NLRB Returns to Stricter Traditional Contractor Test

On June 13, the National Labor Relations Board (the Board) issued a 3-1 decision making it harder for organizations to show that their workers are independent contractors. The Board’s decision in The Atlanta Opera, Inc. overrules precedent that placed more weight on entrepreneurial opportunity for gain or loss and returns to the traditional common-law test.

This decision overrules SuperShuttle DFW, Inc. (2019) and returns to the FedEx Home Delivery (FedEx II) (2014) standard for determining independent contractor status under the National Labor Relations Act (the Act). The SuperShuttle Board had held that entrepreneurial opportunity for gain or loss should be the “animating principle” of the independent-contractor test. While overruling this position, the Atlanta Opera Board explained that entrepreneurial opportunity would still be considered in addition to the common-law factors. The Board would still look at whether the evidence shows that an alleged independent contractor is rendering services as part of an independent business.

In Atlanta Opera, workers including makeup artists, wig artists, and hairstylists who work at the Atlanta Opera filed an election petition with the Board seeking union representation. The Board applied the FedEx II standard and found that these workers were not independent contractors (who would have been excluded from the Act), but covered employees. The Board decided that the majority of the traditional common-law factors pointed toward employee status rather than independent contractor status, and that the workers did not render services as part of their own independent businesses.

Independent contractors versus employees

What is the difference in the rights of independent contractors and covered employees?

Independent contractors do not have the same protection as employees under the Act. They do not have organizing rights and they cannot allege violations of the Act, but these are protections granted to covered employees.

The Board has agreed to review a decision granting a group of truckers the right to form a union. This decision will give even more clarification on who is an independent contractor and who is an employee. The situation involves 250 truckers who are arguing they have been misclassified as independent contractors by their employers, leaving them unable to bargain for better wages and working conditions.

How is it determined whether someone is an employee or independent contractor?

Now that entrepreneurial opportunity for gain or loss is no longer the “animating principle” of the independent-contractor test, it is once again just “a relevant factor that asks whether the evidence tends to show that the putative contractor is, in fact, rendering services as part of an independent business.”¹

The Board explained it will also consider whether the contractor: (a) has a realistic ability to work for other companies; (b) has proprietary or ownership interest in the work; and (c) has control over important business decisions, such as scheduling when work is done; the hiring, selection, and assignment of employees; the purchase and use of equipment; and the commitment of capital.

The common-law factors found in Section 220 of the Restatement (Second) of Agency, and help determine employee or independent contractor status. These factors are:

1. The extent of control the employer has over the details of the work;
2. Whether the worker is engaged in a distinct occupation or business;
3. The kind of work and whether it is typically done under the employer’s direction or without supervision;
4. The skill required;
5. Whether the employer or the worker supplies the tools, instrumentalities, and place of work;
6. How long the worker is employed;
7. The method of payment (by time or by job);
8. Whether the work is a part of the employer’s regular business;
9. Whether the parties believe they are entering into an employee/employer relationship; and
10. Whether the principal is or is not in business.

What does this mean for organizations?

Organizations that have independent contractors should stay on top of the development from the Board, as tests and distinctions may continue to change. It would also be wise to review applicable agreements and ensure all employees and independent contractors are properly classified (and reclassify them if necessary).Misclassification of workers can lead to legal liability and costly litigation.

This decision makes it tougher to pass the contractor test. It is an employee-friendly move to ensure that workers who seek to organize or exercise their rights under the Act are not improperly or unfairly excluded from its protections. The easiest way to avoid situations in which workers feel improperly classified is to ensure they are properly classified to begin with.

Conclusion

The Board has once again changed the standard for determining whether a worker has employee status or independent contractor status. Entrepreneurial opportunity is no longer the animating principle and the Board has returned to the traditional common-law factors. This decision ultimately makes it easier for workers to be granted employee status and harder for employers to have independent contractors, and perhaps harder for independent contractors to stay in business. To help work through policies and the different factors, employers may want to consult with legal counsel.

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¹ FedEx Home Delivery, 361 NLRB 610 2014) (FedEx II)

Featured Image by Rebecca Sidebotham.