United States: Velox Express: NLRB Holds Independent Contractor Misclassification Does Not Itself Violate The NLRA

Last Updated: September 9 2019
Article by Joseph Alan Piesco, Ryan Vann and Jonathan Batten

Independent contractor classification remains at the forefront of the employment and labor law landscape, with non-compliance a trigger for potential liability under virtually every employment law.  With a recent National Labor Relations Board (NLRB) decision, however, employers have received some welcome news that independent contractor misclassification is not a stand-alone violation of the National Labor Relations Act (NLRA).

Independent contractor status backdrop

Independent contractor classification remains one of the key employment issues of the modern workforce.  While there has been increased prominence attributable to the emergence of the so-called gig economy, where workers are often classified as contractors, these issues also resonate in other workplaces where flexible and nontraditional working arrangements are used.

Complicating these issues for employers is the uncertainty created by the tangle of differing legal standards applied by state, federal and local regulators, from the IRS and the US Department of Labor to state workers compensation and unemployment insurance agencies.  Political differences on the issue have often led to wildly swaying interpretations, guidelines and enforcement agendas.

Recent decisions and actions of courts and government regulators have further highlighted the uncertainty and risk in these contractor relationships.  For example, the IRS and Department of Labor have established a joint initiative to pursue and impose monetary penalties on employers for misclassification.  Even more recently, the California Supreme Court's Dynamex Operations v. Supreme Court decision sent shockwaves by embracing a strict legal test constraining the ability of employers to classify workers as contractors in California, a test that the California legislature is currently considering codifying more broadly to workers in the state, in the hotly debated Assembly Bill 5. Some version of the strict ABC test adopted by California is already the law in other states as well, including Massachusetts and New Jersey.

Against this backdrop comes the National Labor Relations Board's recent decision in Velox Express, Inc., 368 N.L.R.B. No 61 (2019).  Classification of workers is a fundamental threshold issue under federal labor law, as only statutorily defined "employees" are covered under the National Labor Relations Act (NLRA). Under Section 2(3) of the NLRA, independent contractors are specifically excluded from the protections afforded to employees.  Accordingly, many NLRB decisions preliminarily have to resolve whether certain workers classified by employers as independent contractors are properly classified as such or are instead statutory employees subject to the NLRA.  Employee/contractor classification issues typically arise in the context of determining who is eligible to vote in a NLRB election and in resolving whether certain workers are protected by Section 8(a)(1) of the NLRA.

Recently, the NLRB clarified the test to be used in resolving this threshold determination of whether an independent contractor is properly classified under federal labor law, focusing the inquiry on the putative contractor's opportunity for entrepreneurial gain or loss.  SuperShuttle DFW, Inc., 367 N.L.R.B. No. 67 (2019).

In Velox Express, the NLRB addressed a related issue − could an employer's mere act of misclassifying workers as independent contractors itself be a violation of Section (8)(a)(1) of the NLRA, which prohibits an employer from interfering with, restraining, or coercing employees in the exercise of the organizational rights guaranteed by the NLRA?  The NLRB answered that question in the negative, holding that an employer does not violate Section 8(a)(1) of the National Labor Relations Act by misclassifying its workers as independent contractors.

Case background

On December 18, 2015, the Division of Advice operating under then-NLRB General Counsel Richard Griffin issued an Advice Memorandum that concluded that one of the NLRB's regional offices should issue a complaint alleging that the employer's misclassification of its employees as independent contractors itself violated Section 8(a)(1) of the NLRA. Pac. 9 Transp., Inc., No. 21-CA-150875 (NLRB Div. of Advice Dec. 18, 2015) (released Aug. 26, 2016).  This was a new theory of liability – the National Labor Relations Board had never previously found that misclassification itself was a violation of the NLRA.

Based on the initiative laid out in this advice memorandum, the Board issued a number of unfair labor practice complaints incorporating this novel theory, which led in turn to several Administrative Law Judge rulings finding that employers had violated Section 8(a)(1) of the Act by misclassifying their workers as independent contractors instead of employees.  See, eg, Intermodal Bridge Transp., No. 21-CA-157647 (NLRB Div. of Judges Nov. 28, 2017).  One such ALJ ruling that found a stand-alone misclassification violation was in a case involving Velox Express, Inc. Velox Express, Inc., 15–CA–184006 (NLRB Div. of Judges September 25, 2017).

