On January 25, 2019, the National Labor Relations Board reaffirmed its adherence to the traditional common law independent contractor test for determining whether a worker is an employee or an independent contractor under the National Labor Relations Act.
In SuperShuttle DFW, Inc., the Board expressly overruled its 2014 FedEx Home Delivery decision. In FedEx, the Board drastically reduced the significance of entrepreneurial opportunity in the determination of independent contractor status. FedEx emphasized the right to control factors relevant to the so-called “economic realities” test and gave weight to whether a worker was in fact “seizing” actual opportunities and rendering services as part of their own independent business.
SuperShuttle DFW, Inc. is significant as it abandons the Obama-era standard and gives a boost to companies using contract labor by elevating the importance of entrepreneurial opportunity in the independent contractor analysis. Insodoing, the Board returns the legal framework to its traditional common law roots and adds the examination of entrepreneurial opportunity. The decision suggests that moving forward, the Board “evaluate the common-law factors through the prism of entrepreneurial opportunity when the specific factual circumstances of the case make such an evaluation appropriate.”
SuperShuttle DFW contracts with the Dallas-Fort Worth Airport to transport passengers between local airports in the area. In 2005, SuperShuttle DFW started entering into 1-year contracts (called Unit Franchise Agreements, or UFAs) with individual shuttle drivers. The UFAs expressly characterize drivers as nonemployee franchisees who operate independent businesses. Among other things, the franchisees 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 utilize the SuperShuttle brand and its Nextel dispatch and reservation apparatus. Franchisees work no set schedule or number of hours or days per week; they work as much as they choose, whenever they choose. Franchisees are then entitled to the money they earn for completing the assignments that they select.
A dispute arose when a local union sought to represent a unit of SuperShuttle DFW drivers. The company resisted the organizing effort by arguing that under the NLRA, the drivers could not organize because they were independent contractors — not covered employees.
Applying its new framework, the Republican-majority Board concluded that the drivers are not statutory employees under the NLRA, but rather are independent contractors excluded from the Act’s coverage. Looking to the common law factors, the Board found that the franchisees’ leasing or ownership of their work vans, their method of compensation, and their nearly unlimited control over their daily working conditions and schedules provided the franchisees with significant entrepreneurial opportunity for economic gain. Also, the overall lack of supervision, combined with the parties’ intention to create an independent contractor relationship underscored the Board’s conclusion.
In light of this ruling, franchises and companies engaging with independent contractors can breathe a sigh of relief when it comes to coverage under the NLRA. However, while the NLRB’s return to the common law standard is business-friendly, it is still important to ensure that workers classified as independent contractors truly meet the test.
- Looking to the common law factors and the prospects for entrepreneurial opportunity, companies should evaluate details like the hiring entity’s degree of supervision over the worker, the method and manner of compensation, and the amount of control over how the worker performs tasks.
- To assess the scope of “entrepreneurial opportunities,” consider the worker’s independence to make meaningful decisions bearing on profit or risk of loss.
- In conducting audits with counsel, sometimes companies will find that making strategic adjustments to particular roles can reinforce classification decisions. In other cases, after a closer look, it may make sense to reclassify workers and redefine roles. Regardless, given the public spotlight on independent contractors and the quickly evolving legal landscape (whether it involves federal law like the NLRA, or state law like California’s recent Dynamex decision), companies are well-advised to partner with counsel to mitigate potential exposure and to unlock the value of embracing new staffing models while staying compliant.
For more, please reach out to your Baker McKenzie employment lawyer.