NLRB Returns to Its Long-Standing Independent Contractor Test
Insight & Impact - Labor & Employment Newsletter 03/14/19 Chris Nickels
ISSUE: On January 25, 2019, the National Labor Relations Board (“NLRB” or “Board”) returned to its traditional test for independent contractor status under the National Labor Relations Act (“NLRA”). This NLRA ruling is important for any business that utilizes independent contractors, especially “gig economy” enterprises because it makes it easier for employers to establish that a worker is an independent contractor. Importantly, independent contractors are not covered by the NLRA and thus cannot unionize or engage in "concerted activities" as outlined in the NLRA subject to the worker's employment status. Caution: Independent contractor analyses under other laws are not impacted by this NLRB ruling.
What led up to this reversal
In SuperShuttle DFC, Inc., the NLRB held that airport shuttle drivers were independent contractors—not employees covered by the NLRA—thus barring their ability to unionize. In issuing its decision, the Board reversed a 2014 Obama era decision, FedEx Home Delivery, and clarified that entrepreneurial opportunity (i.e., a worker’s opportunity to realize a profit or suffer a loss) will play a significant role in the Board’s determination of independent contractor status.
SuperShuttle DFC, Inc. involved shuttle drivers who transported individuals to and from two airports in Texas. The company, SuperShuttle, classified the drivers as independent contractors using a franchisee model, which required each driver to sign a franchise agreement that characterized them as nonemployee franchisees operating independent businesses. SuperShuttle required all drivers to supply their own shuttle vans. The drivers were entitled to the money they earned by completing assignments that they selected through a bidding process set up by SuperShuttle. The drivers set their own work schedules, were free to reject or accept any request for a ride, and faced no limitations on the hours during which they could work. They were, however, required to wear uniforms, properly maintain their vans, and abide by various regulations imposed by the airports from which they shuttled passengers.
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The Board applied factors from the common-law agency test to determine whether the drivers were independent contractors or employees, which include: (i) extent of control by the employer; (ii) engagement in a distinct occupation or business; (iii) supervision; (iv) skills required; (v) instrumentalities, tools, and place of work ; (vi) length of employment; (vii) method of payment; (viii) whether the work is part of the employer’s regular business; (ix) the relationship the parties believe they created; and (x) whether the principal is in business. The Board concluded that significant weight should be given to the drivers’ ownership of their vehicles and their entrepreneurial “opportunities for loss or gain.” The Board clarified that where an evaluation of the common-law factors shows significant opportunity for economic gain or significant risk of loss, it is “likely to find” that the worker is an independent contractor.
IMPACT: Easier for companies to establish independent contractor status
The restored interpretation of the common-law test makes it easier for employers to establish that a worker is an independent contractor than under the Board’s 2014 decision in FedEx Home Delivery. This is welcome news for employers who utilize independent contractors, particularly for those operating in the “gig economy” and the ride-sharing industry. Independent contractors are not covered by the NLRA and thus cannot unionize. In addition to the right to organize, whether an individual is an employee or independent contractor under the NLRA is also relevant in determining whether the individual can engage in concerted activity, such as criticizing company managers, policies or practices.
Ruling only applies to NLRA matters
It is important to keep in mind that SuperShuttle applies only to matters arising under the NLRA. It does not affect the independent contractor analysis under other laws, such as the Fair Labor Standards Act, the Internal Revenue Code, ERISA, and state unemployment compensation and workers’ compensation statutes. Employers should review their independent contractor arrangements to ensure that these support a true independent contractor relationship rather than an employee relationship, not just under the SuperShuttle test, but also under the tests applied by these other laws.
For more information on determining independent contractor status, please contact your Quarles & Brady attorney or:
- Chris Nickels: (414) 277-5519 / [email protected]