Executive Summary: The National Labor Relations Board’s (NLRB’s) recent decision in Atlanta Opera, Case 10– RC–276292 (June 13, 2023), revises the standard the Board will use to determine whether workers are employees or independent contractors under the National Labor Relations Act (NLRA). In Atlanta Opera, the Board overruled a 2019 decision which emphasized entrepreneurial opportunity when evaluating a worker’s independence to pursue economic gain, and returned to a traditional common-law test, which requires the consideration of several factors but does not give greater weight to any one factor.

Background

The NLRA excludes from the definition of a “covered employee” any individual who is an independent contractor. The Act only provides coverage to employees and only gives employees the right to join a union and collectively bargain. Over the years, the definition of "employee" has been subject to interpretation and modification, particularly regarding the classification of workers as either employees or independent contractors. Atlanta Opera involved a group of makeup artists, wig artists, and hairstylists (collectively known as stylists) who claimed the opera company misclassified them as independent contractors and, thus, denied them the right to unionize and engage in collective bargaining. The central issue before the NLRB was whether these workers were correctly classified as independent contractors or whether they should be classified as employees under the NLRA.

Board Decision and Rationale

In Atlanta Opera, the Board overruled its 2019 decision in SuperShuttle DFW, Inc., and Amalgamated Transit Union Local 1338 (Case 16-RC-010963), which considered all the factors in the common-law agency test but emphasized the role of entrepreneurial opportunity and its overall effect on workers’ independence to pursue economic gain and maintain control over their income. Rejecting the emphasis on the role of entrepreneurial opportunity, the Board overruled SuperShuttle and returned to its earlier standard, holding that “in evaluating independent-contractor status ‘in light of the pertinent common-law agency principles,’ ‘all of the incidents of the relationship must be assessed and weighed with no one factor being decisive.’”

The Board stated that its inquiry will be guided by the nonexhaustive common-law factors set out in the Restatement (Second) of Agency. These factors include the extent of control exercised by the employer, the opportunity for profit or loss, the investment in equipment or materials, the skill required, the permanence of the working relationship, and the degree of integration into the employer's business.

Significance of Entrepreneurial Opportunity

The Board also clarified the analytical significance of the worker’s entrepreneurial opportunity for gain or loss, stating “in the context of weighing all relevant traditional common-law factors, the Board will also consider whether the evidence tends to show that the worker is, in fact, ‘rendering services as part of an independent business.’” The Board stated that this independent business analysis encompasses considerations it has examined in previous cases, including not only whether the worker has a significant entrepreneurial opportunity but also whether the worker:

• Has a realistic ability to work for other companies;
• Has proprietary or ownership interest in their work; and
• 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.

Thus, the NLRB will consider whether a worker is, in fact, rendering services as part of an independent business, considering the factors discussed above, and will continue to give “full consideration and appropriate weight to all of the traditional common-law factors.” “As with all other factors, the weight given to whether a putative contractor renders services as part of an independent business will depend upon the factual circumstances of the particular case.” Additionally, the Board will consider whether the employer has effectively imposed constraints on a worker’s ability to render services as part of an independent business (such as by limiting the worker’s ability to work for other companies and restricting his or her control over important business decisions).

Applying this revised standard, the NLRB held that the stylists were employees, not independent contractors, considering several factors including the significant control the company exercised over the stylists’ work, the integral nature of the stylists’ roles within the company's operations, and the lack of meaningful opportunity for the stylists to profit or sustain losses based on their performance.

The Bottom Line

The Board’s revision of its standard for evaluating whether a worker is an employee or independent contractor by essentially making the question of entrepreneurial opportunity one of many factors to be considered may ultimately result in more workers being considered employees under the NRLA. Employers should review their classification practices and evaluate the nature of their working relationships in light of the Board’s new decision.