Client Alerts

The NLRB Returns to a Business-Friendly Independent-Contractor Test

By: Stephanie Dutchess Trudeau and Jonathan R. King

About: Employment & Labor

Last week’s National Labor Relations Board (“NLRB”) ruling is good news for businesses that currently use or plan to use contract labor as part of their workforce. The Board returned to its traditional test for determining whether workers are independent contractors or employees. In doing so, the NLRB overturned a 2014 Board decision that made it difficult for businesses to classify workers as independent contractors under the National Labor Relations Act (“Act”).

History of the Board’s Changing Positions in the FedEx and SuperShuttle Decisions
Before 2014, the Board applied the 10 factor common-law agency test to determine whether workers were independent contractors (who are excluded from coverage under the Act) or employees (who are covered under the Act). No one factor was more important than the others. Rather, the Board considered and weighed all of the circumstances of the worker-employer relationship. The Board also applied the “entrepreneurial opportunity for gain or loss” principle “to evaluate the overall effect of the [10 factors] on a putative contractor’s independence to pursue economic gain.” As one Board member explained, “entrepreneurship [is] a form of economic opportunity that most believe marks a clear dividing line between operating one’s own business and merely performing a work assignment.”

In 2014, the Board fundamentally altered its independent-contractor analysis in FedEx Home Delivery.1 In FedEx, the Board downplayed the importance of “entrepreneurial opportunity for gain or loss” and instead emphasized the employer “right to control” factors. The Board did this by creating a new factor: whether the evidence tended to show that the worker was, in fact, “rendering services as part of an independent business.”Under this new factor, the Board looked at whether workers had the ability to work for other companies, could hire their own employees, and had a proprietary interest in their work. Thus, the FedEx Board required actual “entrepreneurial opportunity gain or loss” to demonstrate independent-contractor status. The Board’s shift away from entrepreneurial opportunity to an employer’s “right to control” created a significant challenge for businesses.

The Board’s approach under FedEx made it difficult for employers to classify workers as independent contractors because an employer always maintains some level of control over its contract labor, including “entrepreneurial opportunity for gain or loss,” even if an employer never exercises that control. In cases where minimal employer control (actual or potential) exists, contract workers do not necessarily render services as part of their own independent business.

On January 25, 2019, the Board overruled its 2014 decision in FedEx and returned to its traditional and more business-friendly 10 factor common-law agency test for deciding if a worker is an independent-contractor. In SuperShuttle DFW, Inc.,2 a union filed a petition with the NLRB to represent airport shuttle drivers who operated under a franchise agreement with the employer. The employer challenged the union’s petition, arguing that the union could not represent the drivers because they were excluded from the Act’s coverage as independent contractors. The Board agreed with the employer.

Applying the 10-factor common-law test, the Board found that the drivers owned or leased their own shuttle vans, maintained near complete control over their daily work schedules and working conditions, and kept all of the fares they collected. The Board said those facts weighed in favor of independent-contractor status because the drivers had “significant entrepreneurial opportunity” for economic gain or loss and, conversely, the employer maintained minimal control over the drivers. As the Board explained, “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.” Therefore, the Board held, the drivers were independent contractors, not employees.

Analysis
The Board’s return to its traditional independent-contractor test is welcome news for the business community. The Act specifically excludes “independent contractors” from its definition of “employee.”3 Therefore, workers properly classified as independent contractors do not have the right to organize under the Act. Employers generally cannot be held liable by the Board for unfair labor practices involving independent contractors. When workers are properly classified as independent contractors under the Board’s reinstated test, businesses may find it easier to avoid union organizing efforts and liability for alleged unfair labor practices.

The determination of whether individual workers qualify as independent contractors must be made on a case-by-case basis. The importance attached to each of the 10 common-law factors varies by occupation and industry.

The 10 factors under the revitalized test are:

  1. The extent of control which, by the agreement, the master may exercise over the details of the work;
  2. Whether or not the worker is engaged in a distinct occupation or business;
  3. The kind of occupation, with reference to whether in the locality, the work is usually done under the supervision of the employer or by a specialist without supervision;
  4. The skill required in the particular occupation;
  5. Whether the employer or the workman supplies the instrumentalities, tools, and the place of work for the person doing the work;
  6. The length of time the person is engaged to work;
  7. The method of payment, whether by the time or by the job;
  8. Whether or not the work is part of the regular business of the employer;
  9. Whether or not the parties believe they are creating the relation of master and servant; and
  10. Whether the principal is or is not in business.

Notably, the Board’s SuperShuttle decision does not affect state and federal wage and hour laws and other employee-independent-contractor tests.

Please contact Ulmer’s experienced employment and labor practitioners including Jonathan R. King and Stephanie Dutchess Trudeau if you have questions about the classification of your workers under the National Labor Relations Act and state and federal wage and hour laws. For more information on Ulmer’s Employment and Labor practice, click here.

1 361 NLRB 610 (2014).

2 367 NLRB No. 75 (Jan. 25, 2019).

3 29 U.S.C. § 152(3) (2006).