On Friday, as the federal government was preparing to reopen after the longest shutdown in its history, the National Labor Relations Board (NLRB) released a decision that will have major implications for millions of American workers. In the decision SuperShuttle DFW, the three-member conservative majority laid out a new bizarre test for determining whether a worker is an employee or an independent contractor.
The legal rights and standing of an independent contractor are far less than those of an employee. An independent contractor cannot sue for race or gender discrimination; she is not entitled to minimum wage or overtime; she cannot get unemployment compensation when laid off or workers compensation when hurt on the job; and she cannot form a union with her fellow workers in order to bargain collectively.
Millions of American workers are designated as independent contractors, and it has been estimated that between 10 percent and 30 percent of employers misclassify their employees as independent contractors.
For decades, the NLRB had followed a test that was based on the common law understanding of when a worker was an employee. This test had multiple factors that were balanced against each other, such as how much control the employer has over the worker, what kind of work is involved, the level of skill involved in the work, the length of time the person is employed, whether the worker is paid by time or job, who supplies the tools and supplies, and the like. Under this test, the NLRB would look at the totality of the relationship to determine whether when the employer said the worker was an independent contractor, it actually passed the smell test.
In 2014, the NLRB, rejected a D.C. Circuit Court’s decision on the independent contractor test that placed the worker’s “entrepreneurial opportunity for gain or loss,” as the main factor in the test. It reaffirmed that it would weigh all of the common law employment factors, “with no one factor being decisive,” as required by the U.S. Supreme Court.
The new test that the three Republican members of the NLRB announced on January 25, by contrast, is based on the single decisive factor of “entrepreneurial opportunity.” Nonetheless, the decision repeatedly insists that it is returning to the common law test for determining independent contractor status. Sometimes the Board majority vacillates on these two concepts within the same paragraph. Consider, for instance, this completely confusing kerfuffle:
We will continue to adhere, as we must, to the Court’s decision, considering all of the common-law factors in the total factual context of each case and treating no one factor (or the principle of entrepreneurial opportunity) as decisive. And where the common-law factors, considered together demonstrate that the workers in question are afforded significant entrepreneurial opportunity, we will likely find independent-contractor status.
I ran these sentences by three of my fellow labor lawyers to explain how they could co-exist. Each was flummoxed.
In trying to explain how this new concept of “entrepreneurial opportunity” works, the Board majority argues that the previous consideration of employer control over the worker and entrepreneurial opportunity are “two sides of the same coin: the more of one, the less of the other.” The Board then adds a flourish to drive the point home: “Indeed, entrepreneurial opportunity often flowers where the employer takes a ‘hands off’ approach.”
In order to understand this new approach to determining when a worker will now be considered an independent contractor, it is worth looking at how the Board applies it in the facts before it.
This case involved SuperShuttle drivers in the Dallas-Fort Worth area who mostly drive vans to and from area airports. Until 2005, all of these van drivers were employees of SuperShuttle. But in 2005, SuperShuttle switched to a “franchise model,” and transformed employee drivers into “franchisees.” The agreement with which the drivers were presented stated, “persons who do not wish to be franchisees and independent business people but who prefer a more traditional employment relationship should not become SuperShuttle franchisees.”
Under the terms of the new agreement, drivers have to buy an approved van that is painted with the company’s trademarked blue-and-yellow paint scheme and logo at an average cost of approximately $30,000, or they can lease the van from the company. The drivers have to pay an initial fee of $500 for the right to provide transportation to the airports, a $250 decal fee, plus a “weekly system fee” of $575 to the company. There are strict rules on the appearance of both the van and the driver, on training, and on conduct. The vans are tracked through the company’s monitoring of an installed GPS tracking device. Some of the rules are imposed by the airports, but they are largely enforced by the company.
The drivers get rides through a system in which the company dispatcher sends out the rides and drivers claim them. The Board explained that “generally, a franchisee incurs no negative consequences from passing on a trip,” without explaining what “generally” meant or if there were more subtle ways in which drivers incurred negative consequences from passing on a trip. If a driver accepts a trip, but later cancels it, she is fined $50.
Drivers have to buy company-approved vehicle insurance, as well as reimburse SuperShuttle for the corporate insurance that airports require it to purchase. The drivers also have to indemnify SuperShuttle for all negligent or intentionally harmful acts. Drivers can hire “relief drivers” under strict terms set by the company. The agreement contains a list of 25 examples of conduct under which the company can “terminate a franchisee.” If a driver wants to transfer or sell the franchise, there are strict rules controlled by the company that govern how and to whom she can do so.
During the course of the agreement, the drivers are bound by a strict non-compete clause that forbids them from doing any work for a competitor to SuperShuttle, which means any other transport service. The Board majority brushes aside this restriction because SuperShuttle does not limit the number of hours the drivers can work for the company.
After the Board majority goes through all these facts, it somehow refers to the drivers as having “unfettered freedom,” and “near-absolute autonomy.”
Throughout the Board majority’s decision, it becomes clear that when it uses the language of “freedom” and “entrepreneurial opportunity,” it is the freedom to fail and the opportunity to lose. Reading the decision, one is struck by the lack of any evidence that the drivers—or “franchisees” in the language of the case—do well under the agreement. Instead, the Board majority approvingly cites the NLRB Acting Regional Director who made the first determination in the case, in which she found that “franchisees face a meaningful risk of loss in light of the substantial costs that go into owning a franchise, i.e. the vehicle payments, weekly system fees, insurance costs, gas, maintenance, licensing fees, and tolls.” The Board methodically goes through every instance where the company has offloaded costs and risks to the drivers, while maintaining strict control, and calls the new relationship one where the drivers are small business owners, experiencing freedom and entrepreneurial opportunity.
While making the drivers’ economic situation immeasurably worse, the company is able to further benefit by stripping them of legal protections. Under the common law test that had traditionally been applied, this case would have been an easy case of misclassification and a clear violation of workers’ rights. Instead of applying that test and protecting these workers, the Board majority cheers the new arrangement and creates a test based on rightwing perspectives that obscure the realities of the workplace.
Should the conservative majority’s new test for who’s an employee and who’s an independent contractor be applied across the American workforce, a huge number of workers may find themselves relegated to the second-class status of contractor. In one ongoing high-profile dispute of employee status, for instance, there are more than 750,000 Uber drivers in the U.S. whom Uber insists are independent contractors.
The NLRB will probably not have the final word on this important matter, as it will likely be appealed to the D.C. Circuit Court of Appeals. Although federal courts have not tended to have a pro-worker bent—even less so since the Trump administration has been able to push through an unprecedented number of new federal judges in the last two years—there may be a bright spot. This issue was before the D.C. Circuit Court of Appeals in 2009, where a split panel ruled in favor of the employer. However, Judge Merrick Garland (yes, that Merrick Garland) wrote a long and detailed dissent that may provide a roadmap for how judges should view this case. In his dissent, Judge Garland carefully unravels the idea that the traditional common law test has “evolved” to contain a focus on “entrepreneurial opportunity.” In a methodical analysis, he explains to his colleagues on the court that the multifactor common law test for independent contractors, though sometimes “unwieldy,” is the appropriate one. Hopefully, as this case finds its way back to the D.C. Circuit, Judge Garland’s dissent will inform a majority that’s dedicated to the proposition that employees are, in fact, employees.