United States: Misclassification Of Independent Contractors In Itself May Be Violation Of NLRA

Last Updated: December 9 2016
Article by Harold Coxson Esq

The National Labor Relations Board's (NLRB) Division of Advice recently released an advice memorandum from December of 2015 in which it found a Section 8(a)(1) violation for an employer's misclassification of independent contractor status. Pacific 9 Transportation, Inc. (No. 21-CA-150875, December 18, 2015).

The advice memorandum, which is binding on the NLRB's regional offices, authorizes the issuance of a complaint where an employer misclassifies employees as independent contractors. The advice memorandum acknowledges that the Board has never found misclassification of independent contractor status, in itself, to constitute a violation of Section 8(a) (1) of the National Labor Relations Act (NLRA) but noted that "there are several lines of Board Decisions that support such a finding."

In Pacific 9 Transportation, the company continued to insist that its drivers were independent contractors even after an earlier ruling by an NLRB regional office that the drivers in question were statutory employees. Pacific 9 Transportation, Inc. (Pac9) argued that its drivers were owner operators (or independent contractors) and thus ineligible to form a union under the NLRA.

The advice memorandum makes the future issuance of complaints for misclassification of independent contractor status a threat to employers across the United States, with the possibility of union representation election losses being overturned and rerun elections mandated. The issuance of a complaint also would trigger the misclassification being reported as an "administrative merits determination," which a contracting agency's labor compliance officer would be likely to classify as a "serious" violation for purposes of determining the contract bidder's eligibility for the award of federal contracts under regulations implementing Fair Pay and Safe Workplaces, Executive Order 13673 (also known as the "government contractor blacklisting" regulations).

Further, the advice memorandum signals that in the future, the NLRB will be an even more active player in the government-wide assault on independent contractor status.

Facts and Findings

Pac9 is a drayage company that operates a fleet of approximately 160 trucks with approximately 180 drivers who transport shipping containers in and around the ports of Los Angeles and Long Beach. The company has been the target of a bitter union "corporate campaign" to organize its drivers.

As part of that campaign, the union filed an unfair labor practice charge with the NLRB alleging that the company threatened employees by informing them that operations would shut down if the drivers voted for a union. The company defended the charge by alleging that the drivers were independent contractors, not employees, and therefore the NLRB lacked jurisdiction. The regional office disagreed and ruled that the drivers were statutory employees, at which point the case was settled.

Pac9 had entered into independent contractor agreements with a number of its drivers, which granted them a fair amount of autonomy, but the company failed to abide by the terms of the agreement and instead, among other things, directed the manner of performance of work by the drivers. Following the regional office's decision that the drivers were employees, the company sent a memorandum to its drivers informing them that only employees—and not owner operators or independent contractors—had the right to form a union, and implying that adverse consequences would result if the drivers voted for a union. The memorandum abrogated the company's settlement agreement approved by the Board. Yet, the company continued to insist that its drivers were independent contractors. The advice memorandum determined that the company's memorandum to employees was equivalent to telling statutory employees that if they sought to form or join a union, their jobs would be at risk or there would be other adverse consequences.

When the union filed a new charge alleging that Pac9's misclassification of employees as independent contractors was, in itself, a Section 8(a)(1) violation, the regional office sent the case to the Board's Division of Advice. As stated above, the advice memorandum concluded that the employer's misclassification of employees as independent contractors operates to interfere with and restrain statutory employees in their exercise of their Section 7 rights to engage in protected concerted activity so as to constitute an independent Section 8(a)(1) violation.

Legal Authority

First, applying the familiar multifactor analysis of Section 220 of the Restatement (Second) of Agency, the Division of Advice agreed with the regional office that the Pac9 drivers were not independent contractors. The advice memorandum concedes that the issue of whether misclassification of independent contractor status in itself constitutes a Section 8(a)(1) violation is a matter of first impression. However, it identifies three lines of cases to support its findings.

First, the Board has held that employer actions that tend to "chill or curtail" the future exercise of protected concerted activity violates Section 8(a)(1).

Second, the Board previously found that an employer violates Section 8(a)(1) by informing employees that engaging in Section 7 activity would be futile.

Third, the Board has held that it is a Section 8(a)(1) violation for an employer to misstate the law to reasonably insinuate that engaging in Section 7 activity would have adverse consequences.

On the basis of these three lines of cases cited as authority, the Division of Advice—for the first time—authorized the issuance of a complaint for a violation of Section 8(a)(1) solely for the misclassification of independent contractor status.

Key Takeaways

Although the advice memorandum merely authorizes the issuance of a complaint, which has yet to be considered by the full Board, it has ominous implications for employers. Ultimately, the threat of a Section 8(a)(1) violation makes proper classification of independent contractor status even more important.

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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