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NLRB Gives Companies and Workers Leeway to Operate Under Independent Contractor Model

The National Labor Relations Board (“NLRB”) has re-instated its traditional independent contractor test, acknowledging that many franchisees and freelance contractors have significant opportunities for both economic gain and loss, and therefore should be treated as small businesses.FN1

Independent contractors are not considered “employees” under the National Labor Relations Act (“NLRA”),FN2 and the NLRB has used different tests to determine whether someone is a true independent contractor. In SuperShuttle DFW, the NLRB returned to the previous test, which considers factors such as:

(1) the extent of control that the company may assert over the work;

(2) whether the worker is engaged in a business that is distinct from the company’s business;

(3) the skill required by the worker;

(4) whether the company or worker supplies the tools and place for the work;

(5) the method of payment (whether by time or job);

(6) whether the parties believe they have an independent contractor relationship.FN3

The key focus when examining these factors is whether the company controls the worker and whether the workers have significant entrepreneurial opportunity for gain or loss.

Applying the test, the NLRB found that SuperShuttle franchisee drivers—who operate and are paid as business entities, pay a flat fee to the franchisor for the right to provide shared-ride transportation to and from airports using the SuperShuttle trade name and livery, own or lease their vans, pay for their own gas and vehicle maintenance, and choose to work as much (or as little) as they wish—are independent contractors under the NLRA.FN4 The NLRB reasoned that the workers have significant opportunity for both economic gain and loss (like most small businesses), have “near absolute autonomy in performing their daily work without supervision,” and that any control the franchise exerted over the franchisees was the result of government regulations.

Practical Takeaway

The independent contractor model is a key feature for franchise operations, freelancers, and others in the U.S.’s “gig economy.” The NLRB’s updated test is a helpful development that reduces obstacles to the contractor business model; however, companies should be aware that different (and less favorable) independent contractor tests apply for state-law unemployment claims, federal tax purposes, equal opportunity laws, and other purposes.

 

Footnotes:

FN1:   SuperShuttle DFW, Inc. and Amalgamated Transit Union Local 1338, 367 NLRB No. 75 (2019). The NLRB’s SuperShuttle DFW, Inc. decision, issued last week, overturned the NLRB’s previous focus on the “economic realities” of a work relationship and limited the ability for franchisees to operate under an independent contractor model under the National Labor Relations Act (“NLRA”). FedEx Home Delivery, 361 NLRB 610 (2014).

FN2:   Section 2(3) of NLRA, 29 U.S.C. § 152(3). This means, among other things, that a labor  union may not represent a unit of workers who are actually independent contractors.

FN3:   Other considerations under test are: (7) whether the work performed is usually performed under the direction of an employer or contractor; (8) the length of time the person performs her work; (9) whether the work is part of the regular business of the company; and (10) whether the company is or is not in business. SuperShuttle DFW, 367 NLRB No. 75, slip op. at 1-2.