NLRB Overrules Obama-Era Precedent Clarifying Test For Determining Independent Contractor Status Under NLRA - Articles

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Posted by: Greg Grisham on Apr 19, 2019

In SuperShuttle DFW, Inc. (“SuperShuttle”),[i]the National Labor Relations Board (“NLRB” or “Board”) reexamined the Board’s test for determining independent contractor status under the National Labor Relations Act (“Act”) in the context of a union’s request to represent franchisees in a petitioned-for bargaining unit.[ii] The Board was presented with the question of “whether franchisees who oper­ate shared-ride vans for SuperShuttle Dallas-Fort Worth are employees covered under Section 2(3) of the Nation­al Labor Relations Act or independent contractors and therefore excluded from coverage.”

Facts

The issue came before the Board after the Acting Regional Director dismissed the union’s petition on the ground that the franchisees were independent contractors and the Board granted the union’s subsequent request to review the decision.

SuperShuttle is an independ­ent business entity that has a licensing agreement with “SuperShuttle International [“SSI”] and SuperShuttle Franchise Corporation for the right to use the SuperShuttle trade­mark and transportation system in the Dallas-Fort Worth area. SSI owns the SuperShuttle name, logo, and color scheme, develops pro­prietary software for dispatching, cashiering, and taking reservations for use in administering a shuttle van trans­portation system.” Under the licensing agreement, SuperShuttle has the right “to market and deploy the SuperShuttle transportation system in its designated local market.” Franchise owners sign a one-year “Unit Franchise Agreement” (“UFA”) that, among other things, designates them as independent contractors. Franchisees’ pay “an initial franchise fee” and a weekly “flat fee” to use the SuperShuttle brand name and for the “Nextel dispatch and reservation apparatus” and a “decal fee.” Franchisees are able to set their own work schedules and get to keep all fares they earn on the assignments they select. They are also permitted to hire “relief drivers” to operate the vans, which are owned or leased by the franchisees. The franchisees are not entitled to receive any benefits from SSI and are required to indemnify and hold SSI harmless for any claims arising out of the franchisees’ actions or failure to act.

NLRB’s Opinion

The NLRB began its analysis by reviewing the its prior decision in FedEx Home Delivery, 361 NLRB 610 (2014) (FedEx), enf. denied ,849 F.3d 1123 (D.C. Cir. 2017) (FedEx II), and found the Board had “significantly limited the importance of entrepreneurial opportunity” by making it “one aspect” of the “rendering services as part of an independent business” factor which is part of the common-law agency test set forth in Restatement (Second) of Agency §220 (1958) and required under United States Supreme Court precedent.[iii] The common-law agency test, which sets out a list of “non-exhaustive” factors[iv], looks at:

  1. The extent of control which, by the agreement, the master may exercise over the details of the work.
  2. Whether or not the one employed is engaged in a distinct occupation or business.
  3. The kind of occupation, with reference to whether, in the locality, the work is usually done under the direc­tion of the employer or by a specialist without supervi­sion.
  4. The skill required in the particular occupation.
  5. Whether the employer or the workman supplies the instrumentalities, tools, and the place of work for the person doing the work.
  6. The length of time for which the person is em­ployed.
  7. The method of payment, whether by the time or by the job.
  8. Whether or not the work is part of the regular busi­ness of the employer.
  9. Whether or not the parties believe they are creating the relation of master and servant.
  10. Whether the principal is or is not in business.

