NLRB Independent Contractor Decision Addresses 21st Century Workplace
On January 25, 2019, the National Labor Relations Board (“NLRB” or “Board”) overruled its 2014 decision in FedEx Home Delivery and returned to applying the traditional common law test to determine whether someone is an independent contractor or employee under the National Labor Relations Act (“NLRA” or the “Act”). See SuperShuttle DFW, Inc., 367 NLRB No. 75 (2019).
Section 2(3) of the NLRA excludes from the definition of covered “employee” any individual having the status of an independent contractor. Independent contractors cannot unionize and are not afforded protection under the NLRA. For five decades, the Board, in determining whether someone was an independent contractor, used the common law agency test that considered the following ten factors:
- Extent of control by the employer;
- Whether or not the individual is engaged in a distinct occupation or business;
- Whether the work is usually done under the direction of the employer or by a specialist without supervision;
- The skill required in that particular occupation;
- Whether the employer or individual supplies instrumentalities, tools, and place of work;
- Length of time for which the individual is employed;
- Method of payment;
- Whether or not work is part of the regular business of the employer;
- Whether or not the parties believe they are creating an independent contractor relationship; and
- Whether the principal is or is not in the business.
In FedEx, the Board “refined” the test by adding a new factor, “rendering services as part of an independent business” and stated that “entrepreneurial opportunity” was just one aspect to consider. That “refinement” made it more difficult to establish independent contractor status.
In SuperShuttle, franchise-operators of shuttle vans at the Dallas/Fort Worth International Airport were classified as independent contractors subject to franchise agreements. Under those agreements, the drivers (1) provided their own vans, (2) paid an initial franchise fee, a decal fee, flat weekly fee for use of the SuperShuttle brand and its dispatch system, (3) set their own schedules and were free to choose where they work and (4) kept all fares paid by customers. In overruling FedEx, the Board stated that the ten common law agency factors must be evaluated through the “prism of entrepreneurial opportunity.” The Board found that the franchisees’ leasing or ownership of their vans, their method of compensation, and virtual autonomy over their schedules and working conditions provided them with significant entrepreneurial opportunity for economic gain. In addition, the Board considered significant the absence of supervision and the parties’ understanding that the franchisees were independent contractors. Therefore, the Board held that the franchise-operators were independent contractors and not covered by the Act.
The Board’s SuperShuttle decision may have particular significance for businesses operating in the “gig” or “share” economy, such as Uber and Lyft. By emphasizing the entrepreneurial aspects of the common law test, the Board provided common sense guidance for establishing freelancers or ridesharing workers as independent contractors under the NLRA.
Despite the NLRB’s decision, businesses must continue to act carefully when classifying workers as employees or independent contractors. Misclassification can expose employers to significant risks not only under the NLRA, but also under other laws, including state and federal wage and hour laws and tax laws. If you need assistance with independent contractor classification issues or agreements or have questions about this significant NLRB decision, contact Honigman’s Labor and Employment attorneys.
* Mahja Zeon is included as an author on this alert. She is admitted in Indiana only, with her admission to the Michigan bar pending.