The National Labor Relations Act (“NLRA”) Reverts Back to Employee-Friendly Standard

National Labor Relations Board Ruling Reverts Back to Employee-Friendly Standard Regarding Whether a Worker is an Employee or Independent Contractor under the National Labor Relations Act

 By: Katya M. Lancero

The National Labor Relations Act (“NLRA”) is a federal law that affords employees the right to join and form unions and engage in concerted activity to improve wages and working conditions.  The NLRA applies only to private-sector employers that engage in interstate commerce.  It excludes from its coverage employees of railroads and airlines (as they are subject to the Railway Labor Act), as well as supervisors and independent contractors. Thus, whether a worker is an employee or an independent contractor under the NLRA is a hot topic for employers as independent contractors do not have the right to unionize or engage in concerted activity.

The National Labor Relations Board (“NLRB” or the “Board”) is an agency of the federal government charged with enforcing the NLRA. The Board is located in Washington, D.C., and is comprised of five members nominated by the President and confirmed by the Senate.  For this reason, the NLRB’s position on various labor issues typically changes with each new administration.

In 2014, during the Obama administration, the NLRB issued FedEx Home Delivery, 361 NLRB 610 (2014) (referred to by the NLRB and herein as “FedEx II”).  In Fed Ex II, the NLRB stated it would evaluate whether a worker is an employee or independent contractor by examining a non-exhaustive set of common law factors set forth in the Restatement (Second) of Agency, a legal treatise on the law of agency, which primarily evaluates the level of control the employer exerts over the worker, consistent with precedent from the Supreme Court of the United States.  In addition, the NLRB explained in FedEx II that it would assess all factors, and no one factor would be given more weight than others. 

In reaching this holding, the FedEx II Board rejected previous precedent finding that entrepreneurial opportunity for gain or loss (meaning whether the worker’s position presents the opportunities and risks inherent in entrepreneurialism) constituted the “animating principle” and served as a deciding factor of the employee vs. independent contractor test.  In examining entrepreneurial opportunity, the Board assessed whether workers have the ability to work for other companies, can hire their own employees, and whether they have a proprietary interest in their work. 

In Fed Ex II, the Board explained it would give weight only to actual, but not theoretical, entrepreneurial opportunity, in contrast to previous cases, and it held that entrepreneurial opportunity was only one aspect of a factor in this analysis which evaluates whether the worker is in fact rendering services as part of an independent business.  The Board in FedEx II disagreed with the District of Columbia Circuit that, over time, the Board came to treat entrepreneurial opportunity as the decisive factor in this inquiry.

On January 25, 2019, the Board, under former President Trump’s administration, overruled the FedEx II holding in SuperShuttle DFW, Inc., 367 NLRB No. 75 (2019), finding the opposite – namely, that entrepreneurial opportunity (and not the level of control by the employer over the worker) was indeed the animating principle through which all factors set forth in the Restatement (Second) on Agency should be assessed.  This shift made it easier for workers to be classified as independent contractors.

However, on June 13, 2023, the Board issued Atlanta Opera, Inc., 372 NLRB No. 95 (2023), which reverts back to the Board’s original employee vs. independent contractor test set forth in FedEx II. In reverting to original precedent, the Board made it easier to find workers are employees and not independent contractors under the NLRA, as it eliminates the emphasis the Board previously placed on entrepreneurial opportunity. 

Specifically, in Atlanta Opera, the Board evaluated whether makeup artists, wig artists, and hairstylists were employees or independent contractors under the NLRA. It explained it no longer views entrepreneurial opportunity for profit or loss as the animating principle through which the factors must be viewed.  Instead, the Board reemphasized the holding in FedEx II that no one factor should be given greater weight than others, and that all factors must be examined.

The factors identified below are those non-exhaustive common law factors set forth in the Restatement (Second) of Agency, which the NLRB considers in determining a worker’s employee or independent contractor status:

(a) the extent of control which the master [employer] 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 worker 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 a part of the regular business of the employer; 

(i) whether or not the parties believe they are creating the relation of master and servant (e., employer/employee); and

(j) whether the principal is or is not in business.

Furthermore, entrepreneurial opportunity is merely one aspect of the independent business factor, which evaluates whether the worker is rendering services as part of an independent business.

Employers who engage independent contractors should carefully analyze whether their workers are properly classified as independent contractors under the NLRA and other major employment laws.  If you would like assistance in evaluating whether your workers are employees or independent contractors under the NLRA and other major employment laws, please contact Katya M. Lancero at lancero@sackstierney.com or Shar Bahmani at bahmani@sackstierney.com.