Rejecting D.C. Circuit Analysis, NLRB "Clarifies" Independent Contractor Test In Ruling That FedEx Drivers Are Employees Covered By The Act, Jones Day Labor Blog

This week the NLRB issued a decision "restating and refining" its analysiFull Profile of Jessica Kastins in independent contractor cases. With proper employee classification an area of focus for the White House and various administrative agencies during President Obama’s tenure, the Board has not surprisingly aimed its sights on expanding coverage of the National Labor Relations Act to include many individuals that are currently exempted as independent contractors. In FedEx Home Delivery, 361 N.L.R.B. No. 55 (Sept. 30, 2014), the Board held that FedEx drivers are "employees" covered by the Act – not independent contractors as asserted by FedEx. The Board disagreed with the D.C. Circuit’s holding that contractors at a different FedEx location performing the same jobs were properly classified and therefore not covered by the Act. The Board held that because the drivers are employees, FedEx is required to bargain with the union certified as the drivers’ representative.

When determining whether an individual is a contractor or an employee, the Board will continue to assess common law agency factors, such as, among other factors:

– extent of the company’s control over the work;

– whether the individual is engaged in a distinct occupation or business;

– whether the work is typically performed at the direction of the employer or without supervision;

– whether the individual supplies the work tools and place of work; and

– whether the work is part of the employer’s regular business.

The Board stresses that these factors are non-exclusive, and should be viewed in the totality with regard to the specific facts at hand, with no one factor being determinative. The Board also considers whether the "contractor" has a "significant entrepreneurial opportunity for gain or loss."

In FedEx Home Delivery v. NLRB, 563 F.3d 492 (D.C. Cir. 2009), the court interpreted Board law as signaling that the Board considers "entrepreneurial opportunity" as the decisive factor. In this week’s decision, the Board dispelled that notion and held that this consideration should focus on actual, not theoretical, opportunity for gain or loss, and should evaluate the constraints an employer imposes on a worker’s ability to pursue this opportunity. In finding that the FedEx drivers were properly classified as contractors, the D.C. Circuit held that even a showing of theoretical entrepreneurial opportunity supports a finding of independent-contractor status. The Board does not adhere to this principle.

Under the Board’s test, the "entrepreneurial opportunity" consideration is part of a broader factor that considers whether the employer has effectively imposed constraints on an employee’s ability to render services as part of an independent business. In applying this factor, the Board focused on the how the drivers’ arrangement with FedEx effectively prevented them from working for others in light of their mandatory daylong shifts and having to mask the FedEx logo on their vehicles before using it for other purposes.

While the Board characterized its decision as "restating and refining" the test, realistically it created a new standard that will likely result in an increased reach of the Act to cover many service providers that are currently classified as independent contractors. Board Member Johnson issued a lengthy dissent to this week’s decision focusing on the entrepreneurial opportunity issue. Member Johnson views the Board’s decision as fundamentally shifting the independent contractor analysis for policy reasons, and failing to give adequate weight to entrepreneurial opportunity as part of the test. The Board’s admitted focus over the past few years has been on becoming more relevant in the non-union workplace and re-evaluating decades’-old precedent. Not surprisingly this week’s decision fits within this policy agenda.

FedEx may appeal the Board decision and the issue could ultimately wind up before the U.S. Supreme Court. In the meantime, the Board will likely continue to cast a broad net in determining who is an "employee" under the Act, which significantly implicates the business model implemented by many U.S. employers. With the use of contractors on the rise, all employers should be thinking about whether their contractors are properly classified. Are the individuals working as part of their own incorporated business? How much control is the company asserting over the work? Is the company dictating the individual’s hours, work location, etc.? Is the individual restricted in his or her ability to run an independent business? Improper classification can have implications not only under the NLRA, but under various laws creating potential tax, wage and hour, discrimination and a myriad of other potential liabilities that an employer is generally insulated from when utilizing true independent contractors. While different agencies may use different tests, the same general factors will typically apply.

Tracking the Board’s decisions in this area and any appeals by FedEx should be helpful in assessing potential liability under the NLRA with respect to independent contractors in the workforce.

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Jessica Kastin
New York

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