Weeks after inviting public briefing on a potential change in the standard for determining the appropriateness of proposed bargaining units (discussed here), the National Labor Relations Board (NLRB) has again invited briefing in a pending case involving the standard for determining whether workers are properly classified as independent contractors under the National Labor Relations Act.
The current test was adopted by the NLRB under the Trump administration and is focused largely on whether the workers in question have sufficient “entrepreneurial opportunity” to increase their earnings (by performing more work for the same company or for other companies simultaneously, subcontracting work to others, hiring their own employees, etc.) and/or risk of loss. Prior to the Trump-era test, the NLRB under the Obama administration downplayed the significance of entrepreneurial opportunity/risk in favor of a multitude of other factors, including the extent to which the company controls the hours and earnings of the workers in question, the degree to which the work performed is related to the company’s primary business, the level of skill involved, the level of supervision, etc. The wide array of factors taken into consideration under the Obama-era standard generally made it much harder for companies to anticipate the outcome of potential legal challenges to independent contractor status, resulting in much higher risk.
So, what is the NLRB under President Biden likely to do? While it’s difficult to predict, one outcome that can almost certainly be ruled out is retaining the current Trump-era standard. Indeed, the fact that the NLRB invited public briefing on the issue strongly suggests that the board has already decided to abandon the current independent contractor test. The question, obviously, is what will replace it.
In truth, a return to the Obama-era standard may be the best-case scenario that companies can realistically hope for. New NLRB member Gwynne Wilcox was part of a working group that advocated for a radical overhaul of U.S. labor law in a white paper titled “Clean Slate for Worker Power: Building a Just Economy and Democracy.” Among other changes, the working group suggested adoption of the so-called ABC test for independent contractor status. In short, the ABC test requires workers to be treated as employees unless the company establishes the following:
- The worker is free from the company’s control and direction in performing the relevant work, both as a matter of contract and in practice;
- The worker performs work that is not part of the company’s normal business; and
- The worker is customarily engaged in an independently established trade, occupation or business that involves the work performed for the company.
The ABC test is more restrictive than the NLRB’s Obama-era independent contractor standard in multiple respects. Under the Obama-era standard, for example, the fact that the worker in question is performing work that is part of the company’s normal business weighed against independent contractor status but was only one of a multitude of relevant factors. Under the ABC test, in contrast, that fact alone establishes that independent contractor status is improper.
Currently, the ABC test has been adopted by some states, including California. But if the NLRB adopts this standard at the federal level, it will apply across the entire United States.
Takeaways: The NLRB likely will make it much harder to classify workers as independent contractors, so employers should be prepared to review the appropriateness and risks of its classification process as the policy changes. Stay tuned for updates.