United States: National Labor Relations Board Issues Decision Overruling Obama-Era Independent Contractor Test: What This Means For (Putative) Employers

In a business-friendly decision issued on January 25, 2019, the National Labor Relations Board ("NLRB" or "Board") revised its test for determining whether putative independent contractors are exempt from coverage under the National Labor Relations Act ("NLRA"). See SuperShuttle DFW, Inc., 367 NLRB No. 75 (2019) ("SuperShuttle"). The Board's SuperShuttle decision affirmed a 2010 Acting Regional Director's decision that a group of franchisee airport shuttle operators were independent contractors. In the process, the Board overturned FedEx Home Delivery, 361 NLRB 610 (2014) ("FedEx"), an Obama-era decision that, according to the SuperShuttle Board, "significantly limited the importance of entrepreneurial opportunity" to the NLRB's independent contractor test. Given this new development, employers should expect that, at least under the NLRA, it will be easier than before to show that a worker should be classified as an independent contractor (instead of an employee).

The Common-Law Independent Contractor Test

By way of background, Section 2(3) of the NLRA excludes independent contractors from statutory coverage, and the Board has traditionally used the common-law agency test to determine whether an individual is an employee or independent contractor. The non-exhaustive list of ten factors—none of which is determinative—include:

(a) The extent of control which, by the agreement, the master may exercise over the details of the work;

(b) Whether or not the one employed is engaged in a distinct occupation or business;

(c) 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;

(d) The skill required in the particular occupation;

(e) Whether the employer or the workman supplies the instrumentalities, tools, and the place of work for the person doing the work;

(f) The length of time for which the person is employed;

(g) The method of payment, whether by the time or by the job;

(h) Whether or not the work is part of the regular business of the employer;

(i) Whether or not the parties believe they are creating the relation of master and servant; and

(j) Whether the principal is or is not in business.

The Board's 2014 FedEx Decision

In FedEx, the Board announced a "refinement" to its independent contractor test by rejecting the D.C. Circuit's instruction in a related 2009 decision1 that whether the individual has significant entrepreneurial opportunity for gain or loss should be treated as an "animating principle" of the independent contractor inquiry. Instead, the FedEx Board created a new factor to be considered in the independent contractor analysis—whether the evidence tends to show that the putative contractor is, in fact, rendering services as part of an independent business—and characterized entrepreneurial opportunity as simply one aspect of that factor. Further, the FedEx Board stated that only actual, not theoretical, entrepreneurial opportunity should weigh in favor of a finding of independent contractor status, and that the Board should also evaluate whether the company imposes restrictions on an individual's entrepreneurial opportunities.

The Board's New (Yet Old) Test in SuperShuttle

The SuperShuttle case dealt with whether franchisee-operators of shared-ride vans in the Dallas-Fort Worth area ("drivers") were independent contractors. Beginning in 2005, the drivers were classified as independent contractors subject to franchise agreements. Under the franchise agreements, the drivers supplied their own vans and paid SuperShuttle an initial franchise fee, a decal fee, and a flat weekly fee for use of the SuperShuttle brand and its dispatch system, which they connected to using a rented Nextel device. When a driver wanted to start work and pick up an assignment, he or she would turn on the Nextel device, which would then receive job "bids" from the SuperShuttle dispatchers. For each bid, the device displayed the fare amount (set by SuperShuttle), the passenger's name and address, and the pickup time. Although drivers would not face consequences for failing to accept a bid, they might be fined for accepting a bid and not completing a pickup. The drivers kept 100% of all fares collected, yet were required to accept SuperShuttle vouchers and coupons.

The Board in SuperShuttle announced that it was rescinding the 2014 FedEx Board's "refinement" of the traditional common-law test, which "fundamentally shifted the independent contractor analysis, for implicit-policy based reasons, to one of economic realities, i.e., a test that greatly diminish[ed] the significance of entrepreneurial opportunity and selectively overemphasize[d] the significance of 'right to control' factors relevant to perceived economic dependency." Going forward, the Board stated that the common-law factors should be evaluated through the "prism of entrepreneurial opportunity," when appropriate given the facts of the case (but, as the Board explained, entrepreneurial opportunity need not be mechanically applied to every factor in the common-law test). Rejecting the dissent's contention that entrepreneurial opportunity was now a "super-factor," the majority nonetheless observed that entrepreneurial opportunity has "always been at the core of the common-law test," regardless of how it is described. The majority also dismissed the dissent's complaint that the Board's decision overruled precedent without public notice and an invitation to file briefs. Noting that the FedEx Board promulgated its alleged "refinement" without public notice or invitation to file briefs, it was appropriate for the Board to follow its example and "undo" the refinement in the same manner.

Applying the newly articulated test—which the Board contends is simply a return to the long-standing analysis—the Board affirmed the Acting Regional Director's 2010 determination that the SuperShuttle drivers were independent contractors, relying mainly on the following facts that demonstrated that drivers had significant entrepreneurial opportunity and control over their earnings: (1) drivers made a significant initial investment in their business by purchasing or leasing a van and entering into the franchise agreements; (2) drivers had nearly limitless ability to meet or exceed their weekly overhead because they had complete control over their schedule and when and how often to work; (3) drivers kept all of their fares and thus, the amount of money they could make was determined by how much they worked; and (4) drivers had discretion over the bids they chose to accept, meaning they could weigh the cost of a particular trip against the fare received.

Key Takeaways

Good things to come for companies operating in the 'gig' and 'share' economies. The SuperShuttle holding signals that the Board will not follow the lead of an increasing number of states that seek to expand employment protections to workers in the "gig" and "share" economies. This reflects a significant reversal of course by an agency that, in 2016, issued complaints against Velox, Inc. and Postmates, Inc. on behalf of drivers it contended were statutory employees protected by the NLRA.

A not-so-subtle nod to Uber and Lyft. It's hard not to think of the two ride-share giants while reading the reasoning behind the Board's determination that SuperShuttle's drivers are independent contractors because they work "as much as they choose, when they choose" in spite of their reliance on SuperShuttle's electronic dispatch system. Although the classification status of Uber and Lyft drivers has been hotly litigated in state and federal courts for nearly a decade, given this recent decision, it seems unlikely that a finding of employment status of these drivers under another statute (using, for example, California's independent contractor test under Dynamex v. Superior Court) will affect the Board's independent analysis of whether Uber and Lyft drivers are independent contractors for purposes of the NLRA.

Implications for dealing with modern union organizing. The Board's SuperShuttle decision creates intriguing opportunities for employers dealing with organizing campaigns. With the Board's reinvigoration of the "entrepreneurial opportunities" framework that states like California have all-but-abandoned in fashioning their independent contractor tests, individuals who would almost certainly be considered employees for state law wage-and-hour purposes may nonetheless be exempt from coverage by the NLRA. Labor counsel should be consulted to explore how to make the most of this new development.

Footnote

1 FedEx Home Delivery v. NLRB, 563 F.3d 492 (D.C. Cir. 2009).

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