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Another Reset of NLRB's Independent Contractor Test

Client Alert

Authors: Tracey E. Diamond and Susan K. Lessack

2/12/2019
Another Reset of NLRB's Independent Contractor Test

This article was published in Law360 on February 12, 2019. © Copyright 2019, Portfolio Media, Inc., publisher of Law360. It is republished here with permission.

On Jan. 25, 2019, the Republican-led National Labor Relations Board affirmed the acting regional director’s decision that drivers of a shared airport ride service were independent contractors, not employees, and therefore not covered by the National Labor Relations Act.

The decision, which reverts back to the common law test for determining independent contractor status, will have a wide-ranging impact on other gig economy companies.

Background

The case involves drivers for SuperShuttle Dallas-Fort Worth, which provides transportation to and from the Dallas-Fort Worth Airport in Texas and a smaller local airport in the Dallas area. Amalgamated Transit Union Local 1338 sought to represent a group of 89 SuperShuttle drivers and relief drivers.

Before 2005, SuperShuttle designated its drivers as employees and paid them hourly wages to transport customers in company-owned shuttle vans. In 2005, SuperShuttle converted to a franchise model, pursuant to which drivers are required to supply their own shuttle vans. The drivers pay SuperShuttle an initial franchise fee and flat weekly fee for the right to use the SuperShuttle brand and its GPS dispatch and reservation equipment. The drivers are not required to work a set schedule, and keep the money they earn for completing assignments that they select.

However, the drivers must conform to detailed rules and regulations of the International Airport Board, a public governmental agency that entered into a 130-page shared-ride contract with SuperShuttle dictating how SuperShuttle would run its business. For example, pursuant to the shared-ride contract, SuperShuttle must screen franchisees/drivers for drugs and alcohol, provide them with training, and perform criminal background checks.

In addition, all franchisees must wear a certain uniform and act in a courteous and professional manner. SuperShuttle, in turn, entered into a unit franchise agreement governing the relationship between the drivers and the company. This agreement requires, among other things, that the drivers’ vans meet certain specifications as to make, model, color, size, age, and mechanical and physical condition. In addition, the drivers are required to purchase insurance from a designated provider.

The Acting Regional Director’s Decision

The union filed a representation petition, which was dismissed by the board’s acting regional director, who concluded that the drivers are independent contractors rather than employees. The acting regional director emphasized that the drivers do not share fares with SuperShuttle and operate their own vehicles with little control by SuperShuttle over the manner and means of performing the work, despite the imposition of fare amounts, uniform requirements and installation of GPS tracking equipment.

According to the acting director, the franchisees “are free to work if they want and when they want, and have total autonomy in this respect.” The acting director also assigned significance to the fact that the drivers owned their vans and therefore had “opportunity for loss or gain.”

Board and Court Precedents

The test for determining independent contractor status under the NLRA has shifted through the years. Historically, the board has used the common law agency test, which applies a nonexhaustive list of factors, including, among other things: (1) the degree to which the company exerts control over the worker; (2) whether or not the worker is engaged in a distinct occupation or business; (3) whether the type of work usually is done without supervision; (4) who supplies the tools and place to perform the work; and (5) whether the work is part of the regular business of the company.

In 2009, the U.S. Court of Appeals for the District of Columbia Circuit issued an opinion in FedEx Home Delivery v. NLRB (FedEx I),1 observing that, over time, the board had shifted the emphasis from control to whether the workers have “significant entrepreneurial opportunity for gain or loss.” The court stated that, “While considerations at common law remain in play, an important animating principle by which to evaluate those factors in cases where some factors cut one way and some the other is whether the position presents the opportunities and risks inherent in entrepreneurialism.”

Subsequently, in 2014, the Obama-era board declined to adopt the holding of the D.C. Circuit, instead holding in FedEx Home Delivery (FedEx II)2 that “entrepreneurial opportunity represents merely ‘one aspect of a relevant factor that asks whether the evidence tends to show that the putative contractor is, in fact, rendering services as part of an independent business.” Thus, the board limited the importance of entrepreneurial opportunity by creating a new factor (rendering services as part of an independent business) and then making entrepreneurial opportunity merely one aspect of that factor.

The other factors were whether the worker has (1) a realistic ability to work for other companies; (2) a proprietary or ownership interest in his work; and (3) control over important business decisions, such as scheduling performance, hiring and assigning employees, purchasing equipment, and committing capital. The D.C. Circuit refused to enforce this opinion, but the board continued to apply this standard in subsequent cases until now.

