NLRB Modifies Independent Contractor Test

On June 13, 2023, the National Labor Relations Board (NLRB) overruled its 2019 independent contractor standard focused on whether workers have “entrepreneurial opportunity” and returned to a common law multi-factor analysis that could lead to more workers being found to have been improperly classified as independent contractors.

In The Atlanta Opera, Inc., the Board overturned its 2019 ruling in SuperShuttle DFW, Inc., and returned the Board to a 2014 Obama-era standard that had focused on whether the workers in question work for separate, independent businesses. Applying this framework, the Board ruled that makeup artists, wig artists, and hairstylists working for the Atlanta Opera—who filed a petition seeking representation by a union—are employees under Section 2(3) of the National Labor Relations Act (NLRA) and not independent contractors.

Quick Hits

• Once again, the NLRB modifies the test for determining whether workers are statutory employees or independent contractors.
• The decision returns to a multi-factor test approved by the United States Supreme Court and found in the Restatement (Second) of Agency.

Background

The Atlanta Opera opposed a petition by a group of makeup artists, wig artists, and hairstylists who performed work for the opera to be represented by a union, arguing that the artists are independent contractors, and not statutory employees entitled to protection under the NLRA. After a hearing, an NLRB Regional Director ruled that the artists in the proposed bargaining were statutory employees.

In December 2021, the Board granted review of the case. Despite the fact that the Opera only argued that the Regional Director misapplied the independent-contractor factors, the Board teed up the case for a broader review of its independent-contractor standard entirely. The Board raised the questions of whether it should stay with the independent-contractor standard in SuperShuttle DFW, and if not, whether it should return to a standard focused on whether the putative employees are in business for themselves.

The Decision

In the Atlanta Opera decision, the Board majority decision reverted back to the independent-business analysis, concluding that focus on the entrepreneurial opportunity—which was previously observed by the District of Columbia Circuit Court of Appeals and adopted in SuperShuttle DFW—cannot not be “reconciled” with the Board’s prior precedent. Under this “independent-business analysis,” the Board stated that the analysis should turn on the questions of whether the putative contractor: “(a) has a realistic ability to work for other companies; (b) has proprietary or ownership interest in their work; and (c) has control over important business decisions,” such as scheduling, hiring, assignment of employers, purchasing equipment, and committing capital. Its analysis looked at the following factors:

1. Extent of Control by Employer
2. Whether or not Individual is Engaged in a Distinct Occupation or Business
3. Whether the Work is Usually Done Under the Direction of the Employer or by a Specialist Without Supervision
4. Skill Required in the Occupation
5. Whether the Employer or Individual Supplies Instrumentalities, Tools, and Place of Work
6. Length of Time for which Individual is Employed
7. Method of Payment
8. Whether or Not Work is Part of the Regular Business of the Employer
9. Whether or not the Parties Believe they are Creating an Independent-Contractor Relationship
10. Whether the Principal is or is not in Business
11. Whether the Evidence Tends to Show that the Individual is, in Fact, Rendering Services as an Independent Business

Applying the decision to the Atlanta Opera makeup artists, wig artists, and hairstylists, the Board found that most of the common-law employment factors pointed toward the workers being employees, rather than independent contractors. The Board stated that the opera exercises control over their day-to-day work, gives feedback and instructions on their work, provides necessary equipment and supplies, and pays an hourly wage with the potential for overtime pay. At the same time, the Board noted that the workers’ distinct occupations, special skillsets, and lack of expectation of continuous employment weighed in favor of them being considered independent contractors.

Board member Marvin Kaplan issued a partial dissent that disagreed with the majority’s premise that SuperShuttle DFW had changed Board precedent. He argued that entrepreneurial opportunity has always been at the core of the common-law independent contractor test and that “several courts have recognized entrepreneurial opportunity as an important consideration in evaluating the common-law agency principles.”

Kaplan further argued that the Board’s decision is unlikely to withstand judicial review, pointing out that the D.C. Circuit has already found the Board’s previous entrepreneurial opportunity analysis to be consistent with precedent of Supreme Court of the United States, prior Board precedent, and the common law. He stated, “there is no reason to expect the court to reach a different conclusion this time.” However, he concurred in the majority’s finding that the workers involved were indeed employees, even if the Super Shuttle DFW standard had been applied.

Key Takeaways

The Atlanta Opera ruling returns the Board to an independent-contractor standard that could make it more likely that workers will be found to be employees entitled to the protections under the NLRA, including the right to organize for union representation. The labor-friendly ruling is in line with recent decisions of the Board under its current makeup as the Biden-appointed General Counsel continues to push an aggressive, pro-labor agenda. Employers wishing to utilize independent contractors may want to review their workplace policies and procedures governing use of independent contractors.

Ogletree Deakins’ Traditional Labor Relations Practice Group will continue to monitor NLRB developments and will provide updates on the Traditional Labor Relations blog as additional information becomes available.

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