NLRB just rewrote the rules on employee classification
Independent contractors (IC) can’t join unions. As a result, it’s in the National Labor Relations Board’s (NLRB) best interest to make it harder to classify employees as ICs — and that’s exactly what it just did.
In a case involving FedEx drivers, the NLRB has added another factor to the test a lot of employers — and courts — use to determine whether a worker is an IC or not.
And in doing so, it has waved its hand in the face of precedent set by a D.C. Circuit Court.
The added factor is more of an amendment to an existing one — the entrepreneurial opportunity standard.
The entrepreneurial standard says that to be considered an employee, an individual has to be in business for his or herself — and have the opportunity to incur a profit or a loss in the course of that business.
In a nutshell, individuals can’t be considered an IC unless they have the autonomy to do business with others of their choosing. In other words, they can’t be tied down to one employer.
Satisfying this factor alone doesn’t make someone an IC — as other factors also have to be considered — but it’s an important part of the equation.
The NLRB, however, recently ruled simply being allowed to do business with others isn’t enough to satisfy the entrepreneurial opportunity standard. What also needs to be considered is whether or not individuals are exercising those rights.
Sound reasoning?
The NLRB has received a lot of flack recently for trying to aid the organized labor movement and, often times, the criticism seems warranted.
But in this case, at least, it’s reasoning for adding the caveat to the often-cited standard seems … well … reasonable.
If you want to slog through the NLRB’s 168-page decision on the matter, be our guest, but here’s basically what the NLRB says:
Other factors may be at play
Simply telling workers they have the ability to go out and do business with others doesn’t necessarily mean its something they can reasonably do. After all, the organization they’re contracted with could make doing so very difficult.
And one way to tell if the organization is making the act of exercising their entrepreneurial opportunity difficult is to see how many ICs are actually doing so — and if not, finding out why.
In the case of FedEx, its IC delivery drivers were told they could:
- hire another driver to work their route for them — but FedEx retained the right to approve that person
- sell their routes to another driver — but FedEx had to deem the buyers qualified, and the driver had to essentially enter the same contract with FedEx as the original driver, and
- obtain a route from another FedEx driver — but this would often require the person obtaining an additional route to hire another driver under the terms stipulated above.
So, at least in the NLRB’s eyes, there appeared to be some fairly strict restrictions on FedEx IC’s ability to go into business for themselves.
As a result, the NLRB did a little digging, and it found:
- at the time of the hearing, only one driver at the FedEx location in question had ever employed another driver to work their route for them
- there had been only two route sales at the location since 2000, and
- just six drivers had operated multiple routes since 2000.
After reviewing those facts, the NLRB said FedEx ICs weren’t exercising their entrepreneurial opportunity and therefore were misclassified.
Troubling for employers
While it’s easy to see how the NLRB reached i’s ultimate conclusion, what should trouble employers is that the NLRB has thrown precedent out of the window and essentially created a new rule on its own, upon which employers will have to judge worker classifications.
In 2009, a D.C. Circuit Court heard a similar case involving FedEx drivers and looked at the entrepreneurial opportunity standard in a much more conservative way — ruling that since drivers had the ability to do business on their own and incur a profit or a loss, they satisfied the standard. The court didn’t look into whether or not the drivers actually exercised their entrepreneurial rights.
In essentially rejecting the D.C. courts methodology, the NLRB has essentially shown, once again, it’s willing to rewrite the rule books in favor of organized labor.
In addition, this further muddies the waters for employers who are tasked with trying to reconcile myriad laws and regulations governing who is and who isn’t an IC.
