NLRB Takes Aim at Employers that Classify Workers as Independent Contractors

In recent action, the National Labor Relations Board (“NLRB” or “Board”) has demonstrated a clear intention to closely scrutinize employers that classify workers as independent contractors. Specifically, in June, 2023, the NLRB revised the test it uses to determine whether a worker qualifies as an independent contractor or an employee under the National Labor Relations Act (“NLRA”), making it more difficult to classify a worker as an independent contractor. Then, in July, 2023, an NLRB Regional Director filed a complaint against a shipping and logistics company alleging that the mere act of misclassifying a worker as an independent contractor is, itself, an unfair labor practice. These actions have the potential to change the landscape of independent contractor misclassification law under the NLRA.

Under the NLRA, employees have the right to form or join unions; engage in protected, concerted activities to address or improve working conditions; or refrain from engaging in these activities. Independent contractors are exempt from coverage under the NLRA, which means they generally have no right to form or join a union in the private sector.

Reminder: Independent contractor analyses under other laws are not impacted by NLRB action.

NRLB Modifies the Independent Contractor Test

In June, 2023, the NLRB held in The Atlanta Opera, Inc. that makeup artists, wig artists, and hairstylists (collectively referred to as “stylists”) were employees—not independent contractors—and thus covered by the NLRA and able to unionize. In issuing its decision, the Board reversed a 2019 Trump era decision, SuperShuttle DFW, Inc., which held that entrepreneurial opportunity (i.e., a worker’s opportunity to realize a profit or suffer a loss) played a significant role in the independent contractor test. In reversing SuperShuttle, the Board returned to the standard set in its 2014 decision FedEx Home Delivery, which gives no significant weight to entrepreneurial opportunity, but instead considers it among the numerous other common law factors with no one factor being decisive.

The factors that the Board will consider in assessing whether a worker qualifies as an independent contractor arise from the common-law agency. They are: (i) extent of control by the employer; (ii) engagement in a distinct occupation or business; (iii) supervision; (iv) skills required; (v) instrumentalities, tools, and place of work; (vi) length of employment; (vii) method of payment; (viii) whether the work is part of the employer’s regular business; (ix) the relationship the parties believe they created; and (x) whether the principal is in business.

The Board held that significant weight should not be given to the workers’ entrepreneurial “opportunities for loss or gain.” The Board also clarified that going forward the independent contractor test “should give weight only to actual (not merely theoretical) entrepreneurial opportunity, and that it should necessarily evaluate the constraints imposed by a company on the individual’s ability to pursue this opportunity.”

The bottom line impact of the Atlanta Opera decision is that the test for finding a worker as an independent contractor is now more difficult to meet.

NLRB Alleges That Misclassification of Workers is an Unfair Labor Practice

In July, 2023, the NLRB filed a complaint against XPO Logistics, a shipping and logistics firm operating in Southern California. The complaint alleges that XPO violated the NLRA by misclassifying drivers as independent contractors instead of employees. Although it is not a ruling by the NLRB – and thus has no binding effect – the complaint alleges that the mere act of misclassifying employees as independent contractors would violate the NLRA, regardless of whether the company had a good faith belief that the workers had been classified correctly. If the Board were to agree with these allegations in the XPO Logistics Complaint, it would likely result in the reversal of yet another 2019 Trump era decision, Velox Express, which held that the mere act of misclassifying workers as independent contractors does not violate the NLRA.

The complaint in XPO Logistics originated from charges filed by the International Brotherhood of Teamsters in relation to an organizing drive at XPO facilities in San Diego and Commerce, California. Utilizing the test from SuperShuttle, the NLRB Regional Director found in a 2022 decision that the drivers were employees, not independent contractors, and authorized a union election, which the drivers rejected. Despite the workers’ decision to reject unionization, the complaint now seeks an order from the NLRB which reclassifies the drivers as employees and compensates them for the economic consequences of being treated as independent contractors.

The issue of employment classification will continue to be a highly litigated matter. The outcome of the case against XPO Logistics could serve as a significant precedent in the ongoing debate over employment classification and the rights of workers.

Impact on Employers

These recent actions by the NLRB may prompt employers that utilize large contingents of independent contractors to be more cautious in their classification decisions and further impact the interpretation and application of independent contractor misclassification law under the NLRA. The modified interpretation of the common-law test set forth in The Atlanta Opera, Inc. makes it somewhat harder for employers to establish that a worker is an independent contractor than under the Board’s 2019 decision in SuperShuttle. The complaint in XPO Logistics could potentially make the mere act of misclassification an unfair labor practice.

For more information on determining independent contractor status, please contact your Quarles & Brady attorney or:

• Chris Nickels: (414) 277-5519 / christopher.nickels@quarles.com
• Tyler Roth: (414) 277-5765 / tyler.roth@quarles.com