New Test or Old Test?: The NLRB and Independent Contractors

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The National Labor Relations Board (the “NLRB”) began the year by again changing the test it uses to determine whether a worker is an independent contractor. The test is, however, not new. Instead, in SuperShuttle DFW, Inc. (367 NLRB No. 75), the NLRB  returned to its long-standing test to determine whether a worker is an independent contractor, thereby rejecting the test it had adopted during the Obama administration. The NLRB’s return to a traditional test, which is more consistent with other federal agencies and courts, means it is less likely a worker may be an “employee” for the purpose of the National Labor Relations Act (the “NLRA”) while simultaneously, on the same facts, an independent contractor for the purpose of a second statute. Also, because the NLRA generally protects employees and not independent contractors, the NLRB’s decision impacts the scope of workers who a union may represent or workers who are protected when they engage in concerted activity. As a result, the test is important for employers that rely on contingent workforces or franchisees.
 
In 2014, the NLRB decided FedEx Home Delivery. Prior to FedEx, the NLRB and courts applied several factors (e.g., amount of control over the work performed, manner of payment for work, and degree of supervision) to determine whether a worker was an independent contractor under the NLRA, but primarily focused on whether the worker had “entrepreneurial opportunity for economic gain.” Entrepreneurial opportunity for economic gain means the degree to which a worker functions as an entrepreneur. A worker functions as an entrepreneur (rather than an employee) when he or she can take economic risks –  such as investing in better tools, hiring helpers, or working for more than one client – with the corresponding opportunity to profit from working smarter, not just harder. As a result, under the traditional test, a worker with greater entrepreneurial opportunity for economic gain is more likely to be an independent contractor. In FedEx, the NLRB severely limited the significance of a worker’s entrepreneurial opportunity for economic gain. The NLRB ruled, while it may consider entrepreneurial opportunity when it determines whether a worker is an independent contractor, entrepreneurial opportunity is no more important than any other factor. The NLRB also ruled it would not consider a worker’s theoretical entrepreneurial opportunity -- only a worker’s actual exercise of entrepreneurial opportunity impacted whether he or she was an independent contractor.
 
In the NLRB’s decision in SuperShuttle, the NLRB revived the importance of a worker’s entrepreneurial opportunity for economic gain in determining whether that worker is an independent contractor. While the NLRB revived a worker’s entrepreneurial opportunity to act as a tiebreaker in close cases, the non-exhaustive list of factors it relies on to determine whether a worker is an independent contractor remains unchanged. Those factors include:

  • The extent of control which, by the agreement, the employer may exercise over the details of the work.
  • Whether or not the one employed is engaged in a distinct occupation or business.
  • The kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the employer or by a specialist without supervision.
  • The skill required in the particular occupation.
  • Whether the employer or the workman supplies the instrumentalities, tools, and the place of work for the person doing the work.
  • The length of time for which the person is employed.
  • The method of payment, whether by the time or by the job.
  • Whether or not the work is part of the regular business of the employer.
  • Whether or not the parties believe they are creating the relation of employer and employee.
  • Whether the principal is or is not in business.

As a practical matter, the SuperShuttle decision will help businesses in disputes over whether a worker is an independent contractor under the NLRA. From a business-planning perspective, however, the decision should not change whether a business classifies workers as independent contractors or employees. Misclassifying workers as independent contractors has significant consequences and determining whether a worker has entrepreneurial opportunity is often too amorphous for a business to be confident, on that factor alone, that a specific worker is an independent contractor. Instead, businesses should continue to classify workers as independent contractors in consultation with counsel after considering all of the factors used by the NLRB.

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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