Courts Unlikely to Accept a New NLRB Independent Contractor Test

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Earlier this week, the National Labor Relations Board issued an Order inviting the public to file briefs in a case involving the independent contractor status of workers providing makeup and hairstyle services to the Atlanta Opera.  This highly unusual move by the NLRB was issued in connection with an organizing drive by a union seeking to represent the stylists. The NLRB majority, consisting of three Democratic Party appointees, invited the public to address three options that the NLRB is considering:  whether to “adhere to the independent contractor standard in SuperShuttle DFW, Inc.,” a decision issued in 2019 by the NLRB when a three-member majority of the Board were Republican Party appointees; “return to the standard in FedEx Home Delivery, . . . either in its entirety or with modifications”; or fashion a new standard.  FedEx was a 2014 decision issued by the NLRB when a majority of its members were appointed by President Obama.  Despite elation over the NLRB’s recent invitation by those who have long sought to curtail the use of independent contractors in the U.S., and a countervailing concern by others worried that this may spell doom for companies and workers choosing to operate on an independent contractor basis, a return by the NLRB to its 2014 FedEx test for independent contractor status is unlikely to survive appellate review.

The Checkered History of NLRB Decisions Regarding Independent Contractor Status

Administrative ping pong by the NLRB has not been well received by the appellate courts when reviewing NLRB decisions including those involving independent contractor status.

In 2009, the United States Court of Appeals for the D.C. Circuit reviewed an NLRB decision on the independent contractor status of delivery drivers providing services to FedEx Ground. The decision arose in the context of an organizing drive by a local Teamsters union.  The D.C. Circuit concluded that, as a matter of law, the drivers were not employees but rather independent contractors under the common-law agency test used to determine independent contractor status under the National Labor Relations Act.  The court noted that decisions by the NLRB and as to the application of the common-law agency test had shifted over time; at first, the NLRB had focused on an “‘employer’s right to exercise control’ over the workers’ performance of their jobs,” but later placed emphasis on whether the workers in question “have significant entrepreneurial opportunity for gain or loss.” FedEx Home Delivery v. NLRB, 563 F.3d 492 (D.C. Cir. 2009).

The court in the 2009 FedEx case examined a “non-exhaustive list of ten factors [set forth in the Restatement (Second) of Agency] to consider in deciding whether a worker is an independent contractor.”  It “look[ed] at those factors through the lens of entrepreneurial opportunity for gain or loss” and concluded that the “indicia of independent contractor status ‘clearly outweighed’ the factors that would support employee status.”  The NLRB did not seek Supreme Court review of the 2009 FedEx decision by the D.C. Circuit.

Despite the D.C. Circuit’s 2009 decision, FedEx Ground was subjected to yet another union organizing effort by a local Teamsters union seeking to represent a different group of drivers classified by the company as independent contractors.  In a 2014 ruling on the employee vs. independent contractor status of the drivers, the NLRB expressly chose to ignore the D.C. Circuit’s 2009 decision, stating that it “disagreed with [the D.C. Circuit’s] interpretation of the Act,” and then proceeded to apply its prior FedEx decision, even though that decision had been reversed. Not surprisingly, upon review by the D.C. Circuit, it again reversed the NLRB in FedEx II. 

As we noted in a blog post of March 7, 2017 the D.C. Circuit stated: “It is as clear as clear can be that ‘the same issue presented in a later case in the same court should lead to the same result.’”  After stating that the NLRB was simply seeking to “nullify this court’s decision in FedEx I,” it remarked:  “This case is the poster child for our law-of-the-circuit doctrine, which ensures stability, consistency, and evenhandedness in circuit law.”

The NLRB’s SuperShuttle Decision in 2019

In January 2019, the NLRB, which was at that time controlled by a majority of Board members appointed by President Trump, issued its SuperShuttle decision formally overturning the Board’s 2014 FedEx decision involving independent contractor status that had been decided by the NLRB during the Obama Administration. In its 2019 SuperShuttle decisionthe NLRB reverted to the common law test for independent contractor status and gave great weight to the D.C. Circuit’s 2017 decision in FedEx II.  NLRB Member McFerran, a holdover appointment by President Obama, filed a 15-page dissent.

