A bellwether and political acid test of whether the National Labor Relations Board skews pro-business or labor-friendly is how the agency determines who is an “employee” versus who is an “independent contractor.”
In a recent move—likely the first of those of a similar ilk to come—the government agency tasked with enforcing U.S. labor law has turned back the clock to a more business-friendly independent contractor standard, reaffirming the long-standing common-law test used to determine employee status.
“In doing so, the Board clarified the role entrepreneurial opportunity plays in its determination of independent-contractor status, as the D.C. Circuit has recognized,” the Board said in a statement regarding a Jan. 25 ruling.
The matter at the heart of that policy review is SuperShuttle DFW, Inc., a case involving a unionization push for shuttle-van-driver franchisees working Dallas-Fort Worth Airport.
SuperShuttle DFW, an independent business entity, maintains a license agreement with SuperShuttle International and SuperShuttle Franchise Corp. Before 2005, it designated its drivers as employees; that year, it converted to a franchise model, which remains in place.
Under the current business model, SuperShuttle DFW drivers are required to sign a one-year Unit Franchise Agreement that expressly characterizes them as nonemployee franchisees that operate independent businesses. It underscores the point by stating that “persons who do not wish to be franchisees and independent business people but who prefer a more traditional employment relationship should not become SuperShuttle franchisees.”
Drivers are required to supply their own shuttle vans and pay SuperShuttle DFW an initial franchise fee and a flat weekly fee for the right to use the SuperShuttle brand and its Nextel dispatch and reservation system. Franchisees work no set schedule or number of hours or days per week.
The case wound up before the NLRB, because Amalgamated Transit Union Local 1338 seeks to represent a unit of SuperShuttle DFW drivers. In order to do so, it needs a clear determination that these are employees, as it claims, and not independent contractors, as the company insists.
The Union argues that SuperShuttle DFW “exercises substantial control over the drivers’ daily performance.” For example, it requires that franchisees display the SuperShuttle logo on their vehicles, imposes strict rules regarding uniforms and appearance, requires franchisees to attend training, can fine drivers if they decline certain mandatory assignments, and can discipline and terminate franchisees for various transgressions.
Franchisees are also prohibited from working for SuperShuttle’s competitors; they play no role in soliciting passengers and arranging pickups; must acquire Nextel systems, logo decals, and uniforms from the company; and are not permitted to modify fares or routes to get more business.
In its January opinion, the NLRB ruled against the Union and in favor of the company.
SuperShuttle, it says, does not exercise control “over the manner and means” by which the franchisees conduct the actual business of transporting customers.
In assessing the unionization effort, the NLRB also reaffirmed its use of a “Common-Law Agency Test” that dates back to the 1968 case NLRB v. United Insurance Co. of America.
“To say that the water is muddier now than it was five years ago would certainly be true. This decision gives companies in the gig economy more latitude and flexibility with respect to classifying people as independent contractors under the NLRA.”
Don Schroeder, Partner, Foley & Lardner
Among the factors evaluated as part of that traditional test:
- the extent of control which, by the agreement, the master may exercise over the details of the work;
- whether or not the one employed is engaged in a distinct occupation or business;
- the kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the employer or by a specialist without supervision;
- the skill required in the occupation;
- whether the employer or the workman supplies the instrumentalities, tools, and the place of work for the person doing the work;
- the length of time for which the person is employed;
- the method of payment, whether by the time or by the job;
- whether or not the work is part of the regular business of the employer;
- whether or not the parties believe they are creating the relation of master and servant; and
- whether the principal is or is not in business.
Additionally, a “worker’s entrepreneurial opportunity,” the ability to hustle for added pay rather than relying on a routine paycheck, has also been viewed by some as an overarching indicator of independent contractor status.
In refining employment status criteria, the NLRB has also held that compliance with requirements imposed by governmental regulations do not constitute control by an employer. Employee status will be found only where “pervasive control” by the private employer “exceeds governmental requirements to a significant degree.”
“The big takeaway, for a number of decisions that are going to come down during this presidential term, is the fact that the NLRB has returned to what used to be the traditional common-law agency test,” says Don Schroeder, a partner and labor and employment attorney at Foley & Lardner. “This gives employers a shot in the arm to the extent that they have various categories of individuals that work for them, including but not limited to, independent contractors. [The NLRB’s actions] will certainly be important for purposes of determining whether or not somebody can unionize because now the standard will be that much higher to prove that somebody is an employee versus an independent contractor.”
“It’s going to have a particular impact on businesses that have drivers or workers that do short-term service jobs,” he adds.
A politically charged history
In August 2010, a past NLRB Decision and Order classified SuperShuttle DFW drivers as independent contractors, not statutory employees, and dismissed the pro-unionization challenge. The Union subsequently filed a request for review of that decision, which was subsequently granted. That review was the basis for the January 25 ruling.
Complicating matters, before the NLRB issued its decision on the Union’s requested review, in 2014 it issued its decision in FedEx Home, in which a Board majority sought to “more clearly define” the significance of “a putative independent contractor’s entrepreneurial opportunity for gain or loss.” The decision explicitly declined to adopt the holding of the U.S. Court of Appeals for the D.C. Circuit in a prior FedEx-related case, claiming it “impermissibly altered the common-law test and longstanding precedent.”
The decision did far more than merely “refine” the common-law independent contractor test. It “fundamentally shifted the independent contractor analysis” (in keeping with Obama administration’s labor policies at the time) to one of economic realities that downplayed the significance of entrepreneurial opportunity.
Past as prologue
The latest actions by the National Labor Relations Board might just be the start of even more pro-business-focused clarification of what constitutes an “employee.”
