NLRB Ruling on Independent Contractors

On January 25, 2019, in SuperShuttle DFW, Inc., 367 NLRB No. 75 (2019) (“SuperShuttle”), the National Labor Relations Board (“NLRB”) affirmed the common law test for determining whether workers are independent contractors under the National Labor Relations Act (“NLRA”). Section 2(3) of the NLRA excludes independent contractors from protections under the Act such as the right to form a union or engage in concerted activity for the purposes of collective bargaining.  The decision affirmed a 2010 Acting Regional Director’s decision that a group of franchisee airport shuttle operators were independent contractors. The SuperShuttle decision purported to overturn the Board’s previous decision in FedEx Home Delivery, 361 NLRB 610 (2014) (“FedEx”), stating that the FedEx decision “significantly limited the importance of entrepreneurial opportunity” to the NLRB’s independent contractor test. The significance of this decision is that workers who would be employees under state and federal wage and hour laws may nevertheless be independent contractors for purposes of the NLRB.

The NLRB uses a 10-factor common-law agency test to determine whether an individual is an employee or independent contractor. The list of ten factors include (a) The extent of control which, by the agreement, the master may exercise over the details of the work; (b) Whether or not the one employed is engaged in a distinct occupation or business; (c) The kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the employer or by a specialist without supervision; (d) The skill required in the particular occupation; (e) Whether the employer or the workman supplies the instrumentalities, tools, and the place of work for the person doing the work; (f) The length of time for which the person is employed; (g) The method of payment, whether by the time or by the job; (h) Whether or not the work is part of the regular business of the employer; (i) Whether or not the parties believe they are creating the relation of master and servant; and (j) Whether the principal is or is not in business.

In FedEx, the Board analyzed an independent contractor issue based on whether the evidence tended to show that a franchisee was, in fact, rendering services as part of an independent business.  The decision regarded entrepreneurial opportunity, or the ability to control the amount of profit made by the franchisee, as simply one factor that was not determinative considering other factors, such as the amount of control exercised by the franchisor regarding the manner and means by which the franchisees operated.  In addition to minimizing the importance of the entrepreneurial opportunity factor, the FedEx Board stated that only actual, not theoretical, entrepreneurial opportunity would weigh in favor of a finding of independent contractor status.  The Board stated that it would “necessarily evaluate the constraints imposed by a company on an individual’s ability to pursue” theoretical entrepreneurial opportunity. The Board’s analysis led to a finding that any type of control over any aspect of the manner and means by which the franchisees operated served to limit the franchisee’s ability to pursue economic opportunities.

The SuperShuttle case involved determining whether franchisee-operators of shared-ride vans in the Dallas-Fort Worth area (“drivers”) were independent contractors. The drivers were required to enter into a Universal Franchise Agreement (“UFA”).  Under the UFA, the drivers supplied their own vans.   They were required to pay SuperShuttle an initial franchise fee, a decal fee, and a flat weekly fee for use of the SuperShuttle brand and its dispatch system, a rented Nextel device. Drivers had total control over their work schedules, and they could begin work at any time by simply turning on their Nextel devices.  Drivers could work as many or as few hours as they preferred.  The drivers kept 100% of all fares collected, but they were required to accept SuperShuttle vouchers and coupons.

The Board in SuperShuttle rescinded the 2014 FedEx Board’s analysis of the independent contractor issue, stating that it “fundamentally shifted the independent contractor analysis, for implicit-policy based reasons, to one of economic realities, i.e., a test that greatly diminish[ed] the significance of entrepreneurial opportunity and selectively overemphasize[d] the significance of ‘right to control’ factors relevant to perceived economic dependency.” The Board stated that the common-law factors should be evaluated through the “prism of entrepreneurial opportunity,” when appropriate given the facts of the case.  Additionally, it asserted that entrepreneurial opportunity had “always been at the core of the common-law test.”

The Board affirmed that the SuperShuttle drivers were independent contractors, and therefore excluded from exercising rights under the NLRA.  The Board relied on several facts to make this determination that the drivers had  significant entrepreneurial opportunities that outweighed any control that the Company had over the drivers, including that (1) drivers made a significant initial investment in their business by purchasing or leasing a van and entering into the franchise agreements; (2) drivers had the ability to meet or exceed their weekly overhead because they had complete control over their schedule and when and how often to work; (3) drivers kept all of their fares and thus, the amount of money they could make was determined by how much they worked; and (4) drivers had discretion over the bids they chose to accept, meaning they could weigh the cost of a particular trip against the fare received.

The SuperShuttle decision makes it more likely that franchisees will be classified as independent contractors if they have significant control over the amount of money they can make and have made a significant investment in their business, regardless of whether the franchisor has certain non-negotiable requirements.  However, the decision may have further implications in regard to other issues franchisor issue that currently remain unsettled, such as whether franchisors may be held to be joint employers with the franchisee with respect to the enforcement of labor and employment laws.  While the decision is confined to whether franchisees are independent contractors who are excluded from the NLRA, it may suggest one instance where franchisors may not be joint employers with their franchisees, and perhaps not responsible along with the franchisee for any violations of the NLRB. However, the Board did not analyze this issue directly.  If you are considering how this decision may affect your business operations, or how best to take advantage of these new developments, the attorneys at Pickrel, Schaeffer and Ebeling are here to assist you.  Please contact Kristina Curry or Matthew Stokely at (937) 223-1130.

AUTHOR: Kristina Curry
kcurry@pselaw.com