By James V. Thompson
The National Labor Relations Board (NLRB) recently re-evaluated its standards for determining whether a worker is an employee, versus an independent contractor. The Board’s decision in SuperShuttle DFW, Inc. and Amalgamated Transit Union Local 1338, No. 16-RC-010963 (Jan. 25, 2019), marks a continuation of the common-law factors that had been followed for decades. More importantly, the decision marks a rebuke of the “economic realities” test instituted in a 2014 Obama-era NLRB decision.
In SuperShuttle, a union petitioned for individual franchisees who operate shared-ride vans for SuperShuttle to be deemed employees so that they could form a bargaining unit. The NLRB’s Acting Regional Director had determined in 2010 that the franchisees were independent contractors, from an analysis of the non-exhaustive set of common-law agency factors traditionally used by the NLRB:
- The extent of control which the master may exercise over the work details.
- Whether the worker is engaged in a distinct occupation or business.
- Whether the work is usually done under an employer’s direction or supervision.
- The skill required in the particular occupation.
- Whether the worker supplies his own instruments, tools, and place of work.
- The length of time for which the person is engaged on the job.
- Whether the worker is paid by the time or by the job.
- Whether the work is part of the employer’s regular business.
- The parties’ intention and belief in creating the relation of master and servant.
- Whether the principal is or is not in the business.
Under this analysis, all of the incidents of the work relationship were to be assessed; while certain factors may be more significant under the particular facts, no single factor was necessarily decisive.
Years earlier, SuperShuttle had designated its drivers as employees, assigned regular work schedules using company-owned vehicles, and paid hourly wages. SuperShuttle converted to a franchise model in 2005, under which drivers had to sign a one-year franchise agreement expressly marking them as nonemployee franchisees operating independent businesses. The franchisees had to supply their own shuttle vans and pay a franchisee fee and flat weekly fee for use of the brand and dispatch system. In turn, they had no set work schedule, kept all fares for the assignments they selected, and could hire relief drivers to operate their vans.
The NLRB’s Acting Regional Director found in 2010 that SuperShuttle sufficiently proved the franchisees were not employees covered under the NLRA. In doing so, she gave significant weight to two factors: (1) the lack of any relationship between the company’s compensation and the amount of fares collected and (2) the company’s lack of control over the manner and means by which the drivers conducted business after they left the company’s garage. The Director also emphasized that the franchisees face a meaningful risk of loss in light of their own operational costs (vehicles, maintenance and fuel costs, weekly system fees, etc.), their calculated decisions on which trips they chose to accept, and the franchisees’ option to use a relief driver to increase profits. These circumstances suggested the business relationship offered the franchisees potential to generate more revenue for themselves.
On appeal, the union seeking to represent the franchisees emphasized SuperShuttle’s extent of control over the franchisees. The union pointed to the company’s unilateral drafting of the required franchise agreement and its rules mandating appearance standards, use of company logos and uniforms, and training for franchisee drivers. The union also pointed to rules allowing for assessment of fines and other discipline by SuperShuttle against the franchisee drivers, plus prohibitions from working for SuperShuttle’s competitors and modifying fares to obtain more business.
“Economic Realities” under the Obama-Era NLRB
While the Acting Regional Director’s 2010 decision was still under Board review, the NLRB issued a 2014 decision, FedEx Home Delivery, 361 NLRB 610 (2014). The FedEx Board kept the same common-law agency factors, but reframed the analysis by limiting the importance of the workers’ entrepreneurial opportunity. Under FedEx, the focus shifted to the “economic realities” of the parties’ relationship.
The FedEx Board redefined the significance of an independent contractor’s “entrepreneurial opportunity for gain or loss,” declaring that the worker’s entrepreneurial opportunity should not be the driving principle of the overall analysis. Further, the FedEx Board also held that only actual (not theoretical) entrepreneurial opportunity should be considered. Thus, if the employer’s constraints on how the worker conducted his work would actually result in greater economic gains, then the worker could be viewed as an independent contractor. In contrast, if there was only a theoretical chance for economic gain in how the employer required the worker to conduct the work, this would indicate he was an employee. This analysis became known as the “economic realities” test: would the worker actually realize the opportunity for gain, or were the potential for economic gains more or less a mere possibility?
Under the FedEx “economic realities” analysis, it became much easier for workers to be construed as employees, rather than as independent contractors with the potential for gains and loss through their own commercial activities. With the greater likelihood of workers being deemed employees, more workers became subject to NLRA protections. Consequently, more employers had to come to terms with potential unionization, social media conversations, and other employee rights within the workplace.
However, the change in presidential administrations and political climate brought forth a change in the NLRB membership. Of the four present NLRB members, only one was appointed by President Obama. The other three have been appointed by President Trump after the Republican Party regained control of the Executive Branch. The current NLRB Board recently chose the SuperShuttle case as an opportunity to re-examine the independent contractor test and the impact of “entrepreneurial opportunity” upon those factors.
“Entreprenurial Opportunity” Under the Age of Trump
The NLRB in SuperShuttle rolled back the FedEx decision for impermissibly altering the common-law test and longstanding precedent. It held that the FedEx Board did not merely “refine” the common-law independent contractor test, but instead fundamentally shifted the analysis to focus on “economic realities.” At the same time, the FedEx Board confined the significance of entrepreneurial activity to one aspect of one factor: whether the worker was, in fact, rendering services as part of an independent business. This “refinement” overemphasized the “right to control” factor as to how likely a worker was economically dependent on the employer.
The SuperShuttle NLRB admitted that entrepreneurial opportunity is not one of the common-law factors, let alone a “superfactor.” However, the entrepreneurial opportunity was still a principle by which to evaluate the overall effect of the common-law factors. Applying this principle, the NLRB could determine whether a worker had or may have independence from the employer to pursue further economic gain. Thus, employer control and entrepreneurial opportunity become flip-sides of the same coin: the more control by employers, the less room for entrepreneurial opportunities, and vice versa.
While the SuperShuttle NLRB did not mechanically apply the entrepreneurial opportunity principle to each of the common-law factors, it did allow for more significance of that principle in the overall analysis. All factors are eligible for evaluation under the entrepreneurial opportunity concept—the worker’s availability for economic gain—depending on whether the circumstances make such evaluation appropriate. The SuperShuttle decision now gives more room to include potential entrepreneurial opportunity in the analysis, rather than being limited to the actual economic gains. Where the overall evaluation of the common-law factors shows significant opportunity for economic gain (and, by the same turn, significant risk for loss), the NLRB is likely to deem the worker an independent contractor, rather than an employee.
The SuperShuttle decision “shuttles” us back a decade on the independent contractor test, yet also advances employers forward in their ability to treat certain workers as independent contractors, not subject to NLRA rules on unionization and concerted work-related speech. Employers still have to evaluate all the common-law factors that have been used for decades, but now have a more expansive analysis to include the workers’ potential for business gains. Workers may benefit from those increased potential for gains, but employers no doubt will benefit from lessened concerns over NLRA restrictions.
James V. Thompson, Attorney
Rainey Kizer Reviere & Bell PLC
[email protected]
www.raineykizer.com