Yesterday, June 13, 2023, the NLRB issued a long-awaited decision in its Atlanta Opera case dealing with the applicable test for independent contractor status under the National Labor Relations Act (NLRA). This decision reversed the Board’s prior test for IC status as expressed in the SuperShuttle case decided by the NLRB in 2019. In a lengthy decision, three of the four members of the Board expressly declined to follow a 2017 decision by the U.S. Court of Appeals for the District of Columbia Circuit in a case referred to as FedEx II, where the circuit court concluded that the NLRB was seeking to “nullify this court’s [prior FedEx] decision” as to the applicable test for independent contractor status. The bulk of the Board’s majority 19,000-word decision focused on the supposed fallacies in the NLRB’s SuperShuttle decision and the correctness of the NLRB’s prior FedEx decisions, which has twice been rejected by the D.C. Circuit. But when the NLRB majority’s new decision is analyzed, does it really make a difference which test the NLRB uses to determine IC status? As vividly demonstrated by the Atlanta Opera case, nearly all of these independent contractor cases will be decided the same way, regardless of which test is used.
When the Board majority applied its new test for IC status to the Atlanta Opera workers in question – a small group of make-up artists, wig artists, and hairstylists – the majority concluded that the workers were employees, not ICs. NLRB Member Marvin Kaplan filed a 14,000-word opinion dissenting in part and concurring in part. His dissent focused on the correctness of both the SuperShuttle decision and the D.C. Circuit’s decisions in FedEx, and criticized the majority’s effort to resurrect its past FedEx decisions that the D.C. Circuit had rejected. He nonetheless concurred with the Board majority’s holding that the workers were employees under the NLRA. He reached his conclusion, however, under the SuperShuttle test for independent contractor status. Thus, most of the 34,000 words written by NLRB members in Atlanta Opera were in the nature of a legal debate that, in the end, made no difference in the result of that case – and may only tilt the NLRB scales slightly in favor of employee status in those very few “close” cases where the factors supporting IC status and those supporting employee status are nearly equivalent.
The Limited Legal Impact of the Board Majority’s Decision – and the Practical Effect
The gist of the disagreement between the Board members is whether “entrepreneurial opportunity” is an “important animating principle by which to evaluate” the traditional common law factors used to determine if workers are employees covered by the NLRA or are independent contractors who are excluded from coverage under the NLRA. That “animating principle,” referred to as a “prism” or lens, through which the common law factors are evaluated are the words used by the D.C. Circuit – language that the NLRB regards as inconsistent with NLRB precedent and U.S. Supreme Court decisions.
The significance of the dispute is focused on the opportunity for profit or loss and other related attributes of entrepreneurial opportunity. According to the Board majority, the entrepreneurial opportunity should only apply to “actual, not merely theoretical” circumstances. For example, if a worker has the right and time to provide services to multiple service recipients but freely chooses to provide services to only one – the one that pays the highest fees – the Board majority would disregard that entrepreneurial opportunity because it was not exercised, whereas the dissent would regard it as a factor favoring IC status because the worker had a genuine choice whether to exercise that right and chose not to do so.
The Board majority’s decision in Atlanta Opera was issued in a rather unusual legal context. As we discussed in our blog post of December 29, 2021, the NLRB issued an Order in that case in late December 2021 inviting the public to file briefs on three options that the NLRB was considering: whether to adhere to the independent contractor standard in SuperShuttle; return to the standard in the Board’s FedEx case, which had been overruled by the D.C. Circuit; or fashion a new standard. Dozens of briefs were filed and, nearly a year and a half later, the Board issued its decision yesterday. Our blog post also commented extensively on the checkered history of the NLRB’s decisions regarding IC status.
While some commentators view the NLRB’s new test as noteworthy and suggest it will curtail the use of independent contractors and promote unionization of those workers, we believe it is highly unlikely to have a meaningful impact on the determination of a worker’s status as an employee or independent contractor. Why?
First, both the NLRB’s new test, based on the FedEx decisions that had been overruled by the D.C. Circuit, and the SuperShuttle test, which the Atlanta Opera majority decision overruled, likewise consider the same set of ten or so factors articulated in the so-called Restatement (Second) of Agency. It was hardly surprising, therefore, that Member Kaplan concurred with the majority of Board members about the workers’ classification, even if they viewed the factors through a different lens.
