Recently, the National Labor Relations Board (“NLRB”) broadened the standard for who is considered an independent contractor. The new standard makes it easier for companies to treat their workers as independent contractors under the National Labor Relations Act (“NLRA”). This is a big win for employers, because independent contractors cannot be in a union. A summary of the NLRB decision can be found here.
Entrepreneurial Opportunity and Independent Contractors
The issue raised in the case was whether franchisees who operated share-ride vans at the Dallas-Fort Worth and Love Field airports were employees or independent contractors. The NLRB used a common law test and found the franchisees were independent contractors. In reaching its decision, the NLRB overturned a prior 2014 decision that applied a more narrow “economic realities” test that severely limited the significance of a worker’s entrepreneurial opportunity to the analysis. In its new decision, the NLRB reaffirmed that “entrepreneurial opportunity, like employer control, is a principle by which to evaluate the overall effect of the common law factors on a putative contractor’s independence to pursue economic gain.” In short, it looks like the NLRB may be choosing to support the desire of gig platforms to use independent contractors.
There are Limits to the New Test
While this decision is good news for employers, it is limited to the NLRB’s analysis of union status and has no impact on federal and state wage and hour laws. Employers must keep in mind that other laws use different tests to determine independent contractor status that may produce different outcomes. For example, under Georgia’s unemployment insurance law (Ga. Code § 34-8-35), a worker will be an employee unless the following requirements are met:
- Such individual has been and will continue to be free from control or direction over the
performance of such services, both under the individual’s contract of service and in fact; and
- Such individual is customarily engaged in an independently established trade, occupation,
profession, or business.
Tips for Employers
Misclassification errors can be costly and create liability under many different laws covering wage and hour, discrimination, workers compensation, employee benefits and more. Employers should carefully evaluate whether using independent contractors is worth the risk. The NLRB case illustrates that the rules regarding independent contractor status can change. Therefore, if an employer does use independent contractors, it should consult with employment counsel and regularly review the relationship with the worker to assess whether the classification is proper.