The SuperShuttle Decision

In SuperShuttle DFW Inc., the board rejected its own analysis in FedEx II as overreaching, instead reverting back to the common law test that was in place before the FedEx II decision. The board stated that its prior decision “fundamentally shifted the independent contractor analysis, for implicit policy-based reasons, to one of economic realities, i.e., a test that greatly diminishes the significance of entrepreneurial opportunity and selectively overemphasizes the significance of ‘right to control’ factors relevant to perceived economic dependency.” The board concluded that the FedEx II decision misread the D.C. Circuit’s decision in FedEx I, and that it should not have reacted by downplaying the significance of entrepreneurial opportunity to the analysis.

Significantly, the board also noted that “[l]arge corporations, such as FedEx or SuperShuttle will always be able to set terms of engagement in such dealings, but this fact does not necessarily make the owners of the contractor business the corporation’s employees.” Thus, even where a company directs at least some of the means of engagement, according to this board, the parties may still have an independent contractor relationship if the workers have the opportunity to engage in entrepreneurism.

While the board acknowledged that the airport contract imposes certain requirements on the drivers, it concluded that this is not evidence of SuperShuttle’s control over the manner and means of doing business because the rules are imposed by the state-run airport, rather than by SuperShuttle itself. Weighing all of the factors of the common law test, the board concluded that the drivers had significant opportunity for economic gain and significant risk of loss, which outweighed any countervailing factors supporting employee status.

The Dissent

NLRB member Lauren McFerran, the lone Democratic appointee on the board, wrote a vigorous and lengthy dissent to the majority decision. She articulated a two-pronged argument: (1) that the majority was incorrect in stating that entrepreneurial opportunity “has always been at the core of the common law test” and (2) that the majority failed to apply that test properly. McFerran asserted that the test adopted in the SuperShuttle opinion is inconsistent with U.S. Supreme Court and board precedent, which reflects a “consistent emphasis” on the common law test pursuant to which all of the agency factors are assessed.

She argued that there is no support for the majority’s position that entrepreneurial opportunity is the core concept of the common law agency test. McFerran explained, “[i]f the common-law agency test has a core concept, it is demonstrably not ‘entrepreneurial opportunity,’ but rather ‘control.’” McFerran maintained that the majority improperly treated entrepreneurial opportunity as an “overriding consideration” in its analysis, rather than focusing on the common law agency factors.

In addition, according to McFerran, the majority misapplied those factors, which, in fact, point toward an employment, rather than independent contractor, relationship. Among other things, SuperShuttle has “extensive power” over the drivers pursuant to the unit franchise agreement. In addition, she noted that the drivers (1) are unskilled; (2) are not able to compete on price or quality of service; (3) provide the same service for fixed fares (meaning that they are not able to increase their income through their own efforts); (4) do not take economic risks; (5) are not permitted under their contract with SuperShuttle to work for competing companies; (6) do not generate business for themselves; and (7) do not maintain an operating business. Because the drivers are employees under the common law factors, McFerran asserted, they must also be treated as employees under the NLRA.

Key Takeaways

The SuperShuttle decision will make it easier for companies to prove that workers are independent contractors under the NLRA. Gig economy companies in particular are likely to benefit from the decision, especially those in the ride-sharing industry. In determining that the SuperShuttle drivers are independent contractors, the board relied on several facts about their work that are also true for drivers of ride-sharing companies, including that they decide when to work and what hours to work, they decide which trips to accept, and they can decide when to turn on the device that alerts them to an available trip.

Although the question in the SuperShuttle case was whether the shuttle drivers were employees and therefore had the right to organize, the evaluation of whether individuals are employees or independent contractors under the NLRA also is relevant in determining whether the individuals have other rights under the act, such as the right under Section 7 to engage in concerted activity. For example, companies can prohibit independent contractors from criticizing company managers, but cannot prohibit employees from complaining to co-workers about their managers.

The test articulated in the SuperShuttle case applies only to claims under the NLRA and does not affect the independent contractor analysis under other laws, such as the Fair Labor Standards Act, the Internal Revenue Code, and state unemployment compensation and workers’ compensation statutes. Employers should review their independent contractor arrangements to ensure that they support a true independent contractor relationship, rather than an employee relationship, not just under the SuperShuttle test, but also under the tests applied by these other laws.

Finally, the SuperShuttle decision was written by three board members appointed by President Donald Trump. If the composition of the board changes after the 2020 presidential election, the test articulated by the board in SuperShuttle could change again as well.

Endnotes

1 FedEx Home Delivery v. NLRB, 563 F.3d 492 (D.C. Cir. 2009).

2 FedEx Home Delivery, 361 NLRB 610 (2014).

The material in this publication was created as of the date set forth above and is based on laws, court decisions, administrative rulings and congressional materials that existed at that time, and should not be construed as legal advice or legal opinions on specific facts. The information in this publication is not intended to create, and the transmission and receipt of it does not constitute, a lawyer-client relationship.

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