Misclassification of Drivers as Independent Contractors Can in Itself Violate the NLRA: NLRB General Counsel's Office | Practical Law

Misclassification of Drivers as Independent Contractors Can in Itself Violate the NLRA: NLRB General Counsel's Office | Practical Law

The Office of the General Counsel of the National Labor Relations Board (NLRB) recently released an advice memorandum concluding that an employer’s misclassification of its drivers as independent contractors violated the National Labor Relations Act (NLRA).

Misclassification of Drivers as Independent Contractors Can in Itself Violate the NLRA: NLRB General Counsel's Office

by Practical Law Labor & Employment
Published on 02 Sep 2016 • USA (National/Federal)
The Office of the General Counsel of the National Labor Relations Board (NLRB) recently released an advice memorandum concluding that an employer’s misclassification of its drivers as independent contractors violated the National Labor Relations Act (NLRA).
On August 26, 2016, the Division of Advice of the NLRB's Office of the General Counsel released an advice memorandum dated December 18, 2015, concluding that an employer that told its drivers they were independent contractors who could not form a union but treated them like employees violated Section 8(a)(1) of the NLRA. Although advice memoranda do not carry the force of binding precedent from the panel (Board) heading the judicial functions of the NLRB, they provide guidance about, among other things, the NLRB General Counsel's theories and targets for prosecuting future unfair labor practice (ULP) complaints.
Pacific 9 Transportation (Pac9) retains drivers to transport containers by truck. Pac9 required its drivers to execute an agreement providing that:
  • The drivers are independent contractors, not employees.
  • Drivers:
    • could accept or decline work at any time;
    • were not required to rent or purchase trucks from Pac9, but if they did, Pac9 deducted rental, parking, fuel, and other costs from their paychecks;
    • were paid by the load they delivered, not by the hour, but Pac9 determined the pay rate and it was not subject to negotiation; and
    • were required to have insurance for their trucks.
The agreement did not capture the day-to-day reality of Pac9's operations or the drivers' work for Pac9 because Pac9:
  • Determined and controlled the drivers' schedules, foreclosing opportunities to accept work from other carriers.
  • Did not allow drivers to:
    • request specific loads;
    • exchange loads with other drivers; or
    • decline loads without risking being passed over for additional work.
  • Carried insurance on the trucks and did not actually require the drivers to carry insurance.
  • Distributed handbooks indicating how the drivers were expected to perform their jobs.
  • Disciplined drivers for violating traffic rules.
In 2013, a union began an organizing campaign among the drivers consisting of several strikes and filed administrative wage and hour claims on behalf of the drivers. The union filed an ULP charge with the NLRB alleging that Pac9 violated Section 8(a)(1) by, among other things, threatening drivers with closure of the facility if they supported the union. Pac9 defended the charge in part by claiming that the drivers were not statutory employees over which the NLRB had jurisdiction. An NLRB regional office concluded that the drivers were statutory employees and that Pac9 violated Section 8(a)(1) and informed Pac9 that it intended to issue a complaint.
In 2014, after Pac9 entered into an informal settlement agreement with the NLRB, Pac9 issued a memorandum to its drivers reasserting that they were independent contractors. The memo made misleading statements about the nature of its settlement with the NLRB and indicated that Pac9 "does not have any employee drivers" and that the agreement provided that only "Pac9 employees (not owner operators or independent contractors) have the right to form a union if they choose to."
The NLRB requested that Pac9 retract the memo, but Pac9 refused. The NLRB revoked the settlement agreement and issued a complaint. In 2015, the union filed another ULP charge alleging that Pac9 violated Section 8(a)(1) by misclassifying the drivers as independent contractors. The NLRB regional office submitted the case to the Division of Advice for advice on the misclassification issue.
The Division of Advice:
  • Agreed with the regional office's earlier determination that the drivers were statutory employees, not independent contractors.
  • Concluded that Pac9 interfered with the drivers' exercise of their Section 7 rights in violation of Section 8(a)(1) by misclassifying them as independent contractors under circumstances in which Pac9:
    • asserted in its agreements with the drivers that they were independent contractors;
    • treated the drivers mainly as employees despite representing otherwise; and
    • continued to inform the drivers they were independent contractors and did not have the right to form a union after the NLRB region determined they were employees.