Second, we predicted in our December 29, 2021 blog post that “a return by the NLRB to its [overruled] FedEx test for independent contractor status [would be] unlikely to survive judicial scrutiny [by the D.C Circuit].” That is precisely what Member Kaplan states in his dissent: “the majority’s decision to overturn SuperShuttle and return to the standard in [the previously overruled] standard in FedEx II will not likely withstand judicial review…[where] the D.C. Circuit having (twice) found that the standard using [the judicial standard] adopted by SuperShuttle…is consistent with Supreme Court law, Board precedent, and the common law….”
Further, in its majority opinion, the Board states that its FedEx decision on IC status was a “carefully calibrated, precedent-based effort” to align itself with U.S. Supreme Court decisions, whereas it characterized the D.C. Circuit’s rejection of the Board’s latest FedEx decision as based on that court’s “misperception” and “flawed view” of Board law. Separate and apart from the NLRB’s unwillingness to acquiesce to the D.C. Circuit’s prior decisions, that type of denunciation of an esteemed appellate court’s decisions by a federal agency is rather extraordinary.
Third, it is conceivable that the D.C. Circuit may not even bother to review the Board majority’s reaffirmation of its overruled decisions in FedEx if the D.C. Circuit simply affirms in an unpublished opinion the employee status of the workers in question. To that end, the D.C. Circuit may well simply state that there is no need for it to review the Board majority’s new legal standard where all four members of the NLRB unanimously concluded that the workers in question are employees under any test used to determine their status.
Fourth, the Atlanta Opera may decide it is not worth the effort and expense to seek review of the Board majority’s decision because all four members of the NLRB found that the workers are employees and not ICs. This result is even more likely where, as here, an NLRB election was already conducted, the votes were counted by the Board, the tally of ballots resulted in the union being selected as the workers’ collective bargaining representative, and a “certification of representative” was issued in favor of the union on March 29, 2023, subject only to the Board’s decision that issued yesterday.
However, even if the D.C. Circuit enforces the NLRB’s ruling without addressing the Board majority’s restoration of the previously rejected FedEx decisions by the Board, or even if the Atlanta Opera chooses not to seek review by the D.C. Circuit of the Board majority’s ruling, it is near certain that appellate review by that court will otherwise be sought by a different company in a subsequent case – one where the Board applies its previously overruled FedEx test and all Board members fail to agree that the workers are employees under the NLRA. In that instance, it is highly likely that the D.C. Circuit once again will reject the NLRB majority’s effort to restore the Board’s overruled FedEx decisions.
What is the practical effect of the NLRB’s new decision? To many stakeholders – companies that use ICs, workers classified as ICs, and unions seeking to represent selected groups of such workers – the NLRB’s decision may signify that because the standard for IC status has been ostensibly tightened, now is the best time for unions to organize workers classified as ICs and seek to represent them as “employees” under the NLRA. As confirmed by an analysis done by Bloomberg Law and reported on by Robert Iafolla last February, more petitions to represent workers classified by companies as ICs were filed under the NLRB’s FedEx standard than under the Board’s SuperShuttle test for IC status. It would hardly be surprising if this change by the NLRB soon prompted an increasing number of efforts by unions to organize certain workers in the gig economy as well as more traditional types of ICs.
As a starting point, regardless of whether the D.C. Circuit rejects the new NLRB test for IC status, Board decisions only address the test for independent contractor status under one law – the National Labor Relations Act. Such decisions have no application whatsoever to a worker’s independent contractor status under the federal Fair Labor Standards Act (FLSA), which governs minimum wage and overtime; the federal non-discrimination laws (such as Title VII, the Americans with Disabilities Act, and the Age Discrimination in Employment Act); the federal law governing pensions and employee benefits (ERISA), adn the employee payroll tax laws under the Internal Revenue Code – each of which have their own tests for independent contractor status. Likewise, any decision by the NLRB has no application to any state laws, including those involving minimum wage and overtime, wage payments, unemployment benefits, workers’ compensation, and employment taxes.
Decisions involving independent contractor status are very fact-dependent. Not all companies using an independent contractor business model will prevail even under the NLRB’s test in SuperShuttle, and many companies will fail even under the restoration of the Board’s IC test in FedEx. Thus, perhaps the most meaningful takeaway for businesses is that companies using an independent contractor business model that wish to avoid a union drive, a regulatory proceeding initiated by a federal or state workforce or tax agency, or a class action under a federal or state law should enhance their level of compliance with the independent contractor tests under all of those laws. Many businesses have chosen to use a process such as IC Diagnostics (TM), which is designed to minimize independent misclassification exposure by restructuring, re-documenting, and re-implementing independent contractor relationships in a customized and sustainable manner consistent with all applicable laws. Utilizing this type of process will maximize the likelihood a business will be able to avoid an independent contractor misclassification challenge, or prevail if one is brought.