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NLRB Weighs in on Interpreting the Independent Contractor Standard

Article

New Jersey Law Journal

February 25, 2019

By: Elizabeth CowitStephen R. Donat

On Jan. 25, in SuperShuttle DFW, 367 N.L.R.B., No. 75, 2019 WL 342288 (Jan. 25, 2019), the National Labor Relations Board (“Board”) reversed an Obama-era standard for determining independent contractor status. This decision makes it easier for New Jersey employers to establish contractor status under the National Labor Relations Act (NLRA)—which provides employees, but not contractors, the right to unionize and engage in collective bargaining. Id., 29 U.S.C. §152(3). The facts and results of SuperShuttle, involving a gig economy platform, are likely to raise further interest and consideration for the contractor analysis, especially in the technology-infused work environment that increasingly extends beyond the traditional business model.

The ‘SuperShuttle’ Decision

In SuperShuttle, the Amalgamated Transit Union (“Union”) sought to represent a unit of drivers who offered shared-ride services to and from area airports for SuperShuttle Dallas Fort Worth (“SuperShuttle”), an independent business entity that licenses the right to use the SuperShuttle trademark and transportation system in vans displaying the SuperShuttle “name, logo, and color scheme.” Pursuant to franchise agreements, the drivers were described as non-employee franchisees. SuperShuttle, at **4, 5.

SuperShuttle challenged the Union’s attempt at representation, claiming the drivers were franchisees and, consequently, independent contractors. The Acting Regional Director of the Board sided with SuperShuttle, concluding that the drivers were not employees and, thus, not entitled to NLRA protection. Id., at *10. The Union sought Board review of the Director’s decision, and the Board upheld contractor classification. Id., at *20. In reaching its decision, the Board reversed its 2014 ruling in FedEx Home Delivery, 361 NLRB 610 (2014), enf. denied, 849 F.3d 1123 (D.C. Cir. 2017), in which it held that “entrepreneurial opportunity,” should be considered in the context of whether an individual was providing services “as part of an independent business.” Id. The Board found that the FedEx Home Delivery decision impermissibly changed the “traditional common law test” (and Board precedent) for determining classification issues, by minimizing the importance of “entrepreneurial opportunity” in the classification analysis, and overruled the decision to the extent it changed the independent contractor test. SuperShuttle, at **1, 12, 13.

In SuperShuttle, the Board returned to its “traditional common law agency” test to determine employment status, which considers a “non-exhaustive” list of 10 factors: (1) a company’s “control” over an individual’s work; (2) whether the individual is “engaged in a distinct operation;” (3) the type of occupation involved, and whether the work is usually performed without direction or supervision from an employer; (4) the level of skill involved; (5) whether the individual supplies his own tools and equipment; (6) the length of employment; (7) the “method of payment;” (8) whether the work is “part of” a company’s “regular business;” (9) the parties’ understanding as to whether an employment relationship exists; and (10) whether the individual is in business for himself. Id., at *2, citing NLRB v. United Insurance Co. of America, 390 U.S. 254, 256 (1968). The Board also reaffirmed that “entrepreneurial opportunity” (like “control”)” is a principle through which to consider the common law factors (as properly recognized by prior Board and court decisions, and improperly rejected by the FedEx majority), explaining that “control” and entrepreneurial opportunity are “opposite sides of the same coin”—the more control, the less chance for entrepreneurial opportunity. SuperShuttle, at ** 12, 15, 16.

Within this framework, the Board then applied the common law factors to the relationship between SuperShuttle and the franchisees. To start, the Board found that the “common law” “control” factor favored contractor status. The Board found significant that the franchisees, without involvement from SuperShuttle, “set their own schedule(s),” determined (with limited exception) which trips to accept, chose where to work, had no set routes, decided when to take breaks and when to end their days, and provided indemnification to SuperShuttle. Id., **17-18. The Board found that the airport’s imposition of certain restrictions on franchisees (e.g., requiring them to wear a uniform, display certain decals on their vans, comply with maintenance standards, etc.) did not demonstrate “control” because such restrictions were mandated by the airport, not SuperShuttle. To the extent SuperShuttle imposed its own requirements on the franchisees (e.g., subjecting them to vehicle inspections, mandating they accept SuperShuttle vouchers and coupons, etc.), the Board found the franchisees’ “substantial control” over their own working conditions outweighed these requirements. Id., at *18.

