NLRB Says Classifying Employees As Contractors May Be An Unfair Labor Practice

In an advice Memorandum dated December 18, 2015 – but only released to the general public at the end of August 2016 – an Associate General Counsel to the National Labor Relations Board (“NLRB”), has suggested that misclassifying employees as independent contractors may constitute a violation Section 8(a)(1) of the National Labor Relations Act (“NLRA”) in that it may chill employees’ Section 7 rights. Specifically, the Assistant General Counsel (“AGC”) concluded that a company called Pacific 9 Transportation misclassified drivers as independent contractors in a way that violated Section 8(a)(1) of the NLRA.  Case No. 21-CA-150875

In considering whether the drivers were employees, the AGC first looked to the test the NLRB applied in FedEx Home Delivery.  361 NLRB No. 55 (2014).  In FedEx, the NLRB applied factors, with no single factor being determinative, to determine whether an individual was an employee or an independent contractor. The NLRB also focused on the degree of individual entrepreneurial venture for the drivers. Finding there was no actual individual entrepreneurial enterprise for those drivers, the NLRB held that they were employees rather than independent contractors. Because they were employees, FedEx was required to bargain with the union.  Also of importance, the NLRB concluded it would construe the independent contractor exclusion narrowly, meaning employers would have a difficult time establishing individuals were not employees under the NLRA.  Two years later, the FedEx decision would loom large in Pacific 9.

The finding that Pacific 9 had committed an unfair labor practice by misclassifying employees was not the first such decision as there have been several such findings throughout 2015 and 2016. The difference in this case is that here the AGC chose to issue an advice memorandum regarding the finding, sending a clear signal regarding the NLRB’s intent nationally rather than in isolated cases.  In Pacific 9, the employer used about 180 drivers to transport containers to and from rail yards, warehouses and ports. The drivers, with some exception, rented their trucks from the employer. In finding that the drivers were employees, the AGC relied on a number of factors, including: none of the drivers had created an individual business entity for their work; the employer issued handbooks to the drivers setting forth its expectations; the employer trained the drivers; the employer disciplined the drivers; the employer directed daily routes; the employer required the use of proprietary paperwork; and the drivers had little choice as to what route they worked. Of particular note, the AGC focused on the entrepreneurial aspect, stressing the fact that no drivers had formed a business entity through which to carry on their work driving for the employer.

The AGC’s finding that the drivers were employees is not that surprising, but how he found that the misclassification constituted a Section 8(a)(1) violation is interesting.  Specifically, he found that the employer could have no “legitimate business purpose other than to deny the drivers protections that inure to them as statutory employees, and… chill its drivers’ exercise of Section 7 activity.” This is at least a bit of a reach as there are legitimate business reasons for wishing to utilize independent contractors rather than employees where there might be a question as to which is the correct classification. It is worth noting that issues regarding overtime and minimum wage were not at issue here because drivers working in interstate commerce are exempt from Department of Labor wage and hour laws.

This advice memorandum is a shot across the bow by the AGC and NLRB to signal employers that misclassifications could be perceived as unfair labor practices going forward.  Such a conclusion presents yet another area of concern for employers who already are burdened with concerns arising from wage and hour laws. It also demonstrates that the NLRB and the DOL’s Wage and Hour Division are taking their fight to two fronts, with many employers left feeling that they are squeezed in between.

The St. Louis employment attorneys at McMahon Berger have been representing employers across the country in labor and employment matters, including FLSA issues and NRLB proceedings, for almost sixty years, and are available to discuss these issues and others.  As always, the foregoing is for informational purposes only and does not constitute legal advice regarding any particular situation as every situation must be evaluated on its own facts. The choice of a lawyer is an important decision and should not be based solely on advertisements.

Learn more aboutMichael Powers
Michael represents the interests of management in all facets of labor and employment law, with an emphasis on employment litigation. He defends employers against discrimination claims brought under both Federal and State laws. He works on behalf of management to investigate and respond to employee claims before administrative agencies.