United States: NLRB Adopts New Test For Independent Contractor Misclassification, Applies It To Find FedEx Drivers Are Employees Who Can Unionize

Last Updated: October 16 2014
Article by Todd Lebowitz

The NLRB has tossed a new vegetable into the enormous salad of independent contractor misclassification tests. As companies might expect, the new vegetable smells rotten.

Companies who wish to analyze whether their non-employee workers are properly classified as independent contractors must now contend with a new NLRB test, in addition to the IRS Right to Control Test (used for federal tax purposes), common law Right to Control Test (used for ERISA and federal discrimination law purposes), modified Treasury version of the common law Right to Control Test (used for Affordable Care Act purposes), Economic Realities Test (used for Fair Labor Standards Act purposes), and the multitude of varying state law tests used for state wage and hour laws, workers compensation, and unemployment.

It's enough to give employers a stomach ache.

In FedEx Home Delivery, 361 NLRB No. 55 (Sep. 30, 2014), a divided Board decided that it would not follow the D.C. Circuit Court of Appeals' 2009 decision which articulated the proper standard for evaluating who is an employee under federal labor law. The Board complains that the D.C. Circuit's decision places too much emphasis on the entrepreneurial opportunity of individuals and not enough weight on constraints that a company may place on the ability to realize that opportunity. So the Board made up a new standard, taking its previous list of ten factors that should be considered and adding to the list an eleventh factor that purposely devalues the "entrepreneurial opportunity" factor that the D.C. Circuit held was of particular importance.

The eleventh factor to be considered, the Board held, is an overall evaluation of whether the individual is, in fact, rendering services as part of an independent business. The entrepreneurial opportunity for economic gain or loss is merely a part of that analysis, and that part of the analysis should focus narrowly on what the individuals have actually done with their entrepreneurial rights, rather than focusing on their theoretical opportunity. The Board's position that entrepreneurial autonomy actually exercised is what matters, rather than the individual's right to exercise that autonomy, runs counter to virtually every other articulated version of a Right to Control or Economic Realities test. It also runs counter to the D.C. Circuit's 2009 holding, which the Board concedes is irreconcilable with its decision here.

When determining who is an employee eligible to join a union, the NLRB will now weigh the eleven factors listed below. The Board unhelpfully adds, in commentary, that the weight it will choose to assign to each factor "will depend upon the factual circumstances of the particular case." (Which translated into non-legalese most likely means, "will depend upon the outcome the Board wishes to reach.") In any event, here are the eleven factors:

  1. Extent of control by the employer
  2. Whether or not the individual is engaged in a distinct occupation or business
  3. Whether the work is usually done under the direction of the employer or by a specialist without supervision
  4. Skill required in the occupation
  5. Whether the employer or individual supplies instrumentalities, tools, and place of work
  6. Length of time for which individual is employed
  7. Method of payment
  8. Whether or not work is part of the regular business of the employer
  9. Whether or not the parties believe they are creating an independent contractor relationship
  10. Whether the principal is or is not in the business
  11. (New:) Whether the evidence tends to show that the individual is, in fact, rendering services as an independent business

After creating this new test, the Board then applied it and reached the conclusion that delivery drivers who operated out of FedEx Home Delivery's Hartford, Connecticut terminal were employees under Section 2(3) of the National Labor Relations Act and that FedEx, by refusing to bargain collectively with them, violated Sections 8(a)(5) and (1) of the Act.

The Board reached this conclusion despite conceding that the facts it was evaluating were the same facts the D.C. Circuit evaluated when it ruled in 2009 that FedEx Home Delivery drivers in Wilmington, Massachusetts were independent contractors. By changing the test, the Board obtained a different result on the same facts. How Convenient!

The facts include that FedEx drivers own and operate their own vehicles, pay most of their own costs, buy their own uniforms and supplies, and operate their routes without direct supervision. Drivers can hire their own assistants, can subcontract out their own routes, and can sell their routes to other drivers. On the other hand, facts weighing against independent contractor status include that FedEx exerted control over the drivers' uniforms and appearance, over the logos and certain specifications of the trucks, and over the company-wide infrastructure that enabled packages to be tracked and delivered to each terminal where drivers picked them up.

In the end, these are facts that have been evaluated and analyzed by multiple courts in multiple jurisdictions, applying multiple laws, and often reaching different results. What makes this decision notable, however, is that the NLRB expressly declines to follow the D.C. Circuit Court of Appeals' ruling on how federal labor law defines who is an employee. And then, to justify its decision to disregard the Court of Appeals, the NLRB literally makes up a new test (under the guise of clarification), applies it to reach a holding regarding FedEx drivers that the D.C. Circuit had already rejected, and declares that this new test is henceforth the test that it will use in determining whether an individual is an employee or an independent contractor under federal labor law.

The Bottom Line: In the arena of independent contractor misclassification – much like it has done with social media rules, workplace conduct rules, and confidentiality provisions – the NLRB is willing to create new standards to achieve the pro-union outcomes it desires. Companies who retain independent contractors may increasingly find themselves to be the target of unionization efforts, as unions will undoubtedly rely on this decision to recruit groups of contractors.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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