The National Labor Relations Board (NLRB) recently issued an employer-friendly decision for determining whether workers are employees or independent contractors.
In a significant ruling which will benefit companies, the NLRB revised the test it uses for determining whether workers are employees or independent contractors. On January 25, 2019, the NLRB returned to its pre-Obama era, "traditional" common law test for determining the employment relationship issued in the case of SuperShuttle DFW, Inc., 367 NLRB No. 75 (2019).
In addition to making it easier for entities to classify workers as contractors it also places a barrier to any unionization efforts by for certain workers since federal law does not permit independent contractors to unionize or join forces with employees in organizing efforts.
Reverting Back to a Previous Test Standard
The case began after a local union sought to represent a unit of SuperShuttle DFW drivers in the Dallas-Fort Worth Dallas area who wanted to unionize under the National Labor Relations Act (NLRA). However, the franchiser, SuperShuttle DFW, intervened and argued that, under the NLRA, franchisee-drivers could not organize because they were independent contractors, not covered employees.
The Amalgamated Transit Union, on the other hand, referred to a 2014 Obama-era NLRB decision that re-defined, or "refined", the independent contractor test which made it easier for such workers to be classified as employees.
One article noted that the NRLB, however, took a surprising course in their decision,
In analyzing whether the SuperShuttle franchisee drivers were independent contractors, or employees afforded protection under the NLRA (such as the right to unionize), the NLRB focused on their "entrepreneurial opportunity" for economic gain or loss. In so doing, the Board explicitly overturned the Obama administration's 2014 decision in FedEx Home Delivery, which severely limited the significance of a worker's entrepreneurial opportunity for economic gain in determining the employment relationship under the NLRA. The NLRB emphasized in this decision that entrepreneurial opportunity has "always been at the core of the common-law test."
The article goes on to note that the NLRB found that franchisee drivers did have significant opportunity for economic gain because of their autonomy to set their own work schedules, their discretion to own or lease vans, and other decisions that determined the amount of revenue they could take in.
By overturning the previous 2014 decision the NLRB returned to a more balanced standard. This principle gives more of an equal weight to both the right-to-control aspects of the relationship and the role of the workers' entrepreneurship in operating their own businesses.
According to another article,
The NLRB said that the earlier ruling selectively overemphasized the significance of the various factors that determine whether a hiring entity has a "right to control" the worker, adopting somewhat of an "economic dependence" test. The problem with such a test, the Board said, is that it "greatly diminishes the significance of entrepreneurial opportunity" displayed by those same workers.
The NLRB pointed out that entrepreneurial opportunity should be treated as a principle for evaluate the overall effect of the common law factors on a contractor's independence to pursue economic gain. The majority writing for the Board said,
"Indeed, employer control and entrepreneurial opportunity are opposite sides of the same coin: in general, the more control, the less scope for entrepreneurial initiative, and vice versa."
The Board's decision has restored entrepreneurial opportunity to greater prominence in the independent-contractor-or-employee analysis. In addition, by returning the independent contractor test to its common law roots, the Board had little difficulty in concluding that the franchisee drivers were, in fact, independent contractors who could not join in union organization efforts.
What This Means for Employers
The Board's decision will probably provide more benefit to businesses that engage workers to provide temporary or short-term services. While the case involved an attempt to unionize workers, this approach could also be applied to cases where employers are alleged to have violated Section VII rights of workers to engage in protected, concerted activity, such as publicly criticizing management with or on behalf of others.
The ruling by the NRLB will impact a wide variety of businesses, especially those engaged in the so-called "gig economy" and use independent contractors to perform work.
One writer points out that,
It's important to note, however, that the Board's majority expressly stated that the entrepreneurship question should not be applied in a rigid and mechanical manner and serve as an end-all-be-all factor in the analysis. As the board said, it should not be treated as a "superfactor," an "overriding consideration," a "shorthand formula," or a "trump card" in the independent contractor analysis.
Keep in mind, too, that the Board's decision does not apply to any contractor analysis used at the state level, or with other federal agencies, so employers must still proceed with caution.
This decision relates only to the NLRA, and the analysis to determine whether a worker is an employee or independent contractor varies under different employment laws, such as the Fair Labor Standards Act (FLSA) and state unemployment compensation laws, and may not have much impact on state worker classification for wage and hour purposes.
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