NLRB Revives Multi-Factor Independent Contractor Test

The National Labor Relations Board reinstated a 10-factor test for distinguishing between employees and independent contractors June 13. 

In doing so, it overruled a Trump-era NLRB decision that, while acknowledging the relevance of the test, nevertheless gave particular weight to a worker’s “entrepreneurial opportunity”—a factor that arguably moved more workers to contractor status. 

The board’s latest ruling rejected that approach, instead emphasizing that all aspects of the employment relationship must be assessed, with no one factor being decisive or deserving of greater weight.

“In today’s decision, the board returns to the independent contractor test articulated in FedEx II, and reaffirms the board’s commitment to the core common-law principles that the Supreme Court has determined should guide the board’s consideration of questions involving employee status,” said NLRB chair Lauren McFerran.

“Applying this clear standard will ensure that workers who seek to organize or exercise their rights under the National Labor Relations Act are not improperly excluded from its protections.”

National Labor Relations Act

Most private sector non-supervisory employees in are covered by the National Labor Relations Act. 

Such employees, whether unionized or not, have the right to join together in an effort to improve wages and working conditions without employer retaliation—conduct known as “concerted activity.”  

A few examples of protected concerted activities include:

• Two or more employees addressing their employer about improving their pay
• Two or more employees discussing safety concerns with each other
• One employee speaking to their employer on behalf of co-workers about improving workplace conditions

Independent contractors do not have this legal protection under the NLRA. 

Decision 

In the decision released this week, the board was tasked with determining whether certain makeup artists and hairstylists were employees of The Atlanta Opera, or whether they were independent contractors with their own businesses. 

To make this assessment, the board evaluated 10 factors, also known as the “common law agency test.”

Those factors are:

1. The extent of the employer’s control over the details of the work;
2. Whether the worker is engaged in a distinct occupation or business;
3. Whether the work is usually done by a specialist without supervision;
4. The skills required for the job;
5. Whether the employer supplies the tools and the place of work;
6. The length of time for which the person is employed;
7. The method of payment;
8. Whether the work is a part of the regular business of the employer;
9. Whether the parties believed they created an employer-employee relationship; and
10. Whether the employer is or is not in business. 

‘Rendered Services’

The board also analyzed, as an 11th factor, whether the worker “in fact” rendered services as an independent business, as opposed to having a theoretical entrepreneurial opportunity. 

Ultimately, the board found the makeup artists and hairstylists to be employees, and thus protected by the NLRA.

The board’s decision, while technically a reversal of earlier law, emphasizes what has long been the case: the determination of independent contractor status requires a thoughtful, complex analysis of the employer-employee relationship. 

The 3-1 ruling reverses a previous #NLRB board decision, greatly expanding the number of workers who can be classified as #employees with a federally protected right to unionize or take other collective action. #emplaw #independentcontractors https://t.co/ckCXvZoKEC

— CBIA (@CBIANews) June 14, 2023

As most private employees are protected by the NLRA, employers must consider the board’s 11-factor test when classifying their workers. 

Unfortunately for employers, it is important to note that several different agencies use different tests to determine independent contractor status. 

The board’s recent decision applies only to the NLRA. 

Many other laws, both state and federal, have their own independent contractor rules.

Fair Labor Standards Act

Employers may recall that, in October of 2022, the U.S. Department of Labor issued a proposed rule that would change the way it determines independent contractor status under the Fair Labor Standards Act.  

Much like the board’s recent analysis, under the DOL proposed rule, employers would use a totality-of-the-circumstances analysis, in which many factors are considered, but no one factor has any predetermined weight. 

This proposed rule has not yet been finalized, meaning that a different, Trump-era rule is currently in effect. 

Internal Revenue Code

The IRS uses yet another test to determine independent contractor status. 

That test evaluates the relationship between employer and worker by analyzing three categories of evidence: behavioral control, financial control, and contractual arrangements. 

Employers who misclassify workers as independent contractors face stiff penalties for failure to remit employment-related taxes.

Connecticut Department of Labor

Workers who were misclassified as independent contractors not only file complaints for unpaid wages, but frequently file claims for unemployment benefits. 

When determining a worker’s entitlement to benefits, the Connecticut Department of Labor utilizes another test for determining independent contractor status, known as the ABC Test, which is particularly difficult to meet.

It is nearly impossible for the average employer to keep track of the various laws governing independent contractors, let alone the frequent changes to those laws that seem to change course with each administration. 

Probably the most important thing for employers to know is simply this: misclassification is very common, very costly, and extraordinarily complex. 

Know what you don’t know, and seek legal guidance from a trusted counselor. 

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HR problems or issues? Email or call CBIA’s Diane Mokriski at the HR Hotline (860.244.1900) | @HRHotline. The HR Hotline is a free service for CBIA member companies.