In The Atlanta Opera Inc., the National Labor Relations Board once again changed the standard for determining independent contractor status under the National Labor Relations Act, returning to its pre-2019 standard making it easier for workers to be deemed employees.

By returning to its prior test, which the US Court of Appeals for the DC Circuit has twice rejected, the National Labor Relations Board (NLRB or the Board) has made judicial enforcement of its new standard questionable.

The Board’s Atlanta Opera[1] decision on June 13 overturned the independent contractor standard adopted in Super Shuttle and returned to the 2014 FedEx Home Delivery standard. Under both of these prior tests, the Board used the common law factors of agency to determine independent contractor status.

The main difference between the two standards is the Board’s treatment of entrepreneurial opportunity in the independent contractor analysis. Under the SuperShuttle standard, the Board emphasized, consistent with the DC Circuit’s approach, entrepreneurial opportunity as the prism through which the common law factors should be considered. The FedEx standard, on the other hand, considered entrepreneurial opportunity as a factual consideration in analyzing one of the common law factors: whether the worker renders services as an independent business.

NEW (OLD) STANDARD – ENTREPRENEURIAL OPPORTUNITY AS SIMPLY ONE FACTOR TO CONSIDER IN THE COMMON LAW TEST

Under the National Labor Relations Act (NLRA or Act), individuals who are independent contractors are excluded from the definition of a statutorily covered employee. Only employees who are covered by the Act have the right to join a union, engage in collective bargaining, and have the right to engage in “protected concerted activity” under the Act.

In determining the standard for analyzing a worker’s status—either as an employee (covered by the Act) versus an independent contractor (not covered by the Act)—the Board’s precedent has vacillated over the years. In its Atlanta Opera decision, the Board reaffirmed that it will continue to apply the common law agency test to determine whether a worker is an employee or an independent contractor.

In evaluating independent-contractor status under the pertinent common-law factors, the Board explained that “all of the incidents of the relationship must be assessed and weighed with no one factor being decisive.”[2] According to the Board, this involves a “qualitative determination of which factors are determinative in a particular case and why.”[3]

Historically, the non-exhaustive common law factors from the Restatement (Second) of Agency § 220 (1958) are as follows:

• The extent of control which, by the agreement, the master may exercise over the details of the work
• Whether 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 master and servant
• Whether the principal is or is not in business

The Board in Atlanta Opera also reaffirmed that it would consider evidence of entrepreneurial opportunity when analyzing independent contractor status. Following FedEx, it will make this assessment as part of the analysis as to whether the individual is rendering services as an independent business.

Concluding that the independent-business analysis “synthesizes the full constellation of considerations that the Board has addressed under the rubric of entrepreneurialism,” the Board noted that past cases analyzing the independent business factor considered not only whether a worker has significant entrepreneurial opportunity, but also whether the worker:

• has a realistic ability to work for other companies,[4]
• has proprietary or ownership interest in their work,
• has control over important business decisions, such as the scheduling of performance; the hiring, selection, and assignment of employees; the purchase and use of equipment; and the commitment of capital.

In the independent business assessment, the Board will also consider whether these factors show constraints imposed on an individual’s ability to act as an independent business. This includes limitations placed on the individual’s realistic ability to work for other companies, restrictions on the individual’s control over important business decisions, and whether the terms or conditions under which the individuals operate are promulgated and changed unilaterally by the company.

Noting independent contractor status would not be found where workers are offered entrepreneurial opportunities they cannot or do not actually use, the Board said it “should give weight only to actual (not merely theoretical) entrepreneurial opportunity…”[5] The Board explained the need to “distinguish between actual opportunities, which allow for the exercise of genuine entrepreneurial autonomy and those that are “circumscribed or effectively blocked by the employer.” According to the decision, “[i]f the day-to-day work of most individuals in the unit does not have an entrepreneurial dimension, the mere fact that their contract with the employer would permit activity that might be deemed entrepreneurial is not sufficient to deny them classification as statutory employees.”[6]

In adopting its new standard, the Board criticized Super Shuttle for its consideration of entrepreneurial opportunity as the animating principle through which all common law factors are evaluated. This approach, the Board said, elevated entrepreneurial opportunity to a “super-factor” in the common law test and, in doing so, failed to properly give weight to all the agency factors.

The Board observed that the “Restatement makes no mention at all of entrepreneurial opportunity or any similar concept,” a “silence [that] does not rule out consideration of such a principle, but . . . cannot fairly be described as requiring it.”

APPLYING THE TEST: HAIR AND MAKEUP ARTISTS ARE EMPLOYEES

The individuals in this case were makeup artists, wig artists, and hairstylists at the Atlanta Opera who were attempting to organize. The employer claimed the workers were independent contractors, and therefore precluded from unionizing under the Act.

Applying the revived FedEx standard to the facts, the Board found that a majority of the common law factors supported employee status. The decision explained that the employer controlled the details of the stylists’ work, directed their work, supplied all instrumentalities for their work, paid an hourly rate with a fixed number of working hours, and that the work of the stylists was part of the regular business of the employer.

Additionally, the Board found no evidence that the stylists rendered services as part of their own independent business. They did not have any ownership or proprietary interest in their work, and because the stylists could not subcontract their positions, find replacements, or hire helpers. Based on these facts, the Board held the stylists were not independent contractors but rather employees covered under the Act.

Notably, the dissenting opinion, which argued against overturning the Super Shuttle standard, would have found the stylists to be employees under that test. Among other things, the dissent argued that there was no reason to consider changing the independent contractor standard under the facts of the case.

DC CIRCUIT’S PREVIOUS REJECTION OF THE BOARD’S STANDARD

The DC Circuit has twice expressly rejected the FedEx independent contractor standard readopted by the Board in Atlanta Opera. In the Circuit’s view, the test minimizes entrepreneurial opportunity. In light of the Board’s adoption of the exact same standard, it is difficult to see how the DC Circuit will not reject it once again. And with plenary jurisdiction over the NLRB’s cases (meaning any case can be appealed to the DC Circuit), the viability of the Board’s Atlanta Opera standard is questionable.

PRACTICAL CONSIDERATIONS

Atlanta Opera is an important decision for businesses that rely on the use of independent contractors, including most “gig economy” enterprises, staffing agencies, and companies that hire individuals to supplement their workforce. The decision affects business models across nearly every industry.

In light of the Board’s newly announced standard coupled with the general counsel’s intensive enforcement approach, businesses should expect to see immediate challenges to their classification of workers as independent contractors.

Additionally, although the Board did not address misclassification as an independent violation of the Act in its Atlanta Opera decision, the general counsel has indicated she intends to pursue this theory, asking the Board to overrule Velox Express, which had rejected it.[7] Businesses should expect such standalone contractor misclassification charges as well.

Given the potential unenforceability of the Board’s new standard, some employers may decide to challenge an NLRB action finding employee status or alleging misclassification of their independent contractors. Regardless, all businesses should review their practices regarding independent contractors based on the Board’s decision.

[1] 372 NLRB No. 95 (Jun. 13, 2023)

[2] Slip op. at 12, fn. 80 (quoting FedEx Home Delivery v. NLRB (FedEx I) 563 F.3d 492, 497 fn. 3 (D.C. Circ. 2009).

[3] Id.

[4] Atlanta Opera also held that this factor was diminished in that case because work for the employees at issue was only available on a seasonal and intermittent basis, thus exclusive employment was unrealistic. Slip op. at 18.

[5] Slip op at 13.

[6] Id.

[7] Velox Express, 368 NLRB No. 61, slip op. at 4.

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