NLRB Makes It More Difficult To Classify Workers As Independent Contractors

The National Labor Relations Board (NLRB) recently issued an order adopting a tougher standard for classifying workers as independent contractors. The test for classifying independent contractors under the National Labor Relations Act (NLRA) has swayed with the tide of changing presidential administrations over the past decade. On June 13, 2023, the Biden-backed NLRB issued a decision in The Atlanta Opera, Inc. (Atlanta Opera), which overturned the SuperShuttle DFW (SuperShuttle) standard implemented during the Trump administration and reinstated an Obama-era standard established in FedEx Home Delivery (FedEx II). The distinction between independent contractors and employees is critical because the NLRA affords employees — not independent contractors — the right to unionize.

SuperShuttle v. FedEx II: A Matter of Emphasis

In 1968, the Supreme Court held in NLRB v. United Insurance Co. of America (United Insurance) that the NLRB must use the common-law agency test to distinguish an employee from an independent contractor. Therefore, the classification tests used in SuperShuttle and FedEx II both employ the same set of 10 factors derived from common law agency principles. These factors include, but are not limited to, the extent of control exerted by the company over the work, the level of skill necessary for the job, and the method of compensation provided to the worker. The 10-factor test is predicated on a simple maxim: the greater an employer’s control over a worker, the more likely the worker is an employee rather than an independent contractor.

Along with these 10 factors, the NLRB has traditionally considered the degree of entrepreneurial opportunity for gain or loss in determining whether a worker is an independent contractor or an employee. The FedEx II standard limited the impact of “entrepreneurial opportunity” on the independent contractor test, while the Trump NLRB held in SuperShuttle that entrepreneurial opportunity should be the “animating principle” of the independent contractor test under the NLRA. In so holding, the Trump NLRB granted greater lenience to employers that classified workers as independent contractors, exempting them from NLRA coverage.

In Atlanta Opera, the Biden NLRB expressly overruled SuperShuttle because it placed more weight on one factor — entrepreneurial opportunity — than others. The Biden NLRB contends that SuperShuttle contravened the Supreme Court’s admonition in United Insurance that “there is no shorthand formula or magic phrase that can be applied to find the answer, but all of the incidents of the relationship must be assessed and weighed with no one factor being decisive.”

The NLRB elaborated that it will consider entrepreneurial opportunity equally with the traditional common-law factors. It clarified that its analysis would involve examining whether the evidence indicates that a purported independent contractor is actually providing services as part of an independent business.

An Unsurprising Decision With Potentially Significant Ramifications

While the NLRB’s decision in Atlanta Opera was somewhat expected, it will have significant ramifications for businesses relying heavily on independent contractors. These include companies like Uber, Postmates, DoorDash, and Instacart that typify the so-called gig economy, which relies heavily on part-time workers and freelancers. The ruling is expected to result in increased unionization rates and may trigger an uptick in claims related to the misclassification of employees.

It is important to keep in mind that there is a patchwork of federal legislation that regulates employee rights and employer responsibilities. Each law has its own distinct test to determine whether a worker qualifies as a covered employee or an exempt independent contractor. An employee who is classified as an employee under the Fair Labor Standards Act, for instance, does not automatically have the right to unionize under the NLRA.

Atlanta Opera joins a growing body of employee-friendly decisions on NLRB General Counsel Jennifer Abruzzo’s agenda. General Counsel Abruzzo has outlined nearly 40 rulings that she aims to have the NLRB reevaluate, so it is anticipated that the NLRB will continue to issue pro-union decisions. Consult Taft’s Employment and Labor Relations attorneys for up-to-date guidance on this and other NLRB decisions.