NLRB Returns to Old Definition of Independent Contractor

ENTREPRENEURIAL OPPORTUNITY IS NOW A CONSIDERATION IN DETERMINING INDEPENDENT CONTRACTOR STATUS

On January 25, 2019, the National Labor Relations Board (NLRB) determined shuttle-van-driver franchisees were not statutory employees under the National Labor Relations Act, but rather were independent contractors, excluded from coverage under the Act.  While this fact scenario is not notable on its own, what is notable is that in coming to this decision the NLRB reverted to the independent contractor standard test that was in place prior to a 2014 decision.     

In 2014 the Obama-era NLRB modified the applicable test for determining if a worker is an independent contractor by severely limiting the significance of a worker’s entrepreneurial opportunity for economic gain, relying more on ten policy-based factors, focusing on right to control facets  relevant to the economic dependency of the worker.  Many employers are generally aware of the ten factors, in existence since a 1968 U.S. Supreme Court case. The factors include the extent of control the alleged employer has over their workers, whether the workers do work distinct from the employer’s main business, and the skill their work requires. 

The most recent decision does not eliminate this ten factor test, but re-establishes the importance of a worker’s entrepreneurial opportunity for economic gain.  The NLRB majority deciding the recent case noted entrepreneurial opportunity, like employer control, is an important principle that helps to evaluate the overall effect of the common-law factors in determining a worker’s independence to pursue economic gain. Using this revised test, the majority found the shuttle-van-driver franchisees were independent contractors based on the ownership of their vans, scheduling autonomy and other factors that gave them significant entrepreneurial opportunity and control over their incomes.

EMPLOYERS SHOULD TAKE NOTE OF THIS NEW STANDARD

Many employers are faced with the decision as to whether their current, or prospective, workers should be classified as employees or independent contractors.  There are definitely benefits to categorizing workers as independent contractors, including less time and money spent on supervision of the worker, less liability for the work done by the worker and no need to carry workers’ compensation coverage for the worker. But correctly labeling a worker as an independent contractor can be difficult, and failing to do so can be costly.  Employers should not only consider the entrepreneurial opportunity factor reinstated by the NLRB, but all of the other applicable factors.  Determining whether the worker at issue honestly satisfies those factors will help employers determine what type of relationship they will have with the worker.  Classifying workers can be difficult because the factors leave room for interpretation, but it is an important process to complete because it can be the difference between a profitable relationship with an independent contractor or a costly battle with a worker who now claims he or she is an employee.

If you have any questions regarding the NLRB’s recent decision or would like assistance in determining if your worker is an independent contractor or drafting an independent contractor agreement, please contact your Thompson Coe attorney at (651) 389-5000 or at myHRgenius@thompsoncoe.com.  You can also find additional information and tips for your company and HR professionals at https://myhrgenius.co.   

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