The National Labor Relations Board’s (NLRB) recent decision significantly revising the independent contractor standard will allow more workers to be so classified and therefore unable to unionize. This decision continues the Board’s growing trend towards employer-friendly positions and scaling back Obama-era developments. In other action this winter, the Board has proposed rulemaking modifying the joint employer test and limited its definition of “protected concerted activity.”
SuperShuttle: More Workers Likely Contractors as Board Reverts to Pre-Obama Era Independent Contractor Test
The Board’s January 25, 2019 decision in SuperShuttle DFW, Inc., significantly changes the standard for classifying independent contractors. Reinstating the traditional common law factor test, the Board reverses its 2014 decision in FedEx Home Delivery, emphasizing the importance of entrepreneurial opportunity as a factor in determining whether a worker is an employee or an independent contractor. Under the revised standard, workers are more likely to be classified as independent contractors and, therefore, excluded from the National Labor Relations Act (NLRA) and unable to unionize.
The Amalgamated Transit Union sought to represent SuperShuttle drivers at Dallas/Fort Worth International Airport (DFW). Since 2005, SuperShuttle has operated under a franchise model under which drivers supplied their own vans, paid franchise fees and controlled their own schedules. Before 2005, the drivers worked regular shifts, were paid at an hourly rate and were classified as employees. DFW argued that the drivers were independent contractors prohibited from unionizing under Section 2(3) of the NLRA.
The Board agreed, finding that the franchise drivers were independent contractors based, in part, on their ability to set their own schedules, lack of meaningful supervision, and requirement that they supply their own vans. In reaching that conclusion, the Board overruled the Obama-era FedEx Home Delivery decision, which modified the long-standing independent contractor test to reduce the importance of “entrepreneurial opportunity.” Rather than viewing “entrepreneurial opportunity as an “animating principle” guiding the determination of independent contractor status, FedEx limited it to evidence supporting a single factor in the analysis: whether the worker rendered services as part of an independent business. Reversing course, the SuperShuttle majority noted:
The Board majority’s decision in FedEx did far more than merely ‘refine’ the common-law independent-contractor test—it ‘fundamentally shifted the independent contractor analysis, for implicit policy-based reasons, to one of the economic realities, i.e., a test that greatly diminishes the significance of entrepreneurial opportunity and selectively overemphasizes the significance of ‘right to control’ factors relevant to perceived economic dependency.
SuperShuttle restores the Board’s traditional common law test, applying the non-exhaustive list of factors set forth in the Restatement (Second) of Agency and the 1968 Supreme Court decision, NLRB v. United Insurance Co. of America, which include:
1. The extent of control which, by the agreement, the master may exercise over the details of the work;
2. Whether or not the one employed is engaged in a distinct occupation or business;
3. 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;
4. The skill required in the particular occupation;
5. Whether the employer or the workman supplies the instrumentalities, tools, and the place of work for the person doing the work;
6. The length of time for which the person is employed;
7. The method of payment, whether by the time or by the job;
8. Whether or not the work is part of the regular business of the employer;
9. Whether or not the parties believe they are creating the relationship of master and servant; and
10. Whether the principal is or is not in business.
Under SuperShuttle, the Board reinstates the analysis of all factors to determine whether they demonstrate “entrepreneurial opportunity” and, therefore, independent contractor status. The decision likely means that more workers can be classified as independent contractors, especially in industries where franchise relationships are prevalent.
The Board’s decision emphasizes that no one factor will be dispositive. Employers should conduct a thorough analysis of their classifications and avoid relying on a single factor (i.e., the existence of an independent contractor agreement, payment as a 1099 worker, flexible scheduling, etc.) alone to make this determination.
Other Laws Use Different Tests
Properly classifying workers requires careful attention to overlapping state and federal laws; the Board’s decision in SuperShuttle clarifies that analysis only under the NLRA. Employers also need to consider guidance from the EEOC, IRS, Department of Labor, and the states in which they operate, as each imposes different standards for classifying workers as employees or independent contractors.
Rulemaking: Proposed Changes to Joint Employer Standard
The Board also has proposed significant changes to the standard for joint employer status. Comments to the proposed rule were accepted through January 14, 2019. It reads as follows: “an employer may be considered a joint employer of a separate employer’s employees only if the two employers share or co-determine the employee’s essential terms and conditions of employment, such as hiring, firing, discipline, supervision, and direction.”
The proposed changes are an attempt to alleviate some of the uncertainty regarding the joint employer standard, which has been in flux since the Board’s 2015 decision in Browning-Ferris Industries of California, Inc., 362 NLRB No. 186 (2016). Browning-Ferris determined joint employer status based on whether an employer reserved the right to control workplace conditions, even if it did not exercise that right. While the Board eventually overruled Browning-Ferris in its 2017 decision in Hy-Brand Industrial Contractors, Ltd., 365 NLRB No. 156 (December 14, 2017), that decision was subsequently vacated. Since that time, the Board has applied the Browning-Ferris standard.
The proposed rulemaking changes would mark a return to the pre-Browning-Ferris standard. Under the proposed rule, for an employer to be considered a joint employer, they must possess and exercise substantial, direct, and immediate control over the essential terms and conditions of employment in a manner that is neither limited nor routine. In a departure from the Browning-Ferris standard, indirect influence and minor contractual provisions would not be sufficient to establish a joint-employer relationship. The impact of the proposed changes will be felt the strongest in industries that rely on interconnected employment relationships like subcontractors, franchisees, and staffing agencies.
The issue remains hotly disputed. During the comment period, the U.S. Court of Appeals for the District of Columbia Circuit upheld the Board’s 2015 decision in Browning Ferris, specifically that an unexercised right to control determined joint employer status. Browning-Ferris Industries of California, Inc., No. 16-1028 (D.C. Cir., Dec. 28, 2018). Noting a lack of clarity from the Board, the D.C. Circuit remanded the action for the Board to specify the types of indirect control to be considered in determining whether a joint employer relationship exists. Ultimately, the Board’s direction may impact the final rule.
These decisions are just part of the Board’s increasingly employer-friendly shift. As featured on this blog, the NLRB recently rolled back the definition of “protected concerted activity” and returned to other prior precedents. Union and non-union employers should be prepared for changes resulting from similar Board action in the near future and should consult with experienced labor and employment counsel to determine how this changing landscape impacts their workforce.