NLRB Case Modifies Independent Contractor Standard

A new ruling from the National Labor Relations Board (NLRB) alters the standard employers must use to determine whether someone qualifies as an independent contractor.

In the June 13 ruling, the board concluded that the makeup artists, wig artists and hairstylists who work at the Atlanta Opera are employees, not independent contractors. The workers had filed an election petition with the board, seeking union representation.

The NLRB rejected the previous ruling in SuperShuttle that entrepreneurial opportunity for gain or loss should be the animating principle of the independent contractor test. Instead, it said entrepreneurial opportunity should be taken into account alongside a list of traditional common-law factors.

Those factors include:

• The extent of control the employer exercises over the details of the work.
• Whether the work is usually done under the direction of the employer or without supervision.
• Whether the worker is engaged in a distinct occupation or business.
• How much skill is required in the particular occupation.
• Whether the employer supplies the tools and the place of work.
• The length of time for which the worker is employed.
• The method of payment, whether by the hour or by the job.
• Whether the work is a part of the regular business of the employer.

“Applying this clear standard will ensure that workers who seek to organize or exercise their rights under the National Labor Relations Act (NLRA) are not improperly excluded from its protections,” said NLRB Chairman Lauren McFerran.

The SuperShuttle ruling “cannot be squared with board precedent, with the common law, or with Supreme Court precedent,” the NLRB wrote in its opinion.

In this case, the creative workers did not have true entrepreneurial opportunity because in reality there was no other opera across town that they could take their talents to, according to David Korn, an attorney with Phelps Dunbar in New Orleans.

“Hypothetical opportunity should not be considered,” said James Evans, an attorney with Alston Bird in Los Angeles.

The new ruling “is designed and intended to make it much more difficult for employers to classify workers as independent contractors and therefore avoid the potential for those workers to organize,” said Jason Reisman, an attorney with Blank Rome in Philadelphia. “This new decision will serve potentially as a solid deterrent for many employers and create doubt for others, or at least make them think twice and re-evaluate how and how often they utilize independent contractors.”

In light of the NLRB decision, “it might be time to re-evaluate what our written agreement looks like” for independent contractors and how it’s working in practice, said David Pryzbylski, an attorney with Barnes & Thornburg in Indianapolis. “Anybody using independent contractors needs to take notice of this. The gig economy is top of mind.”

“Employers should know is it not enough to rely upon the method of payment or industry past practices and norms to classify and treat service providers as independent contractors or employees,” said Michael Gotzler, an attorney with Littler in Madison, Wis. “The legal risks and attendant financial exposure are too great nowadays for any business to ignore this evolving area of law.”

However, Todd Lebowitz, an attorney with BakerHostetler in Cleveland said, “This is a low-impact decision. More than anything else, it just reflects that different board members have different perspectives when applying the same common-law test, just like different judges have different perspectives when applying the same test,”

How Employees Differ from Independent Contractors

Under federal law, employees may be entitled to union rights, minimum wage, overtime pay and other benefits. Independent contractors are not entitled to such benefits, but they generally have more flexibility to set their own schedules and work for multiple companies.

Contractors can’t form unions and can’t file unfair labor practice charges with the NLRB, Pryzbylski said.

SHRM filed a friend-of-the-court brief with the NLRB in favor of keeping the SuperShuttle standard. “In order to recruit and retain the best talent, especially during these challenging economic times, [businesses] must offer a myriad of work relationship options that provide the 21st-century worker the autonomy necessary to make the best decisions for them and their families. To that end, the availability of independent work is not only valuable to workers, but necessary for businesses to compete in today’s global marketplace,” SHRM stated, noting that almost 50 percent of Generation Z and 44 percent of Millennials engage in some form of independent work.

DOL Action

In October 2022, the U.S. Department of Labor (DOL) issued a proposed rule to clarify who is an independent contractor under the federal Fair Labor Standards Act (FLSA). The DOL is seeking to rescind a 2021 rule in which two core factors—control over the work and opportunity for profit or loss—carried greater weight in determining the status of independent contractors. Under the proposal, employers would use a totality-of-the-circumstances analysis, in which all the factors do not have a predetermined weight.

The comment period ended in December 2022, but the agency hasn’t issued a final rule yet. “The DOL’s proposed rule seems to track” the latest NLRB ruling, Pryzbylski said.