U-Turn! NLRB’s “Modified” Independent Contractor Standard Favors Findings of Employee Status
In a move that surprised absolutely no one, the National Labor Relations Board has reversed course on yet another issue – the standard for determining whether an individual is an employee, who is subject to the National Labor Relations Act, or an independent contractor, who is not. The Board’s decision will once again make it harder to establish independent contractor status.
Background of the Independent Contractor Standard. For decades, the Board had relied on a generally accepted test to determine independent contractor v. employee status. In 2014, the Obama Board issued a decision in FedEx Home Delivery, restating and refining this approach by setting forth a list of factors to be considered, with no one factor being decisive:
- The extent of control the principal may exercise over the details of the work.
- Whether or not the worker is engaged in a distinct occupation or business.
- The kind of occupation, considering whether the work is usually done under the direction of the principal or by a specialist without supervision.
- The skill required in the particular occupation.
- Whether the principal or the worker supplies the instrumentalities, tools, and the place of work.
- The length of time for which the worker is employed.
- The method of payment, whether by time or by the job.
- Whether or not the work is part of the regular business of the principal.
- Whether or not the parties believe they are creating the relation of employer and employee.
- Whether the principal also performs the same kind of work as the worker.
Importantly, the Obama Board severely limited the significance of a worker’s entrepreneurial opportunity in this analysis.
In 2019, the Trump Board issued SuperShuttle DFW, Inc., in which it emphasized the importance of entrepreneurial opportunity in the determination of independent contractor status. As the Trump Board noted, those factors that support a worker’s entrepreneurial opportunity indicate independent contractor status, while those that support employer control indicate employee status.
The Board’s Latest Ruling. In The Atlanta Opera, the Biden Board found that stylists for the Atlanta Opera were employees, not independent contractors. In so doing, the Biden Board rejected the Trump Board’s approach of treating entrepreneurial opportunity as a “super-factor” and announced a return to FedEx Home Delivery’s analysis of the above-listed factors, with the addition of whether the worker is rendering services as part of an independent business. (This newly-articulated factor seems duplicative of whether the worker is engaged in a distinct occupation or business). The Board asserted that no single factor should be given greater weight than the others, and the weight to be given each factor depends upon the factual circumstances.
With regard to entrepreneurial opportunity, the Board considered this as part of a broader factor that asks whether the worker “is, in fact, rendering services as part of an independent business.” This broader factor, which is to be considered with other factors, also considers whether the worker: (a) has a realistic ability to work for other companies; (b) has proprietary or ownership interest in their work; and (c) has control over important business decisions, such as scheduling of performance; the hiring, selection, and assignment of employees; the purchase and use of equipment; and the commitment of capital. Part of the analysis of this factor must take into consideration whether the principal places any constraints on these abilities and actions. In particular, the Board stated that it would “consider whether the terms or conditions under which the individuals operate are ‘promulgated and changed unilaterally by the company.’”
The Board further reaffirmed that entrepreneurial opportunity must involve an actual – and not merely theoretical – opportunity for gain or loss. This necessarily includes an evaluation of any constraints imposed by the principal on such opportunity.
Employer Takeaways. Unsurprisingly for this pro-union administration, this case favors findings of employee status, thereby expanding the universe of workers who will be entitled to the protections of the NLRA – including the right to unionize. Employers should be aware that the NLRB has de-emphasized the importance of the entrepreneurial opportunity factor in this analysis.