NLRB reinstates tougher independent contractor test
On June 13, 2023, the National Labor Relations Board (NLRB) issued a decision that will make it more difficult for companies to demonstrate that individuals are properly classified as independent contractors, rather than statutory employees entitled to the protections of the National Labor Relations Act (NLRA).
The Board’s decision in The Atlanta Opera overrules the Trump-era Board’s ruling in SuperShuttle DFW, Inc. that emphasized entrepreneurial freedom when considering factors to determine a worker’s classification.
Companies are encouraged to review their classifications and prepare for anticipated union efforts to organize individuals currently classified as independent contractors.
The NLRA grants most private-sector employees 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 not covered by the NLRA and therefore do not possess such rights. The party asserting independent contractor status (usually the putative employer) bears the burden of proving that the individual meets the independent contractor standard.
The Board’s decision
In The Atlanta Opera, the Board was faced with the issue of whether the workers whom the petitioner union sought to represent – makeup artists, wig artists, and hairstylists (stylists) – were employees of The Atlanta Opera, Inc. (Opera), or independent contractors. The Opera pays stylists an hourly pay rate and designates them as vendors; it does not provide stylists with benefits or training, and does not withhold taxes from their pay. While stylists perform their day-to-day hair, wig, and makeup work largely free from the Opera’s immediate or direct supervision, they are expected to effectuate the director’s creative vision for each character of the performance using their personal skillsets.
The Board concluded that the stylists were statutory employees rather than independent contractors. In doing so, the Board overruled its Trump-era decision in SuperShuttle and reinstated its so-called Fedex II standard, under which it evaluates the common law factors set forth in the Restatement (Second) of Agency:
- The extent of control by the putative employer
- Whether the individual is engaged in a distinct occupation or business
- Whether the work is usually done under the direction of the employer or by a specialist without supervision
- The skill required in the particular occupation
- Whether the employer or individual supplies the instrumentalities, tools, and place of work
- The length of time for which the individual is employed or engaged
- The method of payment (whether the individual is paid by time or by the job)
- Whether the work is part of the regular business of the employer
- Whether the parties believe they are creating an independent contractor relationship, and
- Whether the putative employer is or is not a business.
The Board noted that it will continue to consider evidence of entrepreneurial opportunity in its analysis, including whether the putative independent contractor:
- Has a realistic ability to work for other companies
- Has proprietary or ownership interest in their work, and
- Has control over important business decisions, such as the scheduling of performances; the hiring, selection, and assignment of employees; the purchase and use of equipment; and the commitment of capital.
However, the Board will now consider a putative contractor’s entrepreneurial opportunity along with the other traditional common-law factors, rather than treating it as a so-called “super-factor.”
Additionally, the Board will consider evidence that the employer has effectively imposed constraints on a putative independent contractor’s ability to render services as part of an independent business, such as limitations on the individual’s realistic ability to work for other companies and restrictions on the individual’s control over important business considerations. The Board will further consider whether the terms under which the putative independent contractor operates for the business are unilaterally determined by the putative employer and may be unilaterally changed by the alleged employer.
The Board also emphasized that the focus will be on genuine – not theoretical – entrepreneurial opportunities. Put simply, if only a small percentage of workers in a proposed bargaining unit have pursued an opportunity, that tends to suggest that it is not a significant part of the working relationship with the putative employer.
Applying those factors to the facts of the case, the Board concluded that the stylists were employees within the meaning of the NLRA. Specifically, the Board found that the majority of the traditional common law factors pointed towards employee status: the Opera controls the details of stylists’ work; directs stylists’ work via the director’s feedback; supplies all instrumentalities, tools, and places of work; and pays stylists an hourly rate with a fixed number of working hours, and the stylists’ work is part of the Opera’s regular business. According to the Board, only three of the traditional factors – distinct opportunity, skill, and length of employment – weighed in favor of independent contractor status, while the parties’ belief as to the nature of the relationship was inconclusive.
The Board further determined that the evidence did not show that stylists render services to the Opera as part of their own independent business since they do not have a proprietary interest in their work, cannot assign their positions or hire replacements, and have no opportunities to employ entrepreneurial strategies that could result in more (or less) income. Weighing the evidence, the Board concluded that the employer did not meet its burden to prove that the stylists were independent contractors and not statutory employees.
While the Board’s decision is significant, it is important to note that the decision was issued over Member Marvin E. Kaplan’s dissent; is arguably inconsistent with earlier Washington, DC Circuit precedent; and will likely be subject to continued litigation.
Where do employers go from here?
Unions will likely take advantage of this decision to pursue organization of individuals currently classified as independent contractors. Companies are encouraged to carefully review the factors and analysis discussed above and consider how to best position themselves for such efforts.
Our team of dedicated labor and employment professionals has extensive experience in both classification issues and, more broadly, advising clients who are actual or potential clients of organizing campaigns. If you would like to discuss any of these matters, please reach out to the authors or your DLA Piper relationship partner.