Biden NLRB Reverts to Obama Era Independent Contractor Test: Test Previously Rejected by DC Circuit

Shocking few NLRB observers, the National Labor Relations Board (NLRB), in The Atlanta Opera, Inc., Case 10-RC-276292, a 3-1 decision issued June 13, 2023, announced its modified standard for analyzing whether  workers are employees or independent contractors of an employer, returning to the test last articulated by the Obama era Board in FedEx II, 362 NLRB 610 (2014), and overruling the Trump era SuperShuttle DFW, Inc., 367 NLRB No. 75 (2019). The new standard is likely to result in findings that more workers unions are seeking to organize and represent are employees and not independent contractors which they would have been found to be under SuperShuttle.

Facts of the Case

In Atlanta Opera, Inc., the Board set out to determine whether a group of stylists (makeup artists, wig artists, and hairstylists) whose services were used by the Opera were independent contractors or statutory employees under Section 2(3) of the National Labor Relations Act (the “Act” or “NLRA”). Independent Contractors are not covered by the NLRA, and so the result of the inquiry would control whether the union seeking to represent the stylists could seek an election among the group and serve as their collective bargaining agent. The stylists’ primary responsibilities were to execute the wig, hair, and makeup looks that each production requires. After an initial inquiry at the Regional level, the Acting Regional Director found the stylists to be statutory employees.  The Acting Regional Director found the following factors, viewed together, established that stylists are employees: they do not choose where and when they will work; they have little independent authority over the details of their work; they do not supply equipment or tools used in their work; their work is part of the Employer’s regular business; they do not render services to the Employer as independent businesses; and they enjoy no entrepreneurial opportunity and take on no risk in their work for the Opera.

The Opera filed a request for review of the Acting Regional Director’s Decision and Direction of Election, which the Board granted.  The Board invited the parties and amicus briefs on the question of what standard the Board should apply for determining of independent contractor status and whether the Board should consider a change of legal standard to the then independent contractor test established in SuperShuttle.  

Ultimately, the Board made three decisions.  First, it overruled SuperShuttle, which emphasized entrepreneurial opportunity as a key factor, and reinstated the extant ruling in FedEx II.  Second, the Board clarified that “entrepreneurial opportunity” was only one part of the totality of the common law factors identified below.  The Board ruled that “entrepreneurial opportunity” should not be given greater weight than any other common law factor, but that the Board would consider whether the evidence tends to show that the putative independent contractor is, in fact, rendering services as part of an independent business.  Third, the Board held that it should “give weight only to actual (not merely theoretical) entrepreneurial opportunity, and that it should necessarily evaluate the constraints imposed by a company on the individual’s ability to pursue this opportunity.”

The lone dissenter, Member Kaplan, dissented from the decision to reinstate FedEx II but concurred in the finding that the employees at issue were statutory employees under SuperShuttle.

A Return to the FedEx II Standard

Under the FedEx II standard re-articulated in the The Atlanta Opera, Inc. decision, in analyzing whether a group of individuals are employees or independent contractors, the Board will continue to apply the common-law factors as described in the Restatement (Second) of Agency, which include:

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 skills 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.

In addition to these factors, under FedEx II and The Atlanta Opera, Inc., the Board will consider the “independent-business factor” which examines whether the putative contractor has a significant entrepreneurial opportunity and also actually exercises that opportunity by examining whether the putative contractor:

1. has a realistic ability to work for other companies;
2. has proprietary or ownership interest in their work; and
3. has control over important business decisions, such as the scheduling of performance; the hiring, selection, and assignment of employees; the purchase and use of equipment; and the commitment of capital.

The Board’s new skeptical approach toward the independent contractor analysis will also examine whether an employer has “effectively imposed constraints on an individual’s ability to render services as part of an independent business.” In other words, an employee’s lack of entrepreneurial opportunity can weigh in favor of employee status and against contractor status.  

The DC Circuit has twice rejected the standards now readopted  by the Board in its earlier decisions in  FedEx I, 563 F.3d 492 (D.C. Cir. 2009) and FedEx II, 849 F.3d 1123 (D.C. Cir. 2017), in which it denied enforcement of Board decisions on the grounds that the Board’s test for determining independent contractor status was too narrow. It may be that upon review, the DC Circuit has more to say about the Board’s insistence on this already rejected standard.

Conclusion

The Atlanta Opera, Inc. decision significantly alters the worker classification analysis and is likely to result in findings of employee status where the facts would have resulted in a different decision under SuperShuttle DFW.  Accordingly, employers would be wise to:

• Audit current independent contractor arrangements under both The Atlanta Opera Inc. and  FedEx II standards;
• Review current forms of independent contractor agreements that may mirror an emphasis on entrepreneurial opportunity;
• Evaluate contractor relationships moving forward with an eye toward broad common law factors identified above; and
• Work with counsel to assess the risk your organization may have under  The Atlanta Opera Inc. and FedEx II standards to determine independent contractor status.