Employment Law Daily In another significant reversal, NLRB returns to prior independent-contractor standard
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Tuesday, January 29, 2019

In another significant reversal, NLRB returns to prior independent-contractor standard

By Lisa Milam, J.D.

In a 3-1 decision, the NLRB reverted to its longstanding common-law agency test for determining whether a worker is an independent contractor or a covered “employee” under the NLRA and overruled its 2014 decision in FedEx Home Delivery.

Reaffirming its application of the traditional common-law standard for determining whether an individual is a statutory employee or an independent contractor, a divided NLRB concluded that airport shuttle-driver franchisees were independent contractors and thus, were not statutory employees within the meaning of section 2(3) of the NLRA, which excludes independent contractors from its reach. Its determination turned on the fact that the drivers had considerable entrepreneurial opportunity—which, under the “clarified” test adopted today, is the primary determinant of independent contractor status under the Act. In this significant case addressing one of the most critical issues in labor and employment law, the Board affirmed the finding of an NLRB acting regional director and overturned its Obama-era decision in FedEx Home Delivery, which had “impermissibly altered the Board’s traditional common-law test for independent contractors by severely limiting the significance of entrepreneurial opportunity to the analysis.” Chairman John F. Ring authored the 3-1 opinion, from which Member McFerran dissented (SuperShuttle DFW, Inc., January 25, 2019).

Franchise model. The SuperShuttle franchisees in question entered into franchise agreements with SuperShuttle DFW, which held a license agreement with the national SuperShuttle franchisor. Prior to 2005, SuperShuttle DFW drivers were employees; they were paid an hourly wage and assigned scheduled shifts to transport passengers in company-provided vans. Then SuperShuttle converted to its current franchise model.

Nonnegotiable terms. The franchisees currently sign (non-negotiable) one-year Unit Franchise Agreements (UFA) with SuperShuttle DFW, which identify the drivers as “nonemployee franchisees who operate independent businesses.” The franchisees must pay an initial franchise fee and a flat weekly fee, as well as a “decal fee,” for the right to utilize the SuperShuttle brand and its proprietary dispatch and reservation apparatus. Franchisees supply their own shuttle vans (at an estimated cost of $30,000, to meet SuperShuttle specifications), and the vans also must meet all of the standards mandated by SuperShuttle’s airport contract, including an annual maintenance checkup and heating, air conditioning, credit card readers, and other features. The franchisees pay for all gas, maintenance, tolls, and related costs.

The franchisees have no set schedule—they work when they want, whenever they want, whatever routes they choose (within the parameters of their airport agreements with the franchise)—and they keep the money they earn. They typically obtain passenger bids through the SuperShuttle dispatch system, which they are at liberty to accept or decline. The franchisees also can drive the “hotel circuits,” in which they contract to provide regularly scheduled pickup service at a given hotel, or to operate charter services outside the airport circuits. (Franchisees may not pick up individual hotel passengers, however, under the terms of the agreement.).

Control. SuperShuttle sets the rates customers pay, mandates 15-minute passenger pickup windows during the 12-hour day shift (20-minute windows between 9:00 pm to 9:00 am), requires franchisees to wear SuperShuttle uniforms, and requires them to provide receipts to passengers, among other mandates. In addition, franchisees must turn in all receipts, trip sheets, and vouchers to SuperShuttle every week; SuperShuttle then reimburses the franchisees for the fares they received (less the weekly fees they owe the franchisor).

Moreover, the franchise agreement imposes conduct rules which, if violated, require a franchisee to pay the franchisor liquidated damages. The agreement lists 25 examples of conduct for which a franchisee can be terminated without recourse. Franchisees may hire other drivers to operate their vans, but here, too, there are SuperShuttle requirements under the franchise agreement, such as ensuring that hired drivers take the mandated company training and meet its eligibility criteria.

Election petition rejected. An Amalgamated Transit Union local petitioned to represent a bargaining unit of nearly 90 drivers who operated shuttle vans to and from the Dallas-Fort Worth airport under the SuperShuttle brand. An NLRB regional director concluded the drivers were independent contractor franchisees and rejected the petition. The regional director’s decision turned mostly on the fact that the franchisees had entrepreneurial control—a meaningful opportunity for loss or gain. On review, the union argued that SuperShuttle “exercises substantial control over the drivers’ daily performance” and as such, the drivers were SuperShuttle employees.

FedEx revisited. The Board traced its independent contractor jurisprudence, and its application of common-law agency principles to the question of independent-contractor status, to the Supreme Court’s 1968 decision in NLRB v. United Insurance Co. of America (and waved off the dissent’s contention that it had gone astray from the High Court’s precedent here), as well as the seminal D.C. Circuit decision in NLRB v. FedEx Home Delivery (FedEx I), a 2009 opinion in which the appeals court held that in addition to the common-law agency factors, the analysis should consider the alleged employee’s entrepreneurial opportunities for gain or loss. The Board’s focus here was mainly on FedEx Home Delivery (FedEx II), however—the divided 2014 NLRB decision in which the Obama-era Board expressly rejected the D.C. Circuit’s 2009 holding and “refined” its independent contractor standard accordingly.

