From Lexology, James R. Redeker and Elizabeth Mincer discuss postions that the National Labor Relations Board is expected to change including the definition of an independent contractor. James adn Elizabeth write:
The pro-union majority of the National Labor Relations Board appears to be moving to fulfill President Joe Biden’s campaign promises to make it easier for unions to organize employees and increasing the number of employees who can be represented by a union. The NLRB’s positions on micro-units, the definitions of “independent contractor” and “joint employment” are under review and almost certain to change… again.
Classifying Independent Contractors
Whether a worker is an independent contractor or an employee is an issue of great significance to employers, government agencies, plaintiffs’ lawyers and unions. Independent contractors are not entitled to the benefits and protection of numerous laws, such as unemployment compensation, workers compensation, anti-discrimination, wage-and-hour, and representation by a union. Independent contractors are also required to pay the entire Social Security tax. Expanding the definition of “employee” by narrowing the test of who is an independent contractor will have a substantial, adverse impact on employers who use independent contractors. For that reason, employers have a significant stake in the criteria used by government agencies and courts when deciding whether a worker is classified as an employee or independent contractor.
Although there are variations in each, three tests are currently being used by decision-makers: the common law test, the economic reality test and the ABC test. Which test the Board uses has changed, depending on which party occupies the White House. For decades prior to 2014, the Board used the common law test. That test had 10 factors that needed to be evaluated, with no single factor being determinative. However, by 2014, the factor of significant entrepreneurial opportunity had become vital to the determination of status. In 2014, the Obama-era Board rejected the significance of the entrepreneurial factor and held that it would only give “weight to actual, not merely theoretical, entrepreneurial opportunity.” The Board leaned heavily on the degree to which an employer restrained the workers in the exercise of their entrepreneurial opportunity. Also, the Board added a new factor to the common law analysis by saying that the individual had to be doing work as part of an independent business.
Predictably, in 2019 the Trump-era Board, in SuperShuttle DFW, rejected the 2014 decision and held that the Board would use the common law test as seen through the prism of the economic reality of entrepreneurial opportunity. Now, the Biden-era Board is reconsidering SuperShuttle and we again can expect a change. From all appearances, the Board will likely adopt the ABC test. In one form or another, over 30 states have adopted the ABC test and the current House of Representatives has passed a bill that would require the Board to use it. Since the future of the House bill is in doubt, the Board has taken the initiative and is using the reconsideration of SuperShuttle to make the legislative-driven change unnecessary.
The ABC test has three conditions that an employer must satisfy to give the worker independent contractor status:
- The worker must be free from the employer’s control with regard to the performance of the work, both theoretically and in fact;
- The worker must perform work that is outside of the usual course of the employer’s business; and
- The worker must be engaged in a recognized trade, occupation or business of the same kind as the work that the worker is performing for the employer.
Employers who use independent contractors and have concerns about liability for misclassifying them and the fact that the worker, as an employee, will be covered by the National Labor Relations Act are on notice that the ABC test may not only be used by the Board, but also may become the test used by all federal agencies.