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NLRB Overturns Obama-era Independent-Contractor Standard

Posted by Roscoe J. Mutz | Feb 04, 2019 | 0 Comments

The National Labor Relations Board (NLRB) – the federal agency that administers the National Labor Relations Act (NLRA) by investigating, prosecuting, and adjudicating NLRA claims – overturned an Obama-era standard for deciding whether workers are employees protected by federal labor law or independent contractors who are ineligible to unionize or access the protections of the NLRA.

The prior standard, set forth in the 2014 FedEx Home Delivery decision, placed a strong emphasis on workers' actual economic dependency on companies (whether the worker receives all or most of their work from that business) while rejecting (and limiting the importance of) arguments that theoretical entrepreneurial opportunity should be the “animating principle” of the inquiry.

In its decision issued January 25, 2019, SuperShuttle DFW, Inc., the Trump-appointed NLRB majority found the FedEx decision impermissibly altered the common-law independent-contractor test by undervaluing the importance of entrepreneurial opportunity. The Board reestablished its adherence to the traditional common-law test implemented prior to the FedEx decision and held that moving forward the Board will analyze the following 10 common-law factors that determined whether a worker is an independent contractor or employee, but viewed through the prism of “entrepreneurial opportunity” where the factual circumstances warrant such an evaluation:

  • The extent of control which, by the agreement, the company may exercise over the details of the work;
  • Whether or not the one employed is engaged in a distinct occupation or business;
  • The kind of occupation, with reference to whether, in the locality, the work is usually completed under the direction of the employer or by a specialist without supervision;
  • The skill required in the particular occupation;
  • Whether the employer or the workman supplies the instrumentalities, tools, and the place of work for the person doing the work;
  • The length of time for which the person is employed;
  • The method of payment, whether by the time or by the job;
  • Whether or not the work is part of the regular business of the employer;
  • Whether or not the parties believe they are creating an employment relationship; and
  • Whether the individual is or is not in business.

In short, common-law factors that support a worker's entrepreneurial opportunity indicate independent-contractor status; factors that support employer control indicate employee status. Put another way, the Trump Board will likely find independent contractor status if the putative contractor has the independence to make more or less money by doing more or less either within the contractual relationship at issue or via other businesses (i.e., a broad “scope for entrepreneurial initiative”). The more control a single business exercises over a putative contractor, the narrower the scope for enhanced money-making initiative, and the more likely the NLRB will find employee status.

In the current “gig economy” rife with side hustles and moonlighting, the ruling should provide some relief to companies who rely upon an independent contractor business model, like ride-share and delivery companies. However, the dissent in SuperShuttle DFW, Inc. warned that the majority's approach “might easily be called the ‘economic unrealities test'”, since it is in no way based on a “real-world appraisal of working relationships.”

Farhang & Medcoff attorneys work closely with companies to determine appropriate business relationships with independent contractors, including documenting the contractor relationship and ensuring the common-law factors and NLRB standards support the proper designation.

About the Author

Roscoe J. Mutz

Roscoe Mutz is an attorney with a broad litigation background, including...

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