However, the Board majority wrote here, “The Board majority’s decision in FedEx did far more than merely “refine” the common-law independent contractor test—it “fundamentally shifted the independent contractor analysis, for implicit policy-based reasons, to one of economic realities, i.e., a test that greatly diminishes the significance of entrepreneurial opportunity and selectively overemphasizes the significance of ‘right to control’ factors relevant to perceived economic dependency.” (Notably, in a 2017 decision, the D.C. Circuit denied the Board’s petition for enforcement in that case, rejecting the Board’s disavowal of its standards and its cast-off of entrepreneurial opportunity as an “animating principle of the inquiry.”).

As the majority here saw it, though, the D.C. Circuit in FedEx I had not made entrepreneurial opportunity the be-all-and-end-all of the inquiry; it considered all the relevant common-law factors and did not depart in any significant way from the traditional independent-contractor analysis that the Board has long applied. As such, the Obama Board’s “refining” was unnecessary—and its 2014 decision was hardly a mere “refinement.”

Entrepreneurial opportunity in context. The majority objected to the characterization by the Obama Board (and McFerran’s dissent here) of the significance placed by the appeals court on entrepreneurial opportunity as a factor in the independent contractor analysis. “Properly understood, entrepreneurial opportunity is not an independent common-law factor, let alone a ‘superfactor’ as our dissenting colleague claims we and the D.C. Circuit treat it. Nor is it an ‘overriding consideration,’ a ‘shorthand formula,’ or a ‘trump card’ in the independent-contractor analysis,” Ring wrote.

He explained that “entrepreneurial opportunity, like employer control, is a principle by which to evaluate the overall effect of the common-law factors on a putative contractor’s independence to pursue economic gain. Indeed, employer control and entrepreneurial opportunity are opposite sides of the same coin: in general, the more control, the less scope for entrepreneurial initiative, and vice versa. Moreover, we do not hold that the Board must mechanically apply the entrepreneurial opportunity principle to each common-law factor in every case.”

Qualitative assessment. At the end of the day, Ring reasoned, “the Board has simply shifted the prism through which it evaluates the significance of the common-law factors to what the D.C. Circuit has deemed a “more accurate proxy” to “‘capture[] the distinction between an employee and an independent contractor.’” After all, the analysis is a qualitative one, not strictly quantitative, he explained. “[T]he Board does not merely count up the common-law factors that favor independent contractor status to see if they outnumber the factors that favor employee status, but instead it must make a qualitative evaluation of those factors based on the particular factual circumstances of each case.”

Applying the test. Applying its newly restored independent-contractor test to the case at hand, the Board held the SuperShuttle franchisees were independent contractors. They own or lease their vans—the principal instrumentality of their work. They exercise nearly complete control over their daily work and method of payment, keeping all their earned fares save their franchise fees. These facts demonstrate significant entrepreneurial opportunity and control.

Moreover, they work under minimal supervision, and the parties to the UFA clearly evidenced their understanding that theirs is an independent contractor arrangement. Certain factors weighed in favor of employee status, the majority conceded, such as the relative skill required (driving being an indistinct occupation) and the extent of SuperShuttle’s involvement in the business. On balance, though, these factors were relatively insignificant compared to the other indicia of independent-contractor status.

McFerran dissent. The NLRB’s lone Democrat dissented, criticizing the Board majority as an initial matter for overruling the NLRB’s 2014 decision without notice or an opportunity for the public to weigh in via a request for briefs. [Note that the Board last year issued a call for briefs in Velox Express, Inc., on the related but separate question whether an employer’s misclassification of an employee as an independent contractor is a stand-alone violation of the Act.] And she found fault with the free-wheeling test asserted by the majority here.

“[T]he majority insists that it is free to adjust its test whenever and however it likes, observing that ‘the Board may evaluate the common-law factors through the prism of entrepreneurial opportunity when the specific factual circumstances of the case make such an evaluation appropriate.’” But the Board can’t have it both ways, McFerran argued: It can’t purport to adhere to the common-law test and simultaneously embrace the D.C. Circuit’s 2009 standard which, in her view, departed from the common law by elevating entrepreneurial opportunity as a key indicia of independent contractor status.

Yet the Board didn’t even coherently apply its own test in deciding the case, in McFerran’s view. Taking her own walk through the common-law factors as set forth in the Restatement, McFerran noted, first and foremost, that the drivers perform the core of the company’s work, an important indicator of employee status. Other factors supported a finding of employee status as well, she would find. At bottom, McFerran concluded that “under any reasonable interpretation and application of the common-law test for determining employee status—which everyone agrees is controlling—the SuperShuttle drivers are, in fact, employees.”

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