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Published on Tuesday, February 5, 2019

Retraction of Narrower Independent Contractor Definition Continues

Author: Michael Burns

Of the many Obama era labor and employment overreaches, the re-defining of joint employer and independent contractor was (and continues to be) arguably the most controversial. The National Labor Relations Board (NLRB) previously focused on union-employer relations.  But during the Obama Administration it imposed itself on the world of corporate law by reconstruing the law and using its case decision making authority to find most independent contractor relationships void.  This in turn was intended to create a much easier path for unions to organize workers and then treat the previously designated “customer” (or franchisor) as an employer for the purpose of organizing and negotiating.NLRB

The National Labor Relations Board Ping Pong Rulings

The Obama NLRB, in its 2014 FedEx Home Delivery decision and then the more notorious 2015 Browning-Ferris decision, started the ball rolling toward the elimination of independent contractors and broadening the definitions of employee and employer.  Those rulings defined whether a worker was an employee or an independent contractor and also whether the company (franchisor) exercised any control (not just sufficient control) over the franchisee’s workers to wipe out the franchisor-franchisee relationship; therefore, treating both parties as one common employer. The NLRB’s rulings so narrowly construed what a true independent contractor could be they virtually eliminated most contractor relationships to the point that almost all workers would be considered employees of the primary-customer that the service or work was being provided to.

Last week the current NLRB reverted back to its historical common law standard for determining whether a worker is an employee or an independent contractor.  The longstanding common-law agency test is again the standard the NLRB will use to determine who is an independent contractor and who must be treated as an employee. (SuperShuttle DRW, Inc, 1/25/2019).

In December, the DC Circuit Court of Appeals sent Browning-Ferris back to the NLRB for review and re-determination as well. That Court did not overrule the NLRB’s joint employment definitions being used but did charge the NLRB with determining a better distinction between indirect control over employment terms and influence over “routine matters.” The Court asked for the Board to “erect some legal scaffolding that keeps the inquiry within traditional common law bounds.”

In the SuperShuttle DFW case, workers drove trucks as franchisees of that company. They signed a yearly contract as franchisees, paid a franchise fee, as well as a weekly fee and decal fee, for the right to utilize the SuperShuttle brand and benefit from the proprietary dispatch and reservation system SuperShuttle provided.  The workers-franchisees leased or purchased their own vans with special requirements and equipment and paid for their own gas, maintenance, and other operations expenses.  The worker-franchisee had no set work schedule and kept the money they earned making driving people around.

A union wished to organize the workers but SuperShuttle DFW argued the workers were not employees. The NLRB looked to its previous determinations as well as Court decisions addressing independent contractor status and held that entrepreneurial opportunity must be evaluated within the context of the traditional common law factors. The entrepreneurial opportunity factor should be used as the “prism through which it evaluates the significance of the common-law factors.”

Because the drivers owned or leased their own vans, exercised control over their daily work and method of payment, and kept their fares, this demonstrated sufficient entrepreneurial opportunity whereby the workers were independent contractors and not employees.

This puts the NLRB back to where things were from a case precedent standpoint. But this case would not impede a future labor friendly NLRB from overturning this decision.

With a concern of never ending back and forth, the agency is working on a more permanent fix. The NLRB has been working on new rules for determining joint employer status. NLRB Chairman Ring announced the NLRB would be proposing new regulations just last week as well. This new independent contractor rule would presumably make it more difficult for the NLRB to find two employers working with one another as contractor-subcontractor or franchisor-franchisee as joint employers and thereby allowing a future labor friendly NLRB to construct an argument to extend its control over employers for collective bargaining purposes. Think McDonalds and all its franchisees as a single collective bargaining target. These new rules are still being worked on but are expected to be published this year. The NLRB would then have to follow those rules (short of changing them again) when making future decisions about whether a contractor-subcontractor or franchisor-franchisee could be treated as a single employer.

Where is this Going?

From a “let’s simplify who is an employer and who is an employee” angle on this situation, perhaps it could be argued the Obama administration’s heart may have been in the right place. Narrowing down who is an independent contractor by doing away with the multitude of complex analyses of common law IC factors would probably make employer compliance easier because there would be very few instances where a worker would be anything but an employee. But in that world, if you wanted any work done you would have to hire more employees.

We now go back in the direction of multitudes of tests of who is a worker and who is an employer – some of which is detailed below by Who is My Employee writer Todd Lebowitz:

But if that was one of their purposes for reinterpretation, the result started a big turn in an important segment of established corporate law without so much as a new piece of legislation showing to establish the legal foundation to base the change upon.

Sources: NLRB: In another significant reversal, Board returns to prior independent-contractor standard — FEDERAL NEWS,(Jan. 29, 2019) by Lisa Milam, JD. National Law Review What are the Top 3 Issues to Watch at the NLRB in 2019 1/2/2019. Littler  DOL Issues Guidance on Joint Employment under FLSABy Tammy McCutchen and Michael J. Lotito (1/20/ 2016). Seyfarth Shaw One Minute Memo D.C.Circuit Invalidates NLRB’s Browning-Ferris Joint Employment Test (12/31/2019) What is the Test for Independent Contractor vs. Employee (Jan. 2019) Who is My Employee blog. Todd Lebowitz

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