The 2019 SuperShuttle decision arose in the context of franchise law. The shuttle drivers owned and operated franchises and were treated by the franchisor as independent contractors.  They were being organized by a union that contended the drivers were employees under the National Labor Relations Act.

Both the majority and dissenting opinions in the SuperShuttle case spent a great deal of time rebutting the other’s arguments.  But the actual holding in the NLRB decision is rather straightforward: based on the Supreme Court’s 1968 decision in NLRB v. United Insurance Co. of America, which adopted the test for independent contractor status set forth in the 1958 edition of the Restatement (Second) of Agency, the Board majority stated that it would henceforth apply a “non-exhaustive” list of common law factors. The Board majority cautioned, though, that those factors are not a “shorthand formula” for determining independent contractor status; rather, “all of the incidents of the relationship must be assessed and weighed with no one factor being decisive.”  Those factors will then be examined in view of the “total factual context” of the business and industry, and evaluated “through the prism of entrepreneurial opportunity.”

Those last two words were at the crux of extensive counterpunching between the majority and dissent.  The majority opinion stated that entrepreneurial opportunity is not a separate common law factor or a “super-factor,” as it said the dissent claimed, while the dissent claimed that the majority opinion essentially makes entrepreneurial opportunity a “trump card” in the independent contractor analysis.

In our blog post of January 25, 2019, we noted that the NLRB majority reviewed eight common law factors, finding that five favored independent contractor status, two favored employee status, and one was neutral. In dissent, Member McFerran took issue with almost all of the conclusions of the Board majority.

Prognosis

Member McFerran is currently a member of the NLRB and is now the Board’s Chair.  Her dissenting views in SuperShuttle are likely to remain intact. If her Democratic-appointed colleagues in the current Board majority follow suit, which is highly likely, we expect the NLRB will formally reverse SuperShuttle and revive its 2014 decision in FedEx, perhaps with a twist or two that the majority may hope will avert yet another reversal by the D.C. Circuit.

For those judges on the D.C. Circuit who will review the forthcoming NLRB decision, the very question posed by the NLRB’s December 27 Order may itself create the impetus for a reversal.  The Board’s Order expressly states that one alternative is for the NLRB to return to the independent contractor test set forth in its 2014 decision in FedEx Home Delivery.  That seems to fly in the face of the D.C. Circuit’s rather strong rebuke of the Board’s express refusal to follow the D.C. Circuit’s prior decision, which the court had characterized as “the poster child for our law-of-the-circuit doctrine.”

Takeaways

As a starting point, regardless of how the NLRB rules, decisions by the Board only address the test for independent contractor status under one law – the National Labor Relations Act.  Such decisions have no application whatsoever to independent contractor status under the federal Fair Labor Standards Act (FLSA), which governs minimum wage and overtime; the federal non-discrimination laws (such as Title VII, the Americans with Disabilities Act, and the Age Discrimination in Employment Act); and the federal law governing pensions and employee benefits (ERISA) – each of which have their own tests for independent contractor status.  Likewise, any decision by the NLRB has no application to any state laws, including those involving minimum wage and overtime, wage payments, unemployment, and workers’ compensation.

Decisions involving independent contractor status are very fact-dependent. Not all companies using an independent contractor or franchise business model would prevail, even under the NLRB’s 2019 decision in SuperShuttle, and not all such companies would fail, even under the Board’s 2014 decision in FedEx.  Even Member McFerran may well find some workers to be independent contractors if the facts and circumstances lead to that result.

Thus, perhaps the most meaningful takeaway is that businesses using an independent contractor or franchise business model that wish to avoid a union drive, a regulatory proceeding initiated by a federal or state workforce or tax agency, or a class action under a federal or state law should enhance their level of compliance with the independent contractor tests under all of those laws. Many businesses have chosen to use a process such as IC Diagnostics(TM), which is designed to minimize independent misclassification exposure by restructuring, re-documenting, and re-implementing independent contractor relationships in a customized and sustainable manner. Utilizing this type of process will maximize the likelihood a business will be able to avoid an independent contractor misclassification challenge, or prevail in one if brought.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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