. Independent contracting, franchising, staffing, subcontracting, and related work arrangements are essential parts of the modern economy. Federal rules should protect those arrangements from vague or restrictive standards that create uncertainty and limit opportunity.
The Department of Labor now seeks to restore clarity in two important areas: independent contractor classification and joint employment.
The Independent Contractor Rule
In April, the Goldwater Institute submitted a comment supporting a proposed Labor Department rule regarding how independent contractors are classified under several federal laws.
The Biden administration created uncertainty by expanding the circumstances under which independent workers could be treated as traditional employees. That uncertainty has real consequences. Workers and businesses cannot confidently sign contracts, hire help, or build a business when federal rules keep shifting beneath their feet.
Fortunately, the Department of Labor’s proposed independent contractor rule refocuses the classification analysis on two core factors that typically define independent contractors’ status: the nature and degree of control over their work, and the individual’s opportunity for profit or loss. That approach makes sense. Independent contractors often choose that arrangement because it offers greater flexibility, while the opportunity for profit or loss reflects the risk and reward commonly associated with business ownership and self-employment.
Arizona recognized that reality in 2016, when the state enacted protections backed by the Goldwater Institute that ensure workers who want to be independent contractors do not have to jump through bureaucratic hoops to be recognized as such. The Department of Labor is right to pursue similar clarity and simplicity.
Not everyone wants to work a traditional 9-to-5 job for an established company. Many choose to blaze new trails as entrepreneurs, supplement their income with a side gig or simply work for themselves. Those arrangements, from freelance writing to rideshare and delivery driving to direct sales, should be fairly treated across all federal employment laws. The Labor Department’s revamped independent contractor rule would do just that.
The Joint Employer Rule
The business model most targeted in recent years by labor unions and their allies is franchising. In a franchise, a company known as the franchisor allows an independent business owner, the franchisee, to use its branding and products to start and operate a small business. For example, most popular fast-food restaurants, even though they have internationally recognized logos, slogans, and products, are actually small, locally owned businesses that contract with a preexisting corporate entity to use the brand and sell the products. This arrangement lowers the barrier to entry for entrepreneurs who do not have to start a business from scratch, and it benefits the existing company by allowing it to expand into areas it might not have otherwise considered.
Unions often oppose the franchise model because it’s harder to force vast numbers of affiliated businesses into one-size-fits-all collective bargaining arrangements. That’s why the Biden-era National Labor Relations Board sought to expand the definition and scope of federal rules regarding what’s known as “joint employment” in ways that would have significantly altered the structure of franchising and similar arrangements. A federal court limited that approach in 2024, and the current administration has since moved to restore its prior rule.
The Department of Labor has wrestled with the same issue. A prior Labor Department rule on joint employment was partially set aside by a federal court in 2020, leaving businesses and workers with less certainty about when two entities can both be treated as employers.
The Department’s new proposal seeks to answer that question more clearly. It focuses primarily, though not exclusively, on whether the alleged joint employer actually controls the terms and conditions of employment. That is the right starting point. Joint-employer liability should generally turn on control, not on the mere fact that two businesses have a contractual relationship or that one worker holds two jobs at the same time.
That distinction is especially important for franchising. A national franchisor may set brand standards, approve products, or protect trademarks without controlling every workplace decision made by a local franchisee. Federal law should recognize that difference. Otherwise, franchisors could be held liable for businesses they do not truly run, and franchisees could lose the independence that makes the model valuable in the first place.
That is why the Goldwater Institute submitted a comment supporting the revised proposal. The Institute’s comment explains that the rule would provide a clearer and more workable standard across several related federal statutes.
Workers and businesses across the country—especially in Arizona—will benefit greatly from the new rule’s added clarity, workability, and uniformity. According to the International Franchise Association, the Southwest is the top region in the United States for franchise growth, with the Grand Canyon State ranked fourth overall in that category. There are already about 20,000 franchise establishments in Arizona that account for $21.7 billion in franchise output. Federal rules should support that growth by making it easier, not harder, for businesses and workers to understand their obligations.
Both proposed rules will promote economic growth, consumer choice, and worker freedom nationwide. The Goldwater Institute will continue to stand up for American workers’ right to earn a living in the way that they choose.
To read the Goldwater Institute’s full comment on the Department of Labor’s Independent Contractor Rule, click here. You can read the Institute’s full comment on the Joint Employer Rule here.
You can find out more about what Goldwater is doing to confront the administrative state here. For more on the independent contractor rule, the joint employer rule, and other free-market labor policies, please visit our friends at the Institute for the American Worker.
Parker Jackson is a Staff Attorney at the Goldwater Institute.
