Mention the words “worker misclassification” and many business executives will start to feel the hairs on the back of their neck stand on end. What do you think of when you hear that phrase? The IRS? The Department of Labor? Back taxes? Penalties and fines for unpaid workers’ compensation? Affordable Care Act issues? Wage and hour issues? Here are some other terms you might want to add to that list: NLRB, NLRA, Unfair Labor Practice. Your first reaction might be “Oh, come on really? The NLRB gets involved there too?” Yep. I wouldn’t make up something like that. Even I can’t come up with something so seemingly off-the-wall, and I certainly wouldn’t be diabolical enough to give you one more reason for you to have agita. That said, let’s learn some more after the jump…
Is it really a big deal that the NLRB wants to make sure that businesses don’t misclassify workers? What more could the NLRB have to add to the IRS and DOL analyses? You can guess there is at least one additional wrinkle. (Why would I bother devoting a post to this issue if there wasn’t?) So here’s the wrinkle: The NLRB decided on its very own new test for determining who is an employee in Fed-Ex Home Delivery 361 NLRB No. 55 (Sep. 30, 2014). This means that there is now another test employers must bear in mind when classifying their workers. In its ruling, the Board specifically decided not to follow a 2009 D.C. Circuit Court of Appeals decision, also involving Fed-Ex, rationalizing that it placed too much emphasis on entrepreneurial opportunity and did not sufficiently consider actual exercise of that opportunity. The NLRB therefore took its own previous list of 10 factors considered and added an 11th factor that specifically devalues the “entrepreneurial opportunity” factor that the DC Circuit found particularly important. Before we look at those factors, I do wish to raise two points: 1) The facts of this case are the same as those in the DC Circuit’s 2009 ruling that also involved Fed-Ex–and the NLRB even conceded that point; and 2) Fed-Ex has appealed the NLRB ruling to –you guessed it–the D.C. Circuit Court of Appeals, so this is not the last we will see or hear of this matter. I’ll save my other points until after I list the factors. We may as well do that now. Here they are:
- Extent of control by the employer;
- Whether individual is engaged in distinct occupation/business;
- Whether the work is usually done under direction of the employer or by a specialist without supervision;
- Skill required in the occupation;
- Whether the employer supplies the instrumentalities, tools and place of work;
- Length of time individual and employer have worked together;
- Method of payment;
- Whether the work is part of the employer’s regular business;
- Whether the parties believe they are creating an independent contractor relationship;
- Whether the principal is in the business;
- NEW FACTOR: Whether the evidence tends to show that the individual is in fact rendering services as an independent business.
In other words, the fact that a worker could exercise entrepreneurial opportunity will not be enough. S/he must actually be exercising such opportunity. Anyway, the NLRB created this new test and then applied it to the case and then — surprise– arrived at a different result than the DC Circuit Court of Appeals reached in 2009 under the same facts. But what were those facts? Here are some of them: a) Fed-Ex drivers own and operate their own vehicles, pay most of their own costs and operate their own routes without direct supervision; b) Drivers can hire their own assistants and sub-contract out their own routes and even sell their routes to other drivers; c) Fed-Ex exerted control over drivers’ uniforms and appearance and the logos and specifications of certain trucks, and over company-wide infrastructure that aided in package tracking and delivery. Oh, and one more point about these factors: The NLRB said that no one factor is determinative. In other words, the factors to which the Board accords more weight in one case may be of less weight to the NLRB in another case.
Now, to be fair, many other courts in many other jurisdictions under different laws have applied these same or substantially the same facts and reached different results. So what’s the issue here? The issue here is that the NLRB specifically refused to follow the DC Circuit Court of Appeals’ ruling on how federal labor law defines an employee. Moreover, the NLRB then created its own new test to justify its disregard of a precedential ruling–again, one made on the same facts as in this case–and to arrive at the very opposite result that previously reached by the DC Circuit on the same facts. If that’s not enough, the NLRB, for good measure declared its new test to be the one it will use to determine if a worker is an employee or independent contractor under federal law. Again, this case is pending before the very Circuit Court whose ruling the NLRB has snubbed, so it will be interesting to see the result.
So, what is the implication of the NLRB finding an employer misclassified its workers? The general answer is that the NLRB has found another way to involve itself in your business operations, but it’s more than that, and there’s only so much I can justify cramming into one post. So we’ll tackle that question, along with some more very recent developments, next week. In the meantime, one thing does seem clear: The NLRB is not acting any differently in this area than it has with regard to social media, arbitration provisions, confidentiality issues or workplace conduct. That is, it will create its own new standards to achieve the desired results–and it will disregard any inconveniences such as contrary federal court rulings.
OK, let’s take this up again, next week!
Disclaimer: Contents of this post are for educational/informational purposes only, are not legal advice, and do not create an attorney-client relationship. Consult with competent employment counsel in the state(s) in which you employ people with your specific questions.
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