United States: NLRB Releases Advice Memorandum Affirming Misclassification Constitutes Unfair Labor Practice

At the end August, the National Labor Relations Board released an advice memorandum, originally drafted in December 2015, concluding that a group of drivers who worked for a drayage company called Pacific 9 Transportation were misclassified as independent contractors and that this misclassification constituted a violation of the National Labor Relations Act. This advice memorandum comes on the heels of a handful of Board decisions, which have reached similar conclusions following the Board's new and expansive definition of who constitutes a statutory employee under the Act, in FedEx Home Delivery & Teamsters, Local 671. 361 NLRB No. 55 (2014).

The protections of the National Labor Relations Act only apply to individuals who are defined as statutory employees pursuant to Section 2(3) of the Act. According to this Section, independent contractors are expressly excluded from this definition. In September 2014, the Board departed from longstanding precedent and concluded that a group of approximately 20 drivers who worked out of a FedEx Home Delivery terminal in Connecticut constituted statutory employees under the Act. In reaching this conclusion the Board examined a number of the traditional common law agency factors typically analyzed (extent of control exercised by employer over daily work, skill required to perform the particular work, method of payment, entrepreneurial opportunity available to the individual, etc.). However, the Board also stridently reexamined its approach to independent contractor cases by affirming that an alleged independent contractor must have "actual" entrepreneurial opportunity in order to use this factor as indicia of the individual's independent contractor status. Based primarily upon the entrepreneurial opportunity factor, the Board concluded that the drivers at issue in FedEx were employees, rather than independent contractors, and ordered FedEx to collectively bargain with a union regarding the drivers' working conditions.

Since its decision in FedEx, the Board has taken its analysis in FedEx one step further and issued a handful of decisions in which it has concluded that an employer's act of misclassifying employees as independent contractors constitutes an unfair labor practice under the Act. See Sisters Camelot, 363 NLRB No. 13 (Sept. 25, 2015); Green Fleet Sys., LLC & Int'l Bhd. of Teamsters, Port Div., (N.L.R.B. Div. of Judges Apr. 9, 2015); AAA Transp./yellow Cab Employer & Tucson Hacks Ass'n Petitioner, 28-RC-106979, (DCNET June 29, 2016). The Board's recent publishing of the Pacific 9 Transportation advice memorandum, however, underscores that the Board may be reexamining this issue on a national level.

In the advice memorandum, Associate General Counsel of the Board's Division of Advice provided guidance to the Regional Director of Board Region 21 recommending the Region issue a Section 8(a)(1) complaint alleging that the employer's misclassification of its drivers as independent contractors interfered with and restrained driver employees' in the exercise of their Section 7 rights. Pacific 9 Transportation, the employer at issue, used a fleet of about 160 trucks (180 truck drivers) to transport containers to and from ports, rail locations and customer warehouses. Although Pacific 9 required the drivers to execute a "Lease and Transportation Agreement" – in which they were expressly identified as independent contractors – the Board concluded that other relevant factors, including the factors clarified in the Board's prior decision in FedEx, showed that the drivers' day-to-day operations differed from the terms outlined in the Agreement. For example, the Board concluded:

The Employer maintains extensive control over the drivers' schedules through its dispatchers, who determine the drivers' schedules and hours of work. Dispatchers contact the drivers with their assignments. Drivers are assigned a single load at a time, and are not permitted to exchange loads or request specific loads from the dispatchers. Drivers who decline loads are likely to be passed over for additional work in the immediate future . . . Over ninety percent of the Employer's drivers rent their vehicles from the Employer . . . When drivers begin working for the Employer, they are issued handbooks setting forth the Employer's expectations on driver job performance and trained on how to prepare and fill out the Employer's proprietary paperwork for each load. Furthermore, the Employer routinely issues memoranda to its drivers advising them of the Employer's expectations for its drivers and disciplines drivers for traffic infractions. Finally none of the Employer's drivers have created entities in order to operate as independent businesses.

In light of these factors, the Board's General Counsel concluded that the employer violated Section 8(a)(1) of the Act. In so concluding, the Board reasoned that "[t]his conduct—treating the drivers as employees on a daily basis while continuing to insist that they are independent contractors—is without any legitimate business purpose other than to deny the drivers the protections that inure to them as statutory employees, and operates to chill its drivers' exercise of their Section 7 rights . . . [t]he Employer's misclassification suppresses future Section 7 activity by imparting to its employees that they do not possess Section 7 rights in the first place."

Although this logic is a departure from the way in which the Board has consistently understood misclassification claims until now, this reasoning shows an effort by the General Counsel to publicize that the Board likely intends to focus more heavily on this area in the future.  This advice memorandum, and other Board decisions since FedEx, serve to underscore that the Board has begun to take the stance that the status of an individual as an independent contractor will be subject to much greater scrutiny going forward.

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