NLRB Returns to a More Employee-Friendly Independent Contractor Test

On June 13, 2023, the National Labor Relations Board (NLRB or “the Board”) in The Atlanta Opera, N.L.R.B., Case 10-RC-276292 reinstated a pro-employee standard for determining independent contractor status under the National Labor Relations Act (NLRA). This is important because independent contractors are excluded from exercising rights afforded to employees under the NLRA, including the right to join or form unions. The Board repudiated the Trump-era independent contractor test and rejected the notion that entrepreneurial opportunity was the most critical component of the multi-factored test.

Section 2(3) of the NLRA defines the term “employee” and excludes independent contractors from coverage under the Act. The Board’s applicable test for determining whether a worker is a covered employee under the NLRA or an exempt independent contractor has been in flux in recent years. For example, in FedEx Home Delivery, 361 NLRB 610 (2014) (“FedEx II”), the Board declared that the independent contractor test should consist of the non-exhaustive common-law factors enumerated in the Restatement (Second) of Agency, Section 220 (1958) with no one factor being decisive. In contrast, in SuperShuttle DFW, Inc., 367 NLRB No. 75 (2019), the Board held that entrepreneurial opportunity for gain or loss was the animating principle of the independent contractor test. Since the Trump-era ruling in SuperShuttle DFW, Inc., the Board has emphasized “entrepreneurial opportunity” over the other common laws factors.

However, in The Atlanta Opera, the Board overturned SuperShuttle DFW, Inc. and rejected the idea that entrepreneurial opportunity for gain or loss was the animating principle of the independent contractor test. In doing so, the Board reinstated the standard outlined in FedEx II.

The Atlanta Opera case involved makeup artists, wig artists, and hairstylists who worked for the Atlanta Opera. The stylists filed an election petition with the Board seeking union representation. The issue was whether the stylists were employees under the NLRA and eligible for representation or exempt independent contractors. The Board ultimately concluded that the stylists were statutory employees under Section 2(3) of the NLRA.

According to The Atlanta Opera decision, the independent contractor test consists of the following non-exhaustive common law factors from Section 220(2) of the Restatement (Second) of Agency:

1. the extent of control which, by the agreement, the master may exercise over the details of the work;
2. whether or not the one employed is engaged in a distinct occupation or business;
3. 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;
4. the skill required in the particular occupation;
5. whether the employer or the workman supplies the instrumentalities, tools, and the place of work for the person doing the work;
6. the length of time for which the person is employed;
7. the method of payment, whether by the time or by the job;
8. whether or not the work is a part of the regular business of the employer;
9. whether or not the parties believe they are creating the relation of master and servant; and
10. whether the principal is or is not in business.

Additionally, in evaluating whether a worker is an employee or an independent contractor, the Board here considered whether the evidence tends to show that an independent contractor is rendering services as part of an independent business.

In applying these factors in The Atlanta Opera, the Board held that the majority of the common law factors indicated employee status because of 1) the employer’s control over the details of the stylists’ work; 2) the employer directed the stylists’ work; 3) the employer supplied all instrumentalities, tools, and the place of work; 4) the employer paid the stylists hourly rates with a fixed number of working hours; 5) the stylists’ work was part of the employer’s regular business; and 6) the employer was in the same business as the stylists. Lastly, the Board considered whether the evidence tended to show that the stylists rendered services as part of their own independent business and concluded that they did not due to the employer’s high level of control over the stylists’ work.

Interestingly, every member of the Board, including Marvin Kaplan, a Republican, concluded that the stylists were employees and eligible to unionize. However, Kaplan dissented from the decision to overturn SuperShuttle DFW, Inc.

The Atlanta Opera decision signals a significant departure from the previous independent contractor standard. The new, restated standard places a heavier burden on employers who wish to assert independent contractor status of workers, particularly in the face of union organizing efforts. This decision is of particular significance for companies that rely upon an “independent contractor” model, such as Lyft and Uber. Notably, this ruling is limited to employee status determinations under the NLRA. The standard does not apply to other employee status issues under other laws, such as wage and hour matters, which each employ varying tests to determine independent contractor status.

Employers who rely on contract labor should be aware that their workers will now be subject to more scrutiny by the Board. Calfee’s Labor and Employment attorneys are available to assist employers with questions related to employee status determinations and to provide guidance regarding this fluctuating area of the law.