United States: Third Try's The Charm? National Labor Relations Board (Again) Narrows Definition Of "Independent Contractor" Under The National Labor Relations Act

• The NLRB has reinstated a multi-factor, common-law agency test for determining whether workers are employees or independent contractors for NLRA purposes, with no single factor being decisive.
• The practical result of this decision is that many more workers are likely to be classified as employees, and therefore be permitted to join unions and be covered by NLRA protections.
• This issue will likely be appealed to the D.C. Circuit for the third time.

On June 13, 2023, the National Labor Relations Board ("NLRB" or "the Board") issued its long-awaited decision in The Atlanta Opera,¹ in which it overturned prior law (SuperShuttle DFW, Inc.) and reinstated a narrower test for "independent contractor" (as opposed to "employee") under the National Labor Relations Act ("NLRA" or "the Act"). As a practical matter, this means that more workers are likely to be classified as employees—who, unlike independent contractors, are permitted to form and join a union, and otherwise enjoy the workplace protections of the Act—than under prior law. The decision is not wholly surprising, insofar as NLRB General Counsel Jennifer Abruzzo announced early in her tenure that convincing the Board to overturn SuperShuttle was among her top priorities. The Atlanta Opera was approved three to one, with the Board's single Republican member concurring in the result of the case but dissenting from the Board's analysis and overruling of prior precedent.

In The Atlanta Opera, the Board reinstated the common-law agency test for determining worker status found in the Restatement (Second) of Agency §220. Under that test, the Board looks at the following factors, assessing and weighing them, with no one factor being decisive:

• The extent of control, which by agreement, the employer 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 particular 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.
• Whether the principal is or is not in business.

Applying this test, the Board concluded that subject makeup artists and hairstylists working for the Atlanta Opera were employees, not independent contractors. The Atlanta Opera marks another chapter in a 16+ year saga concerning the definition of independent contractor under the Act, which has already twice gone to the U.S. Court of Appeals for the District of Columbia Circuit, and seems destined to make a third visit.

Background

In 2007, in a case involving home delivery drivers for Federal Express ("FedEx Home"), the Board concluded that the subject drivers were employees and thus able to organize under the Act. On appeal in 2009, the D.C. Circuit Court of Appeals rejected the Board's determination, and held instead that the drivers were independent contractors.² The court observed that the Board's assessment of the common-law factors had shifted over time in its focus from control to whether the putative independent contractor had "significant entrepreneurial opportunity for gain or loss." The court further noted that "entrepreneurial opportunity is not an individual factor in the test; rather, entrepreneurial opportunity, like employer control, is a principle to help evaluate the overall significance of the agency factors." Applying this standard, the court rejected the Board's narrow reading of "independent contractor" under the Act, denying enforcement of and vacating the Board's order.

In 2014, during the Obama administration, in a second case involving FedEx Home, the Board claimed to "refine and restate" the independent contractor test by adding a new factor: "rendering services as part of an independent business." Under this new factor, the Board minimized the focus on "entrepreneurial opportunity" by burying it, claiming that it was just "one aspect" of the newly created factor. The Board further stated that this new "independent-business factor" includes whether the putative contractor has significant entrepreneurial opportunity (actual not theoretical) for gain or loss; and "(a) has a realistic ability to work for other companies; (b) has proprietary or ownership interest in her work; and (c) has control over important business decisions, such as the scheduling of performance; the hiring, selection, and assignment of employees; the purchase and use of equipment; and the commitment of capital." Simply put, the Board altered the analysis to make it much harder for a service provider to be deemed an independent contractor which, in essence, expanded who is covered by the Act. Using on this "refined" analysis—and notwithstanding the D.C. Circuit's decision to the contrary in FedEx I—the Board concluded that the FedEx Home drivers were employees.

In 2017, relying upon its 2009 decision in FedEx I, the D.C. Circuit Court of Appeals again denied enforcement of and vacated the Board's 2014 decision.³ In so doing, it affirmed its prior conclusion that "entrepreneurial opportunity" was "a more accurate proxy" for independent contractor status.

In 2019, the Board in SuperShuttle overruled its 2014 decision, adopted the holdings of the D.C. Circuit, and returned to application of the common-law test that predated FedEx.⁴ The SuperShuttle Board highlighted that the FedEx Board had morphed the common-law independent contractor test into an "economic realities" test that improperly diminished the entrepreneurial opportunity analysis and overemphasized the right of control test. By reverting to the common-law test, the SuperShuttle Board noted:

The SuperShuttle Board also made clear that the entrepreneurial opportunity principle need not be mechanically applied to each of the 10 common-law factors. Rather, the Board may "evaluate the common-law factors through the prism of entrepreneurial opportunity when the specific factual circumstances of the case make such an evaluation appropriate."

With The Atlanta Opera, the Board has now overruled SuperShuttle and restored its prior 2014 FedEx standard, notwithstanding the fact that the D.C. Court of Appeals has rejected that interpretation of the Act on two different occasions. It seems clear that the issue will once more be presented to the D.C. Circuit.

Conclusion

Although the dust has yet to settle fully on this issue—and may not, given the high likelihood of appeal—employers should be mindful of how their engagements with service providers are structured, and how these workers might be assessed in a non-weighted application of the 10-factor common law Restatement test. No longer is it enough to rely upon the method of payment (e.g., payment via 1099 or W-2) or industry past practices/norms (e.g., consultants are always independent contractors) to classify and treat service providers as independent contractors or employees. The legal risks and attendant financial exposure are too great nowadays for any business to ignore this evolving area of law, and employers seeking to evaluate their contractual relationships under the reinstated FedEx standard are advised to consult counsel.

Footnotes

1. 372 NLRB No. 95 (2023).

2. FedEx Home Delivery v. NLRB., 563 F.3d 492 (D.C. Cir. 2009), denying enforcement of FedEx Home Delivery, 351 NLRB No. 16 (2007) ("FedEx I").

3. FedEx Home Delivery v. NLRB., 849 F.3d 1123 (D.C. Cir. 2017), denying enforcement of FedEx Home Delivery, 361 NLRB 610 (2014) ("FedEx II"). FedEx was represented in this appeal by Littler attorneys Maury Baskin and Josh Waxman.

4. SuperShuttle DFW, Inc., 367 NLRB No. 75 (2019).

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