In a June 2007 public statement, Secretary of Labor Alexander Acosta announced the withdrawal of informal guidance on joint employment and independent contractors the Labor Department issued in 2015 and 2016. In doing so, the Department withdrew one of the more controversial actions of the Obama administration.
Since 1984, the NLRB had recognized companies, when labor disputes arise, are independent from the businesses with whom they contract so long as they didn’t share direct and immediate control over terms and conditions of employment. Companies that merely possessed the ability to exercise control without doing so were not considered a “joint employer.”
In August 2015, however, a ruling by the NLRB all but abandoned that precedent by redefining and expanding the concept of “joint employer.” As a result, any company that relied on other businesses for contract labor, or used a franchise business model for its operations, had much greater risk for labor conditions at those other businesses, even if the original company is a separate entity from those partners.
In a 3-2 decision in December 2017, the NLRB also overruled a previous decision related to Browning-Ferris Industries. It declared Browning-Ferris Industries, a California-based recycling company, to be a “joint employer” with Leadpoint, a staffing services company.
The ruling, not industry-specific, covered every company that contracts out for services rendered by those who are not the company’s own employees. It meant, for example, that the headquarters of a fast food chain could be held liable for the unfair labor practices of an otherwise independent franchisee.
The see-sawing policy is on the verge of once again being clarified.
In September 2018, the NLRB published a Notice of Proposed Rulemaking (NPRM) regarding its joint-employer standard. Under the proposed rule, an employer may be found to be a joint-employer of another employer’s employees only if the employer possesses and exercises substantial, direct, and immediate control over the essential terms and conditions of employment and has done so in a manner that is not limited and routine.
Those terms and conditions of employment include hiring, firing, discipline, supervision, and direction. Indirect influence and contractual reservations of authority would no longer be sufficient to establish a joint-employer relationship.
Late last month, NLRB Chairman John Ring responded to a Jan. 8 letter from Reps. Bobby Scott (D-Va.), and Rosa DeLauro (D-CT) where they urged his board to withdraw the joint-employer standard NPRM and “abide by its current joint employer standard articulated in Browning-Ferris.”
Not a chance, he responded.
“Unfortunately, the joint-employer standard articulated by the Board in Browning-Ferris was neither a clear standard nor was it affirmed by the D.C. Circuit,” he wrote, making the latter observation disputing a claim to the contrary they made. “In fact, the 2015 Browning-Ferris decision leaves much unresolved.”
“The court’s criticism of Browning-Ferris is unsurprising, and the noted lack of clarity is precisely why the NLRB initiated rulemaking on the joint-employer standard,” Ring added. “As you know, the standard for determining joint-employer status under the NLRA has been and continues to be one of the most difficult and debated subjects in labor law.”
The Board has received more than 26,000 individual comments regarding the proposal.
Ring clarified that, in the NLRB’s view, nothing in previous court decisions “forecloses” the Board’s joint-employer rulemaking. It “has long adhered to a consistent policy of deciding for itself whether to acquiesce to the views of any particular circuit court or whether to adhere to its own view until the U.S. Supreme Court rules otherwise.”
To further punctuate this view, the Board significantly limited the importance of entrepreneurial opportunity by creating a new factor to its test criteria (“rendering services as part of an independent business”), making entrepreneurial opportunity merely “one aspect” of that factor.
The 2019 NLRB decision mustered the Republican majority it now enjoys under the Trump administration to revert employee status analysis to the traditional common-law test it once applied. Applying its now-clarified standards, the Board concluded that the drivers seeking unionization are not statutory employees under the National Labor Relations Act, but rather independent contractors excluded from its coverage.
NLRB Chairman John Ring was joined by Republican Board members Marvin Kaplan and William Emanuel in a majority opinion that broke along party lines. Democrat Lauren McFerran was the lone voice of dissent.
“The Board found that the franchisees’ leasing or ownership of their work vans, their method of compensation, and their nearly unfettered control over their daily work schedules and working conditions provided the franchisees with significant entrepreneurial opportunity for economic gain,” the Board’s majority wrote. “Franchisees’ ownership (or lease) and control of their vans, the principal instrumentality of their work, the nearly complete control franchisees exercise over their daily work schedules and working conditions, and the method of payment, where franchisees pay a monthly fee and keep all fares they collect, all weigh strongly in favor of independent-contractor status.”
McFerran wrote in her dissent that the “drivers are not independent in any meaningful way.”
“Under any reasonable interpretation and application of the common-law test for determining employee status, the SuperShuttle drivers are, in fact, employees,” she said.
Perhaps with an eye toward future unionization efforts that may emerge with the popularity of such ride-share services as Uber and Lyft, the Board’s majority noted that, in its view, “the shared-ride industry is an extension of the taxicab industry.” In taxicab cases, the Board has particularly focused on a company’s “control over the manner and means by which the drivers conduct business” and “the relationship between the company’s compensation and the amounts of fares collected.”
“To say that the water is muddier now than it was five years ago would certainly be true,” Schroeder says. “This decision gives companies in the gig economy more latitude and flexibility with respect to classifying people as independent contractors under the NLRA.”
Schroeder’s big question: How will states react to the NLRB’s latest efforts?
“It is not like employers can do whatever they want now, because they still have to deal with state laws that that may or may not be related to the NLRB,” he says. “There are a lot of state laws, including Massachusetts, that have a fairly onerous statute when it comes to classifying independent contractors. A number of states, during the last year or two, have implemented legislation on the issue of independent contractors and what satisfies the classification standards under state law. It will be interesting to see the interplay between what happens on the federal front and matters at the state level.