By Nelson Cary and Lauren Sanders
The Trump NLRB continues to revisit, and overturn, Obama-era decisions. Late last week, in SuperShuttle DFW, Inc., the NLRB revisited the test for determining when a worker is an independent contractor, and in the process overruled the Obama NLRB’s decision in FedEx Home Delivery.
First, however, a little background information. As we have previously discussed, employees may join unions; independent contractors may not. Thus, whether a worker is an employee or an independent contractor is extremely important.
To determine whether a worker is an employee or an independent contractor, the NLRB applies a test that the United States Supreme Court articulated 50 years ago in NLRB v. United Insurance Co. of America. The United Insurance test looks at ten factors, such as how much control the worker exercises over his work, the amount of skill required to do the work, who supplies the tools and workplace, and how the worker is paid.
“Entrepreneurial opportunity” is not explicitly listed as one of the factors, but the NLRB has over time recognized that entrepreneurial opportunity is an important principle by which the enumerated factors can be evaluated. In 2014, however, the Obama NLRB, confronted with a decision from the D.C. Circuit Court of Appeals, decided FedEx Home Delivery v. NLRB. At issue was the roles that “entrepreneurial opportunity,” one the one hand, and “control,” on the other, would play in the NLRB’s analysis. The FedEx NLRB decided that entrepreneurial opportunity was merely a part of the analysis of a single factor in the United Insurance, 10-factor test.
In SuperShuttle, the Trump NLRB held that FedEx had not given enough weight to entrepreneurial opportunity. In the NLRB majority’s own words:
[W]e find that the Board majority in FedEx, based on a mischaracterization of the D.C. Circuit’s opinion…, impermissibly altered the Board’s traditional common-law test for independent contractors by severely limiting the significance of the entrepreneurial opportunity to the analysis.
The proper role of entrepreneurial opportunity, the NLRB further explained, is as an element of the employment relationship that should be considered throughout the application of the United Insurance test:
[E]ntrepreneurial opportunity, like employer control, 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. Indeed, employer control and entrepreneurial opportunity are opposite sides of the same coin: in general, the more control, the less scope for entrepreneurial initiative, and vice versa.
The NLRB applied this test to determine whether franchisees who operated shared-ride vans for SuperShuttle Dallas-Fort Worth were employees or independent contractors. The NLRB found that the franchisees were independent contractors, emphasizing that their control over their work schedules and ability to accept or reject work revealed that they had “significant opportunity for economic gain and significant risk of loss.”
NLRB Member McFerran (D) critiqued the majority’s decision in a lengthy dissenting opinion. She explained, among other things: “The majority’s position rests on the premise that ‘entrepreneurial opportunity’ is the core concept of the traditional common-law agency test. There’s no support for such a claim.”
This decision is an important one, particularly for those employers that rely upon independent contractors to accomplish core business functions. The NLRB’s action makes it more likely that an employer can defend an independent contractor classification, at least from an NLRA perspective. This in turn limits risks associated with unionization, including organizing and collective bargaining. Employers should be generally wary on other legal fronts, however, as the classification of a worker as an independent contract will also implicate potential liability under other laws like the Fair Labor Standards Act.