On December 1, 2017, the new NLRB General Counsel, Peter Robb, issued General Counsel Memorandum GC 18–02, which rescinded, among other Advice Memoranda, the memorandum arguing that an employer's misclassification of employees as independent contractors is itself a violation Section 8(a)(1) of the NLRA.

Recognizing the significance of this issue, on February 15, 2018, the NLRB issued a Notice of Invitation to File Briefs in the Velox Express matter, which was at the time on appeal to the NLRB, on the following question:

Under what circumstances, if any, should the Board deem an employer's act of misclassifying statutory employees as independent contractors a violation of Section 8(a)(1) of the Act?

This invitation drew great interest.  In addition to the parties to the underlying case and the NLRB's office of General Counsel, 28 outside parties submitted 13 briefs weighing in on the issue.

The Velox Express decision

On August 29, 2019, the NLRB issued its decision in Velox Express. Velox Express is a company that provides medical courier services for clients who perform laboratory testing of medical specimens.  Velox's drivers, whom the company treated as independent contractors, collect medical specimens for Velox's clients in Arkansas and western Tennessee.

The NLRB's Office of General Counsel brought a complaint based on a charge filed by one of these drivers alleging, among other things, that the company misclassified the drivers as contractors.  The NLRB's complaint alleged that, by misclassifying them, Velox was violating their Section 7 organizational rights. The case was heard before an Administrative Law Judge, who found, among other things, that Velox had misclassified its drivers as independent contractors, and that, by doing so, had violated Section 8(a)(1) of the NLRA. The ALJ reasoned that by misclassifying the drivers, Velox "restrained and interfered with their ability to engage in protected activity by effectively telling them that they are not protected by Section 7 and thus could be disciplined or discharged for trying to form, join or assist a union . . . ."

Velox appealed the ALJ's ruling to the NLRB. As an initial matter, the Board affirmed the ALJ's ruling that Velox Express had misclassified the drivers as independent contractors.  However, the Board, by a 3-1 majority, held that an employer's misclassification of its employees as independent contractors does not violate the NLRA; it reversed the ALJ's finding that Velox Express had violated section 8(a)(1) of the NLRA by misclassifying the drivers.

The Board majority held that an employer's communication to its workers of its opinion that they are independent contractors does not, standing alone, violate the NLRA if that opinion turns out to be mistaken.  The Board reasoned that such communication does not inherently threaten those employees with termination or other adverse action if they engage in activities protected by the NLRA, nor does it communicate that it would be futile for them to engage in such activities.  Accordingly, under Section 8(c) of the NLRA, such a communication is privileged as long as it "contains no threat of reprisal or force or promise of benefit."

In addition, in reaching its conclusion, the Board noted the challenge in classification determinations: reasonable minds can and do differ over the application of the Board's own test, not to mention the other tests used by state, federal and local regulatory bodies.  To impose liability for an employer's mistaken belief that an independent contractor classification is proper, the Board reasoned, would unduly chill the creation of independent contractor relationships, which would be contrary to the Congressional intent to preserve independent contractor relationships as reflected by the NLRA.

The Board also observed that a stand-alone misclassification violation would improperly shift the burden of proof in cases where misclassification was found. All the General Counsel would have to do would be to allege employee status, and the employer would be forced to prove that the contractors were properly classified or be liable for an unfair labor practice.  The Board further noted that if misclassification as an independent contractor could be found to violate 8(a)(1), then so could other employer categorizations with implications for coverage under the NLRA, such as the classification of an employee as a statutory supervisors.

Takeaway for employers from Velox Express

Classification of workers as independent contractors is a subject fraught with risk and uncertainty for employers due to the multiplicity of often-changing applicable legal standards and increased regulatory attention given to misclassification issues.  Against this backdrop, the NLRB's decision in Velox Express provides something of a respite for employers, offering at least some measure of certainty that an employer will not be found liable for an unfair labor practice violation merely for a mistaken classification decision.

Given the potential for liability and business disruption from the need to satisfy the numerous intersecting legal standards imposed by federal, state and local regulatory agencies and courts, employers should consult with experienced counsel to determine the best approach to independent contractor classification concerns. 

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions