NLRB revises independent contractors test for federal labor law rights

Last week the Republican-majority National Labor Relations Board overturned its 2014 independent contractor test expanding labor law rights to more workers under the National Labor Relations Act. This unsurprising move reflects the Trump administration’s hostility towards administrative regulation and workers’ rights. The revised test will open the door for employers to classify workers as independent contractors to further erode worker rights and compensation.

The NLRB 2014 independent contractor test for labor rights

Under the National Labor Relations Act and its later amending acts, a worker obtains labor rights under the NLRA if the worker is classified as an employee. The problem is that the statutory language, like many labor and employment laws, lacks a clear mechanism to determine who is an employee under the statute. Courts and administrative agencies often rely on one of several common law tests. These tests weigh factors related to important components of the employer-worker relationship.

Historically the NLRB applied the common law agency test first focusing on the employer’s control over the worker and later shifting to focusing on the entrepreneurial opportunity for gains or losses. Ten years ago a challenge to the independent contractor classification of drivers at Fedex led to the D.C. Circuit applying the ten factor common law agency test and focusing on the entrepreneurial opportunity for gains or losses. (Fedex I.)

The D.C. Circuit in FedEx Home Delivery v. NLRB, 563 F.3d 492 (D.C. Cir. 2009) reviewed the NLRB’s historical application of the test and applied the test to hold the drivers were independent contractors and not employees.

In a subsequent NLRB proceeding in 2014 the labor board disagreed. The NLRB refined its application of the common law test to a test by adding a factor considering whether the independent contractor works for an independent business rather than the usual wink wink relationship that a worker is an independent contractor because the business says so. The now eleven factor test included:

1. Extent of control by the employer
2. Whether or not the individual is engaged in a distinct occupation or business
3. Whether the work is usually done under the direction of the employer or by a specialist without supervision
4. Skill required in the occupation
5. Whether the employer or individual supplies instrumentalities, tools, and place of work
6. Length of time for which individual is employed
7. Method of payment
8. Whether or not work is part of the regular business of the employer
9. Whether or not the parties believe they are creating an independent contractor relationship
10. Whether the principal is or is not in the business
11. (New:) Whether the evidence tends to show that the individual is, in fact, rendering services as an independent business

The NLRB applied this refined test to find another set of drivers are employees. Agast, Fedex appealed the decision. The D.C. Circuit again insisted its pro-business interpretation was correct and the NLRB should have expected the same result. (Fedex II.) Nevertheless the NLRB refused to walk back its refined test.

The NLRB’s 2014 refinement of its independent contractor test makes tremendous sense in light of current trends in employment. Employers increasingly shift jobs from employee to independent contractor to avoid labor and employment laws and reduce labor costs. Jobs shift to supposed independent contractors who do not operate independent businesses, only work for a single employer and have their work substantially controlled by that employer.

Few disinterested and rational individuals would look at these relationships as anything less than employer-employee.

New NLRB decision on independent contractor classification

In 2018 a complaint was filed by franchisee drivers at DFW Airport alleging, under the NLRB’s refined test, that they are employees eligible to unionize under federal law. The employer was quick to point out Fedex II and the now Republican-majority NLRB agreed. It overturned the 2014 refinement returning to the ten factor common law agency test. 

“The board majority’s decision in FedEx did far more than merely ‘refine’ the common-law independent contractor test — it ‘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 majority claims it does not give entrepreneurial opportunity heightened consideration or raise it as a super-factor (as the court does in Fedex I) but it certainly devotes considerable space to that single factor before addressing in less detail any other. It’s difficult to imagine the majority did this unintentionally or that the board will not proceed with heavily weighing the entrepreneurial opportunity over other factors–at least in these contractor relationships.

In between 2014 and 2018 the NLRB rule gave employers pause from believing independent contractor classifications rid them of worry about unionization; but that pause is certainly over. Returning to a rule that makes it easier to avoid labor law concerns in the workplace does more than help employers sleep better at night or trim their legal budget for labor law attorneys. It incentivizes employers to structure jobs as independent contractors which in turn means fewer worker rights and less pay.