The Board also found that the “method of payment” factor favored contractor status, because the franchisees paid a flat monthly fee to SuperShuttle (which did not vary based on revenue), and they did not share any fees with SuperShuttle. Id., at *19.

The Board considered that the franchisees purchased or leased vans (at a significant cost to themselves), paid for their own Nextel devices (used to communicate with SuperShuttle), and were responsible for their own expenses (such as “gas, tolls, [and] repairs”), and that these arrangements favored contractor status under the common law factors. Id., at *19.

The Board also found relevant the franchisees’ freedom to perform work unsupervised and the parties’ understanding—as set forth in the franchise agreement—of a contractor and not employment arrangement, and found that the limited common law factors that were neutral to the classification analysis (e.g., length of arrangement) or favored employment status (e.g., drivers were not in “specialized occupation”) did not outweigh those factors supporting contractor classification. Id., at ** 19-20.

After considering the common law factors, the Board held that the franchisees had “significant entrepreneurial opportunity” and control over their earnings and affirmed the Director’s finding that the franchisees were contractors, not employees. Id., at **19-20.

Employee/Contractor Classification in Other Contexts

Although the revised Board standard is favorable to New Jersey (and other) employers in the NLRA context, businesses must still comply with a myriad of state and federal standards in determining contractor status, for different legal purposes.

As an example, the SuperShuttle decision has no bearing on New Jersey’s test for determining employment status under the New Jersey Wage and Hour Law (WHL), and the New Jersey Wage Payment Law (WPL), known as the “ABC” test, and as set forth in Hargrove v. Sleepy’s, 220 N.J. 289 (2015).

Under the ABC test, an individual who performs services for a company for compensation, is considered an employee, unless a company can establish each of the following factors: (A) the “individual has been and will continue to be free from control or direction over the performance of such service[s], both under his contract of service and in fact”; (B) the “service is either outside the usual course of the [company’s] business” for which services are provided, or “such service is performed outside of all the places of business” of the company for which services are performed; (C) the “individual is customarily engaged in an independently established trade, occupation, profession or business.” Hargrove, at 305, citing, N.J.S.A. 43:21-19(i)(6). If a company satisfies all three factors, the individual is properly classified as a contractor under the New Jersey WHL and WPL and not subject to statutory requirements such a minimum wage, overtime, wage deductions, timing and mode of payments, and other requirements. Hargrove, at 314. This test is more demanding for employers than the Board test, particularly given it does not consider the other factors under NLRB law or the existence of entrepreneurial opportunity.

New Jersey employers must also consider federal standards for determining contractor status for the purposes of complying with federal laws (including the Fair Labor Standards Act), and multi-state employers must consider applicable state wage-hour and other laws throughout the United States.

Recently, on Jan. 29, the United States Court of Appeals for the Third Circuit issued a precedential opinion in Bedoya v. American Eagle Express, No. 18-1641 (3d Cir. Jan. 29, 2019), in which the plaintiffs, airline delivery drivers, filed a putative class action claiming they were misclassified as contractors and that they were employees under the New Jersey WHL and WPL. Defendant moved for dismissal on the grounds that the drivers’ claims were preempted by the Federal Aviation Authorization Administration Act of 1994 (FAAAA), and the issue went to the Third Circuit on interlocutory appeal. The Third Circuit held that the FAAAA does not preempt New Jersey’s ABC test for determining classification under the wage-hour and wage-payment laws, as the test did not have a “direct,” “indirect” or “significant impact” on “carrier prices, routes or services,” and rejected defendant/airline’s argument that applying New Jersey law may require it to change from using contractors to hiring employees, resulting in increased costs and prices. Id., at **20-23. While this decision concerns a preemption argument specific to the airline industry, it demonstrates the broad reach of New Jersey’s wage-payment and wage-hour laws concerning how workers are classified and paid.

As the independent contractor/employee debate continues and evolves in New Jersey and elsewhere, employers face significant compliance challenges, particularly given the ever-expanding gig economy and trend toward a more flexible workforce. Employers must be aware of the varied tests applied in determining classification status, under different laws, applying to many facets of the employment relationship; must continue to monitor the ever-changing standards; and ensure that workers are properly classified under all applicable laws.


Reprinted with permission from the February 25, 2019 issue of the New Jersey Law Journal. © 2019 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved. For information, contact 877-257-3382 or reprints@alm.com or visit www.almreprints.com.