NLRB Rewrites Rules on IC Classification

487128429In a surprising yet uninspiring decision, the National Labor Relations Board created a new test for employers to determine whether an individual is an independent contractor or employee under federal labor law. The case, FedEx Home Delivery, involved Connecticut-based delivery drivers who challenged their classifications as independent contractors. FedEx recruited, trained and directed the drivers, but the drivers were allowed to hire other drivers, sell routes and operate different routes. After instituting an 11-factor test of employment status, the NLRB found the FedEx drivers to be employees, rather than independent contractors.

What’s surprising is the NLRB’s decision stems from its direct disagreement with the US Court of Appeals for the District of Columbia, which in 2009 concluded “entrepreneurial opportunity” was a critical factor in determining employee classification in NLRB cases. With the FedEx Home Delivery decision, however, the NLRB blatantly watered down the significance of “entrepreneurial opportunity” by removing its status from being a decisive question to just being one of 11 considerations in a new test of employee classification. The NLRB went even further by stating that unless a large percentage of independent contractors takes hold of the company’s “entrepreneurial opportunity,” it is only an opportunity in theory and thus not one at all.

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All said and done, the NLRB’s new 11-factor test significantly muddies the waters for employers across the country.

Thus, going forward employers should be aware of the factors the NLRB will apply when deciding whether an individual is an independent contractor or employee:

  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. Whether the evidence tends to show that the individual is, in fact, rendering services as an independent business (the “entrepreneurial opportunity” factor).

The NLRB’s new 11-factor test is likely to classify more individuals as employees than otherwise. Nonetheless, employers should be prepared for an aggressive employee classification effort by the NLRB as long as courts refrain from striking down the agency’s latest measurement stick.

MORE: (Almost) tricked into my own employee misclassification

 

This post first appeared in Contingent Workforce Strategies 3.0, Jan. 28, 2015.

Y. Douglas Yang

Y. Douglas Yang
Y. Douglas Yang is an associate with Michael Best and Friedrich LLC.

Y. Douglas Yang
Y. Douglas Yang is an associate with Michael Best and Friedrich LLC.

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