As previously discussed in Barton’s past blogs, the question of whether an individual is an independent contractor of an organization or actually an employee is a subject that has been litigated ad infinitum over the past several years. Both courts and governmental agencies on the federal and state levels have wrestled with this issue and, depending on the state in which you operate or the agency you are before, the rulings can be completely divergent.
In 2015, the California labor commissioner found an Uber driver to be an employee rather than an independent contractor. A year later, the New York State Department of Labor issued a similar ruling, also involving drivers of the popular rideshare company. Other states (Florida for example) have followed suit, as have some federal courts.
Not to be outdone, federal agencies have also jumped into the fray. In 2014, the National Labor Relations Board (“NLRB” or “Board”) found that delivery drivers operating from the Federal Express Home Delivery terminal in Hartford, Connecticut, were employees under the definition set forth in the National Labor Relations Act (“NLRA”). In making its decision, the NLRB considered an eleven-factor test, including:
As a result of the NLRB’s decision, the drivers were eligible to unionize. That decision was handed down by the Obama Board; however, under the Trump administration, the pendulum has swung to the other side.
Last month, the NLRB General Counsel’s office published an Advice Memorandum in which it declared a group of Uber drivers to be independent contractors under the NLRA, and thus not employees eligible to unionize. The Board found it significant that the Uber drivers had substantial opportunity for economic gain and, therefore, entrepreneurial independence.
Shortly before the NLRB issued its Advice Memorandum, the U.S. Department of Labor Wage and Hour Division issued an opinion letter in which it analyzed whether workers for a virtual marketplace company were employees or independent contractors under the Fair Labor Standards Act (“FLSA”). In making its determination, the Division focused on the “economic realities test”, which considers the totality of the circumstances in determining the economic independence of the workers involved. These two federal agency opinions show a significant change in approach under the current administration. Of course, as with any change in the occupant of the White House, the direction of federal agencies can also be reasonably expected to follow suit.
The NLRB Advice Memorandum applies to NLRB cases while the Wage and Hour Division opinion letter applies specifically to that agency. Other agencies, both federal and state—as well as both federal and state courts—are free to adopt their own policies. For employers, it is a slippery slope in determining how to classify the people performing services for them. Misclassifying workers can have very serious financial ramifications. It is the prudent employer who engages in proactive steps to best insulate the company.
If your organization would like assistance in conducting an internal audit concerning the classification of your independent contractors to determine compliance with relevant federal and state laws, please contact Philip Mortensen or Scott Grubin.