On June 13, the National Labor Relations Board (NLRB) overruled its 2019 Trump-era decision, which previously set forth an independent contractor test with "entrepreneurial opportunity" as the core factor.
Instead, the Board is returning to its 2014 Obama-era independent contractor test where entrepreneurial opportunity was just one of many factors to be considered, likely broadening the NLRA's reach. The decision by the majority Democrat NLRB is important because under the National Labor Relations Act (NLRA), employees are entitled to organize and bargain over working conditions, and independent contractors are not. The new test would conceivably bring more individuals under the NLRA's umbrella.
This week's decision makes clear that "any approach that purports to elevate a single factor or designate an animating principle necessarily runs counter to the Supreme Court's admonition that "there is no shorthand formula or magic phrase that can be applied to find the answer, but all of the incidents of the relationship must be assessed and weighed with no one factor being decisive."
In overturning precedent, the Board outlined the Supreme Court and Board's traditional reliance on the factors contained in the Restatement (Second) of Agency, when evaluating independent contractor status:
- the extent of control which, by the agreement, the master may exercise over the details of the work
- whether or not the one employed is engaged in a distinct occupation or business
- 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
- the skill required in the particular occupation
- whether the employer or the workman supplies the instrumentalities, tools, and the place of work for the person doing the work
- the length of time for which the person is employed
- the method of payment, whether by the time or by the job
- whether or not the work is a part of the regular business of the employer
- whether or not the parties believe they are creating the relation of master and servant
- whether the principal is or is not in business
Other than the factors articulated above, whether purported contractors "have a significant entrepreneurial opportunity for gain or loss," including the ability to work for other companies, hire their own employees, and whether they possess a proprietary interest in their work, have also been historically significant to the Board. The significance and weight to be attributed to the entrepreneurial opportunity factors has been at the heart of the Board's conflict on this issue.
In a case from 1998, a unanimous Board endorsed the use of this multifactor test to determine independent contractor status under the NLRA. There, the Board declined to subordinate non-control factors, permitted the consideration of other relevant factors not enumerated above, and reiterated that "a careful examination of all factors and not just those that involve a right of control" was necessary.
Nevertheless, in 2009, the District of Columbia Circuit characterized the Board's position has having prioritized entrepreneurial opportunity for gain or loss as an "animating principle."
Thereafter, and seemingly in direct response to the D.C. Circuit's "misperception" that the Board had adopted a new approach with "entrepreneurial opportunity" as the animating factor, the Board's decision in 2014. At that time, the Board confirmed that "all of the incidents of the relationship must be assessed and weighed with no one factor being decisive" and expressly declined to adopt the D.C. Circuit's holding insofar as it treated entrepreneurial opportunity as an "animating principle." The Board noted that adopting "entrepreneurial opportunity" as an animating or super factor would mean a broader exclusion from the NLRA's coverage than Congress intended.
Then, in 2019, a Trump-era Board shifted to an approach in which entrepreneurial opportunity was key, noting that the FedEx II Board "impermissibly altered the Board's traditional common-law test for independent contractors by severely limiting the significance of entrepreneurial opportunity to the analysis."
In the latest case, the Petitioner, IATSE, filed a petition to represent makeup artists, wig artis, and hairstylists. The employer asserted that these stylists were independent contractors and therefore not covered by the NLRA, and the question was eventually presented to the Board. The Board again altered its independent contractor approach, "decided to overrule SuperShuttle, to reinstate the Board's FedEx II approach, and to apply that standard in this case, consistent with the Board's established approach to retroactivity." The Board confirmed that the nonexhaustive common-law factors enumerated in the Restatement (Second) of Agency will guide the inquiry.
Key in the Board's ruling and in their criticism of SuperShuttle was their strong assertion that "entrepreneurial opportunity" was never intended to be the most important factor in determining employee status, and that, but for SuperShuttle, the Board had not suggested otherwise.
Similarly, "the Supreme Court has never suggested, let alone held, that 'entrepreneurial opportunity' is the principal guidepost in the common-law analysis." In overruling SuperShuttle and returning to the FedEx II standard, the Board held that the stylists at issue here where covered employees by the NLRA, not independent contractors.
Going forward, the Board will still rely on entrepreneurial opportunity as a factor, but confirmed that only actual, not merely theoretical entrepreneurial opportunity should be considered. Similarly, a company's constraints imposed on an employee's ability to pursue an opportunity must be evaluated, including limitations on an individual's ability to work for other companies and restrictions on control over important business decisions.
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