NLRB Revises Independent Contractor Test, Overturning 2014 Obama-Era Decision

Labor & Employment
January 30, 2019
 

On January 25, 2019, in SuperShuttle DFW, Inc. and Amalgamated Transit Union Local 1338, the National Labor Relations Board (“NLRB” or the “Board”) overturned a 2014 decision and made it easier for employers to demonstrate that their workers are independent contractors who can’t unionize. The issue in this case was whether approximately 88 van drivers are employees of a company and could therefore be represented by a union; or whether, as the Board found, they are independent contractors of the company and therefore could not.

The decision overturned a 2014 Obama-era ruling and claimed to remedy the prior ruling’s assumed over-emphasis on the economic realities of the relationship between the alleged employer and employee.

Factual Background

SuperShuttle Dallas-Fort Worth (“SuperShuttle DFW”) is a business entity that, prior to 2005, hired as employees, rather than independent contractors, van drivers who would shuttle passengers to and from Dallas-Fort Worth and Love Field airports. During that time, the drivers earned hourly wages and were assigned to regularly scheduled shifts picking up customers in company-owned shuttle vans. In 2005, SuperShuttle DFW switched to a franchise model. Drivers now are required to sign one-year Unit Franchise Agreements which classifies them as “nonemployee franchisees who operate independent businesses.” The drivers buy or lease their own vans and pay SuperShuttle DFW an initial franchise fee ($500) and a flat weekly fee for the right to operate under the brand name ($575/week for a Dallas-Fort Worth and Love Field franchise and $375/week for a Love Field franchise), as well as other costs and fees. Drivers work no set schedule or number of hours per week, working whenever they wish. They are then entitled to the money they earn for completing the assignments they select. They may also hire and employ relief drivers to operate their vans. Drivers pay for their own gas, vehicle maintenance, tolls, and access fees. They park their vans at their homes, and they are free to use the vans for personal use.

SuperShuttle DFW’s contract with the Dallas-Fort Worth Airport Board (a public governmental agency), imposes a substantial amount of restrictions on the drivers. For example, SuperShuttle DFW is required to conduct background checks and drug tests on the van drivers, and drivers must be over 19, hold a valid Texas driver’s license, and adhere to vehicle requirements including the number of seats, vehicle maintenance requirements and post-accident safety inspections. The franchise agreement between SuperShuttle DFW and the drivers also imposes restrictions on drivers, including that drivers cannot operate more than one route or vehicle, cannot transfer their franchise without SuperShuttle’s consent, and cannot work for SuperShuttle’s competitors.

Overruling the 2014 Test for Determining Employee/Independent Contractor Status

The three Republican board members, appointed by President Trump, began their decision by accusing the former Obama-era Board of distorting the traditional common law agency test in FedEx Home Delivery, 361 NLRB 610 (2014) enf. denied 849 F.3d 1123 (D.C. Cir. 2017) (“FedEx”). That test requires analysis of 10 factors, none of which alone are determinative, including the “extent of control” the alleged employer has over their workers, whether the workers do work “distinct” from the employer’s main business, the skill required in the particular occupation, which party supplies the tools for doing the job, whether the work is part of the “regular business” of the alleged employer, and the parties’ subjective intent to create an employer-employee relationship.

The Republican majority held that the FedEx Board had “fundamentally shifted the independent contractor analysis, for implicit policy-based reasons, to one of 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.” The Board summarized the 2014 FedEx decision as holding that it would give weight to “actual, not merely theoretical, entrepreneurial opportunity,” including whether the putative independent contractor has a realistic ability to work for other companies, whether he has a proprietary or ownership interest in his work, and whether he has control over important business decisions such as the scheduling of performance, selection, and assignment of employees, the purchase of equipment, and the commitment of capital. The Republican majority said the FedEx Board wrongly elevated workers’ entrepreneurship — which is not one of the 10 factors — to the forefront of the analysis.

On Friday, the Board explained that, “[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.”

The Board then applied its revised test and found the van drivers to be independent contractors rather than employees. The Board reasoned that, while not all factors pulled in the same direction, the drivers’ ownership of their vans, freedom to work as much or as little as desired and to schedule their own work days, among other factors, provided the drivers “significant entrepreneurial opportunity and control” over their incomes. The Board also noted that the control over the drivers that was imposed on them as a result of SuperShuttle DFW’s contract with the Dallas-Fort Worth Airport Board was regulatory in nature, imposed, not by the company, but by a governmental agency.

Key Takeaways

This decision expands the definition of “independent contractor” under the National Labor Relations Act (“NLRA”). With its ruling, the Board has made it more likely that a group of workers will be found to be independent contractors under the NLRA, potentially allowing employers to more easily avoid union organizing and charges of unfair labor practices filed with the Board.

However, the Board’s test for determining whether a worker is an employee or independent contractor doesn’t carry over when other laws are at issue, such as the Fair Labor Standards Act, federal and state non-discrimination laws, and state workers’ compensation statutes. Given the varying standards under wide-ranging laws, employers should carefully review the risks associated with classifying workers as independent contractors.


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