The Board found the Board’s prior decision in FedEx Home Delivery should be overruled since it “did far more than merely ‘refine’ the common-law independent contractor test” but rather “fundamentally shifted the independent contractor analysis… to one of economic realities.”[v]

Turning to the facts before it, the Board examined the relationship between SSI and the franchisees and determined the Acting Regional Director correctly found the franchisees to be independent contractors excluded from the Act’s coverage. In applying the common-law factors, the Board noted that the franchisees had to make a significant initial investment (buying or leasing a van and agreeing to make an initial and weekly payments under the UFA) and that they had “total control over their schedule” which established the franchisees had “significant opportunity for economic gain and significant risk of loss” which “strongly” supported the finding that they were independent contractors.[vi] In considering the factor “extent of control by the employer” the Board noted that the franchisees had little communication with SSI (other than assignment bid opportunities sent through the Nextel device), that they had no set routes and were not confined within the Dallas-Fort Worth area, and the UFA’s indemnification requirement “which greatly lessens SSI’s motivation to control a franchisee’s actions.”[vii] The Board also found the “method of payment” factor supported a finding of independent contractor status, since the franchisees were able to keep all of the revenue they generated and simply paid SSI a flat fee. On the “instrumentalities, tools, and place of work” factor, this also weighed in favor of independent contractor status, since the franchisees made a significant initial investment, were required to pay a weekly fee and had to “pay for gas, tolls, repairs and any other costs associated with operating their vans.”[viii] On the supervision factor, the Board found that franchisees had “near-absolute autonomy in performing their daily work without supervision” which supported a finding of independent contractor status.[ix] With respect to the “relationship the parties believed they created” factor, the Board cited the language of the UFA which stated in bold letters that the franchisees were independent business owners and not employees of SSI.[x] Under the “engagement in a distinct business, work as part of the employer’s regular business, and the principal’s business”  factors, which the Acting Regional Director viewed as “closely related, ” the Board found these factors favored a finding of employee status, since “driving is not considered a distinct occupation.”[xi] The Board concluded its analysis by examining the remaining two factors “length of employment” and “skills required” and found the former to be a neutral indicator (based on the one-year UFA term vs. facts showing the arrangement typically continued beyond one year) and the later to favor employee status since driving the vans did not require special skills or training.[xii] The Board ended its analysis by finding the franchisees were independent contractors based on its application of the common-law test, since the franchisees have “significant entrepreneurial opportunity and control over how much money they make each month” and SSI does not exercise significant control “’over the manner and means by which the drivers conduct[] business’” and “’the relationship between the company’s compensation and the amounts of fares col­lected.’”[xiii] (the latter two points important from prior Board taxicab cases).

Takeaways

The Board’s decision in SuperShuttle offers up another example of the Trump Board’s shift away from Obama-era precedents and signals an openness to endorse work arrangements that favor the use of independent contractors as can be seen in the growth of Gig Economy employers. While the independent contractor analysis remains a fact intensive inquiry, the Board’s decision in SuperShuttle indicates that significant evidence of “entrepreneurial opportunity” may carry the day for businesses who wish to construct work arrangements that fall outside the reach of the Act and its requirements. However, it must be noted that the independent contractor status inquiry under other employment laws, such as the Fair Labor Standards Act, can be different and a separate legal analysis should be conducted for each.


— J. Gregory Grisham is Of Counsel in the Memphis Office of Fisher & Phillips, LLP and focuses his practice on the representation of employers in all aspects of labor and employment law. He received his Juris Doctor (with honors) from the University of Memphis, Cecil C. Humphreys School of Law in 1989. Greg may be reached at ggrisham@fisherphillips.com or 901-333-2076.


[i] 367 NLRB No. 75 (2019)

[ii] “Section 2(3) of the Act, as amended by the Taft-Hartley Act in 1947, excludes from the definition of a covered ‘employee’ ‘any individual having the status of an independent contractor.’ 29 U.S.C. § 152(3).” Id. at p. 1

[iii] 367 NLRB at 1; NLRB v. United Insurance Co. of Amer­ica, 390 U.S. 254, 256 (1968).

[iv] 367 NLRB at 1-2.

[v] Id. at 7.

[vi] Id. at 12.

[vii] Id.

[viii] Id.

[ix] Id. at 13-14.

[x] Id. at 14.

[xi] Id.

[xii] Id.

[xiii] Id.