Today more than ever, U.S. businesses supplement their workforce with independent contractors as a solution to competitive and customer pressures. The use of contractors is entirely legal. But the correct classification of workers as contractors, as opposed to employees, is a complex analysis with frameworks that differ across a variety of governing laws. Employers, therefore, sometimes get this wrong. Recognizing the likelihood that workers are sometimes misclassified as contractors, on August 29, 2019, the National Labor Relations Board (the NLRB or Board) issued an important opinion for businesses when it held that misclassification of employees as contractors is not a violation of federal labor law.
NLRB pro-business opinion
Velox Express, Inc. is in the medical courier business. It supplements its driver workforce with independent contractors. Velox terminated its contract with one such driver, Jeannie Edge, when Edge began voicing concerns on behalf of herself and other drivers that Velox had misclassified them as contractors instead of employees. Edge filed an unfair labor practice charge claiming that the driver misclassifications violated the National Labor Relations Act (the Act). The administrative law judge agreed. In Velox Express, Inc. and Jeannie Edge, the Board, which has a three-member Republican majority, affirmed the judge’s ruling that Velox misclassified Edge and other drivers as independent contractors under the Act, but held that the misclassification, in and of itself, did not violate the Act. 368 NLRB No. 61.
Section 8(a)(1) of the Act provides that it is an unfair labor practice for an employer “to interfere with, restrain, or coerce employees” from exercising their legal right to engage in protected concerted activity under the Act. The Board explained that an employer’s mistaken classification of employees as independent contractors does not interfere with or threaten any workers’ right to engage in protected activity under the Act, even if independent contractors cannot join a union. Id. at 6. The Board’s rationale was that when workers are classified as independent contractors, they still retain the right to disagree with their classification and engage in protected activity, which is exactly what Edge did. The employer violates the Act only if it responds to the protected activities with threats, promises, and interrogations. Id. at 6. The Board held that “[e]rroneously communicating to workers that they are independent contractors does not, in and of itself, contain any threat of reprisal or force or promise of benefit.” Id.
Importantly, the Board recognized the difficulty that today’s employers face when making worker classification decisions, and acknowledged that “reasonable minds, can, and often do, disagree” about contractor classification under the same set of facts. Id. at 8. Moreover, the Board took into consideration the fact that employers are obligated to comply with many standards for determining contractor status, including federal, state, and local laws and regulations. “[I]n classifying its workers as independent contractors, an employer may be correct under certain other laws but wrong under the Act – which is all the more reason why it would be unfair to hold that merely communicating that classification is unlawful.” Id.
From a policy perspective, the Board stressed that any other conclusion would chill the use of independent contractors altogether. If, for instance, the Board were to decide that misclassification is a federal labor law violation under the Act, then every wrong decision by an employer when classifying a worker as an independent contractor would automatically result in a per se violation of the Act, subjecting the employer to an unfair labor practice charge, regardless of the employer’s intent. Id. at 9.
Impact on employers
Use of independent contractors is increasingly common in today’s gig economy. The Board’s ruling that contract misclassification does not violate federal labor law is a green light for employers to continue their use of independent contractors. This ruling is a particularly significant win for the transportation industry, where it has become standard industry practice to rely on independent contractors. The Velox decision continues a trend of recent pro-business rulings by the majority-Republican Board.