From JDSupra, Dayna Chucta and Hugh Murray, III discuss the decision by the National Labor Relations Board (NLRB) to go back to an earlier standard for determining if a worker is an employe or independent contractor and suggest that the change is likely to affect a small number of cases. Dayna and Hugh write:
The National Labor Relations Act (NLRA) provides a host of labor-related rights for private-sector employees, including the right to form or join unions, the ability to compel employers to collectively bargain with the unions they choose to represent them, and the ability to engage in other concerted activities for “mutual aid or protection” without retaliation from their employers. The NLRA, however, explicitly excludes from its definition of “employee” individuals who are “independent contractors.” Thus, workers who are independent contractors do not have a right under federal law to try to organize a union, cannot compel a business to collectively bargain with a union they may choose, and may face retaliation (or even legal liability under the antitrust laws) if they engage in concerted activity designed to increase pay.
The NLRA unhelpfully does not establish the distinction between a worker who is an employee and one who is an independent contractor. The task of deciding in any particular situation whether workers belong in one or the other category falls, in the first instance, to the National Labor Relations Board (NLRB or the Board). Over the past several decades, the NLRB has adjusted and readjusted the framing of the test it uses to make such a decision. On June 13, 2023, the NLRB once again changed its independent contractor test in The Atlanta Opera, Inc. v. Make-up Artists and Hair Stylists Union, Local 798, 372 NLRB No. 95 (2023).
Although this change in formulation was met with a strong dissent and some breathless headlines by commentators, its practical impact in any given case is likely very limited. The vast majority of workers will be on one side or the other of the employee/independent contractor divide regardless of the way the NLRB describes the test. The formulations themselves are flexible enough that they probably do not make a real difference in all but the closest of cases, and even then may not change the result.
In part, this is because the US Supreme Court held in 1968 the “common law agency test” needed to be used in drawing the line between employee and independent contractor. Even though, as the Court noted, the common-law test is somewhat fuzzy and indistinct, it is not without substance, and the Court’s ruling greatly restricted the range of options available to the Board in this area. In the decades following 1968, the Board decided many cases, formulating the precise test a little differently depending on the facts of each.
By 2009, the US Court of Appeals for the District of Columbia Circuit noted that the Board’s cases seemed to emphasize “significant entrepreneurial opportunity for gain or loss” as a “proxy” for the detailed common-law considerations. The appeals court expressed agreement with this idea and indicated that “entrepreneurial opportunity” lay at the heart of the distinction under the NLRA.
A few years later, in FedEx Home Delivery, 361 NLRB 610 (2014), the Board rejected this emphasis and announced that its inquiry would be guided by the non-exhaustive common-law factors enumerated in the Restatement (Second) of Agency, Section 220 (1958), with no single factor being particularly determinative. These factors include:
(a) The extent of control that, by agreement, putative employer may exercise over the details of the work
(b) Whether 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 worker supplies the instrumentalities, tools, and 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 time or by the job
(h) Whether the work is part of the regular business of the employer
(i) Whether the parties believe they are creating the relation of employer and employee
(j) Whether the principal is or is not in an ongoing business related to the services business
A little less than five years later, in SuperShuttle DFW, Inc., 367 NLRB No. 75 (2019), the Board abandoned this formulation and followed the DC Circuit’s comment placing an emphasis on entrepreneurial opportunity, stating that this idea “has always been at the core of the common-law test” and accordingly “is a principle by which to evaluate the overall effect of the common-law factors on a putative contractor’s independence to pursue economic gain.”
Now, in whiplash fashion, four years later, the Board is returning to its roots and reversing the SuperShuttle standard and reinstating the FedEx approach.
While both FedEx and SuperShuttle use the 10 common-law factors in the Restatement to determine a worker’s status, the SuperShuttle Board deviated in that in addition to these factors, it placed a heavy emphasis on whether putative contractors have a significant entrepreneurial opportunity for gain or loss. While the Board had previously considered this factor, it never assigned to it any special significance or weight. Specifically, in no case before SuperShuttle had the Board found that “entrepreneurial opportunity” alone was sufficient to establish independent contractor status, but rather that it was only one factor to consider among the other relevant common-law factors. The Board had not treated it as an animating principle or master factor. NLRB decisions had been relatively consistent, until SuperShuttle, in their embrace of the common-law agency principles and “there was no shorthand formula or magic phrase that can be applied to find the answer, but all of the incidents of the relationship must be assessed and weighed with no one factor being decisive.” NLRB v. United Insurance Co. of America, 390 U.S. 254, 258 (1968). The FedEx standard, according to the new decision, represented a “carefully calibrated, precedent-based effort to both reaffirm the Board’s commitment to core common-law principles principals—as required by the Supreme Court—and to align the Board’s prior approach to assessing entrepreneurial characteristics with those principals.” Atlanta Opera at 4. However, SuperShuttle upended this standard by placing extra focus on entrepreneurial opportunity. Having found that SuperShuttle departed from the Board’s traditional independent contractor analysis, the Board overruled SuperShuttle, reasoning that such an expansive approach departed from the mainstream of Board precedent, lacked clear support in traditional common-law principles, and could dramatically broaden the independent contractor exclusion under the NLRA without justification.
The Atlanta Opera Board also determined that the Board should give weight only to actual (not merely theoretical) entrepreneurial opportunity.
The Atlanta Opera case involved whether workers (makeup artists, wig artists, and hairstylists working at the Atlanta Opera) were employees under the NLRA or independent contractors excluded from coverage. Considering the enumerated Restatement factors, a majority of the Board ultimately determined that the stylists were employees. In coming to this determination, those Board members found that a majority of the traditional common-law factors—control, feedback, supplies, pay, regular business—pointed toward employee status, whereas three of the traditional factors—distinct occupation, skill, and length of employment—weighed in favor of independent contractor status. The Board found that the parties’ belief as to the nature of the relationship was inconclusive. Weighing the factors, the Board concluded that the stylists were in fact employees.
So, does any of this back-and-forth matter? In this particular case, apparently not. One Board member disagreed with the majority that the “entrepreneurial control” test should be deemphasized, but even he agreed that the workers at issue in this case were NLRA-designated employees rather than independent contractors, even under the now-rejected SuperShuttle standard.
Most other situations are likely to be similarly insensitive to subtle shifts in the formulation of an inherently fuzzy and multifactored balancing test. Businesses that place a heavy emphasis on treating workers as independent contractors should not take too much comfort from this decision, as the number of factual circumstances in which a worker would move from being an employee under the Restatement test to being an independent contractor because of significant entrepreneurial control is likely small. And even in those cases, the variety of state laws concerning independent contractor status creates more business complications than the NLRA generally would.