NLRB Modifies the Independent Contractor Test

On June 13, the National Labor Relations Board (NLRB) released its much-anticipated decision in The Atlanta Opera Inc effectively overturning the prior, easier independent contractor test under the former Trump administration, and reinstating the more difficult multi-factor FedEx standard. 

Some Context on the Changing Laws 

• In 2014, the NLRB issued the FedEx II decision, which made it more difficult for workers to be classified as employees. The decision limited the importance of ‘entrepreneurial opportunity’ (the prior standard) and focused instead on the ‘economic realities’ of the relationship between the business and the worker, among other considerations.  
• In 2019, the NLRB issued the SuperShuttle decision which walked back the economic realities standard and reverted to the traditional ‘entrepreneurial opportunity’ test. This test favors the determination that a worker is an independent contractor if the worker has ‘entrepreneurial opportunity’ and made it much easier to be classified as a contractor. Essentially, if the company decided the position was one of an ‘entrepreneurial opportunity,’ the classification would stand, regardless of control or other realities of the position. 
• In Atlanta Opera, a hairstylist provided hair and wig treatments to performers for hourly pay. They did not have a written contract or uniform, were not on the payroll and did not have to adhere to the Opera’s rules and regulations. Ultimately, the stylist filed an election petition with the NLRB seeking union representation. The Atlantic Opera argued that the worker was an independent contractor and was not entitled to the representation they sought. This led to the NLRB’s decision between the ‘entrepreneurial opportunity’ SuperShuttle test or the 2014 FedEx II test. It elected to revert to the FedEx II ‘economic realities’ standard requiring the balancing test of multiple factors to determine whether independent contractor status is proper  

Key Findings in Atlanta Opera 

The NLRB notes that it is critical for consideration to be given to the actual entrepreneurial opportunity, not merely theoretical. In practice, this means that weight will be given to the constraints a company imposes on workers and the control it exerts. If the company exercises control over the worker (meaning setting work hours, directing or overseeing the work, requiring on-site work, and/or other control factors), then that person is more likely to be an employee rather than an independent contractor. 

The NLRB will also give weight to whether a worker has: 

• A realistic ability to work for other companies;  
• Proprietary or ownership interest in their work; and 
• Control over important business decisions, such as the scheduling of performance, the hiring, selection, and assignment of employees, the purchase and use of equipment, and the commitment of capital.  

Key Takeaways Post Atlanta Opera  

As a result of Atlanta Opera, more workers are likely to be deemed employees under federal law. This will have a significant impact on businesses that rely heavily on gig economy workers, including companies like Uber and Doordash, as well as online businesses and others that hire workers to supply temporary labor. Note, however, that several states, including California, use the ABC test to determine independent contractor classification, which is even more strict that the factors used under Atlanta Opera. 

The NLRB ruling will also likely result in increased unionization and misclassification claims. 

So, what should businesses do?  

Businesses should:  

• Adjust any internal risk registers to reflect this decision.  
• Immediately consult with counsel regarding the review of staffing contracts. Legal counsel should identify and remove language that permits the exercise of ‘control’ over workers classified as independent contractors and add in language and requirements to meet the balancing factors that weigh in favor of contractor status. 
• Legal counsel should also thoroughly review the contracts used by any third-party staffing providers.  

Our employment attorneys are available to help.  

• Employment Law