The Division of Advice noted that the Board:
  • Looks at common-law factors from Section 220 of the Restatement (Second) of Agency to determine whether a worker is an independent contractor or an employee under Section 2(3) of the Act. Those factors include the following:
    • the extent of the employer's control over the details of the worker's work;
    • whether the worker is engaged in a distinct occupation or business, and whether the work is typically done under an employer's direction or is typically done by a specialist without supervision;
    • whether the employer or the worker supplies the tools, equipment, and the place of work for the worker;
    • the length of time for which the employer uses the worker;
    • whether the worker is paid based on the amount of time worked or by the job; and
    • whether the work is part of the employer's regular business.
    (FedEx Home Delivery, 361 N.L.R.B. No. 55 (Sep. 30, 2014).)
  • Considers whether evidence shows that the worker (putative contractor) is performing services as part of the worker's own independent business, reflected by whether the worker has a:
    • significant entrepreneurial opportunity;
    • realistic ability to work for other employers;
    • proprietary or ownership interest in his work; and
    • control over important business decisions including scheduling of work, hiring employees and assigning work, purchasing equipment, and investing capital.
    (FedEx Home Delivery, 361 N.L.R.B. No. 55 (Sep. 30, 2014).)
  • Has never held that an employer's misclassification of statutory employees as independent contractors violated Section 8(a)(1).
  • Has precedent that would support a ruling that misclassifying employees as independent contractors violates Section 8(a)(1). In particular, the Board has held that an employer violated Section 8(a)(1) by:
The Division of Advice found that:
  • The evidence was "overwhelming" that the drivers were statutory employees under NLRA Section 2(3) and not independent contractors. In particular, the record showed that:
    • the drivers were not providing services as part of their own independent businesses (they had no significant entrepreneurial opportunity or control over important business decisions);
    • Pac9 exerted extensive day-to-day control over the drivers and provided the drivers "considerable assistance and guidance";
    • Pac9 supervised their work through various internal documents including the handbook and memoranda directed at the drivers;
    • Pac9 did not require the drivers to have extensive training or skills, and actually trained the drivers;
    • Pac9 provided, insured, and maintained the trucks used by the drivers;
    • Pac9 set up a permanent working relationship with the drivers and the drivers' work was "literally the entirety" of its business; and
    • Pac9 determined without negotiation the drivers' compensation rates and did not allow the drivers to negotiate the terms of the agreement that purported to treat the drivers as independent contractors.
  • Pac9's misclassification of the drivers and repeated insistence that the drivers were independent contractors especially after the regional office had already found them to be statutory employees served to interfere with the drivers' exercise of their Section 7 rights because it:
    • suppressed future Section 7 activity by leading the drivers to believe that they did not have Section 7 rights and that trying to unionize was futile;
    • served as a "preemptive strike," chilling the drivers from exercising their Section 7 rights during the union's organizing campaign; and
    • misstated the law to the point that it reasonably implied the drivers could be subject to adverse consequences including losing their jobs if they continued to engage in Section 7 activity.

Practical Implications

The Division of Advice conflated several sets of facts and several lines of precedent leaving its analysis somewhat ambiguous. It repeatedly concluded that misclassifying statutory employees as independent contractors, standing alone, may constitute unlawfully restraining or interfering with employees' exercise of Section 7 rights. However, each time it explained how existing Board precedent supports that conclusion, it tied the purported misclassification to separate communications that did one of the following:
  • Misled workers about:
    • the NLRA;
    • the workers' rights under the NLRA; and
    • the status and results on ongoing litigation at the NLRB.
  • Suggested that supporting a union is futile.
  • Suggested that participating in NLRB proceedings is futile.
Notwithstanding the ambiguity about whether the General Counsel will prosecute ULPs for misclassification alone, this advice memoranda is a shot over the bow for employers. Employers that rely on putative independent contractors should expect the NLRB to pursue a new brand of ULP based on purported employee-independent contractor misclassification.