No Symphonies, No Software, No Service
This June, Rhode Island made it a felony to use the services of a self-employed individual.
As of January 1, 2024, buying from Rhode Island self-employers will be a "felony misclassification” offense punishable by a fine of up to $5,000 plus 3 years in prison. Rhode Island has declared a purchasing decision to be a felony, in order to intimidate the customers of self-employed individuals.
Buying work under a short-term contract is a standard and perfectly legal practice in business and the professions that began in 1781.
What happened in 1781?
That was the year Mozart, the composer and musical genius, left his employment with the Prince-Archbishop of Salzburg and became a self-employed composer. He saw the same opportunity at age 25 that millions of Americans see today. History proved Mozart right. The music he wrote as an independent contractor has thrilled hundreds of millions of listeners for 242 years.
But government officials in Rhode Island aren’t thrilled, and making it a felony to contract with self-employers is just one of two state legislative changes slated to take effect in 2024 that will essentially eliminate self-employment.
It took 242 years from Mozart's discovery of a new way to work, but self-employment in Rhode Island is about to become illegal for both sellers and buyers – punishable by novel disclosure requirements, escalating fines, and prison terms of up to 3 years per count for buyers.
The additional provision [link] will force all Rhode Island self-employers to publicly disclose their personal information and the contact information of each of their clients every year.
The change turns the information in IRS Forms 1099-NEC and 1099-MISC into public documents; these are confidential tax forms. Rhode Island intends to scare freelancers out of contracting for work by publishing their names, addresses and ages, and by identifying their clients. Please see the comparison below.
Think the threat of prison time won’t scare off buyers? Well, how likely would Mozart's musical patrons have been to hire him to compose symphonies for them if it meant years locked in the duchy’s dungeon?
Rhode Island is the first state to make labor law misclassification a felony. The law turns each pay period into a new felony count. A three-month marketing or software project—or chamber music composition—could cover seven two-week pay periods, turning one three-month contract into seven felony counts. The escalating penalties are crafty and destructive, but not new. Massachusetts also uses such escalation. These penalties are serious threats to individuals and to private enterprise.
Compounding penalties will make customers, patients, patrons and users back away—and backing away in fear is precisely the purpose of this new law.
With buyers terrified of paying huge fines and going to prison for longer than Mozart lived (35 years), and self-employers’ unwilling to sacrifice their privacy and client relationships, the market for independent contracting in Rhode Island will vanish.
This means that Rhode Islanders’ self-employment income will disappear – as will rideshare trips back from a party. Expect more drunk-driving accidents, injuries and fatalities.
No mom of three kids looking for help for her start-up marketing firm would risk years in the slammer and an astronomical fine to engage a project-based subcontractor.
Beginning next year, no Rhode Islander with responsibilities—children, older relatives at home, a mortgage, another job, a start-up company—can risk buying independent contractors’ services.
What will felony misclassification do to Rhode Island’s economy?
The changes will squeeze women out of self-employment. Moonlighting will become rare. The damage to retirees and workers with disabilities will be harmful and widespread. Switching careers by tip-toeing into a new occupation will become harder for everyone. In short, the entire state economy will be hurt.
Since all start-ups use contractors, Rhode Island has exited the start-up business.
Worse, if you dig deeper, you’ll discover that the largest employer of Rhode Islanders is—self-employment.
The average national estimate is that at least a third of the workforce engages in self-employment either full- or part-time.
With a 569,000-person workforce, that ratio puts Rhode Island self-employment at 190,000 people, exponentially more than the number of Rhode Islanders employed by huge firms like CVS with 7,600, and Textron with over 8,000. In fact, more people in Rhode Island are self-employed than work for the state!
Rhode Island has landed two fatal blows against the self-employed adults who make up a third of its workforce.
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Footnote: The bills that carried felony misclassification into law were S.1079 SubAaa and H.5902 SubAaa