NLRB Finds FedEx Home Delivery Drivers Employees under New Independent Contractor Test, Rejects DC Circuit Independent Contractor Finding on Same Facts | Practical Law

NLRB Finds FedEx Home Delivery Drivers Employees under New Independent Contractor Test, Rejects DC Circuit Independent Contractor Finding on Same Facts | Practical Law

In FedEx Home Delivery, the National Labor Relations Board (NLRB) re-evaluated whether owner-operators who drive for FedEx Ground Package Systems, Inc. are independent contractors or employees under the National Labor Relations Act (NLRA). The NLRB revised its independent contractor test after the US Court of Appeals for the District of Columbia Circuit (DC Circuit) vacated an earlier NLRB decision and found on essentially the same facts that FedEx Home Delivery drivers at another facility were independent contractors excluded from NLRA-coverage. The NLRB concluded that the drivers here were employees covered by the NLRA and that the employer unlawfully refused to collectively bargain with their selected union. The NLRB diluted several entrepreneurial opportunities factors it previously used in its independent contractor test by subsuming them into one of ten common law test factors. It also noted that it will consider entrepreneurial opportunities that purported independent contractors seized and not unseized opportunities, it deemed actual and theoretical opportunities, respectively.

NLRB Finds FedEx Home Delivery Drivers Employees under New Independent Contractor Test, Rejects DC Circuit Independent Contractor Finding on Same Facts

by Practical Law Labor & Employment
In FedEx Home Delivery, the National Labor Relations Board (NLRB) re-evaluated whether owner-operators who drive for FedEx Ground Package Systems, Inc. are independent contractors or employees under the National Labor Relations Act (NLRA). The NLRB revised its independent contractor test after the US Court of Appeals for the District of Columbia Circuit (DC Circuit) vacated an earlier NLRB decision and found on essentially the same facts that FedEx Home Delivery drivers at another facility were independent contractors excluded from NLRA-coverage. The NLRB concluded that the drivers here were employees covered by the NLRA and that the employer unlawfully refused to collectively bargain with their selected union. The NLRB diluted several entrepreneurial opportunities factors it previously used in its independent contractor test by subsuming them into one of ten common law test factors. It also noted that it will consider entrepreneurial opportunities that purported independent contractors seized and not unseized opportunities, it deemed actual and theoretical opportunities, respectively.
On September 30, 2014, in FedEx Home Delivery, a majority of the panel (Board) heading the NLRB's judicial and election functions re-evaluated whether owner-operators who drive for Fed-Ex Ground Package Systems, Inc. are independent contractors or employees under the NLRA. The NLRB revised its independent contractor test and concluded that the drivers are employees covered by the NLRA and that the employer unlawfully refused to collectively bargain with their union. The NLRB diluted several entrepreneurial opportunities factors it previously used in its independent contractor test by subsuming them into one of ten common law test factors. It also noted that it will consider entrepreneurial opportunities that purported independent contractors seized and not unseized opportunities, it deemed actual and theoretical opportunities, respectively. (361 N.L.R.B. No. 55 (Sept. 30, 2014)).

Background

FedEx Ground Package Systems, Inc. (FedEx Ground) contains two divisions: FedEx Ground Delivery and FedEx Home Delivery. FedEx Home Delivery has about 4000 drivers in the US. Drivers begin working with the company on a temporary basis. Once they complete training, they may acquire their own truck and become permanent drivers. They are presented with FedEx's Standard Contractor Operating Agreement (Agreement), which states that the driver is providing services as an independent contractor. Drivers do not negotiate about the Agreement's terms, except as to:
  • Which route will be assigned to them.
  • Part of their compensation known as the Temporary Core Zone Density Settlement, which is a daily payment to drivers who service routes where customer and package volume are not fully developed.
A Teamsters local union petitioned the NLRB for an election to represent about 20 FedEx Home Delivery drivers from FedEx Ground's Hartford terminal. FedEx Ground opposed the election asserting that the drivers were independent contractors excluded from the NLRA's coverage under Section 2(3) of the NLRA (29 U.S.C. § 152(3)). FedEx's Hartford terminal has 26 routes. At the time of the pre-election hearing, 18 routes were assigned to single route drivers, two were open, and the rest were assigned to three multiple-route drivers the union did not seek to represent.
An NLRB regional director found that FedEx Ground failed to establish that its drivers were independent contractors, because:
  • The hearing record suggested that:
    • FedEx exercised substantial control over the drivers job performance details;
    • drivers performed a regular and essential part of FedEx Ground's business;
    • the drivers' jobs did not require significant skill or experience;
    • FedEx Ground provided drivers with necessary tools, instruments and workplaces for the job;
    • FedEx Ground unilaterally established compensation rates for all drivers;
    • the drivers' right to sell their routes was not substantially important because the routes were available from FedEx for free; and
    • only two route sales had occurred since the Hartford terminal opened in 2000.
  • FedEx Ground failed to show that:
    • drivers incurred an entrepreneurial risk by choosing to operate more than one route; and
    • multiple route drivers brought in higher profit than single-route drivers.
The regional director declined to receive evidence about FedEx Ground drivers from other locations buying and selling routes and possessing multiple routes.
FedEx Ground petitioned the Board to review the regional director's findings and certification of the Teamsters as representative of most of its Hartford drivers. The Board denied review of the Regional Director's finding. When FedEx refused to collectively bargain with the union, the General Counsel issued an unfair labor practice (ULP) complaint. The Board granted a motion for summary judgment in that matter (356 N.L.R.B. No. 10 (Oct. 29, 2010)).
Subsequently, in a separate 2009 matter, the US Court of Appeals for the District of Columbia Circuit vacated an earlier Board decision and held that FedEx Home Delivery drivers in Massachusetts working under nearly the same circumstances as the Hartford drivers were independent contractors (FedEx Home Delivery v. NLRB, 563 F.3d 492 (D.C. Cir. 2009) vacating 351 N.L.R.B. No. 16 (Sept. 28, 2007)).
In light of the DC Circuit's decision, FedEx Ground petitioned the DC Circuit to review the Board's decision about the Hartford drivers. The Board vacated its decision denying review in an unpublished order and reviewed this case again.

Outcome

The Board majority (Chairman Pearce and Members Hirozawa and Schiffer) affirmed the conclusions of the regional director in the election proceedings and granted summary judgment against the Home Delivery on the failure to recognize and bargain ULP complaint. The majority concluded that the FedEx Ground Hartford drivers that the union sought to represent were employees under Section 2(3) of the NLRA and that FedEx violated Sections 8(a)(5) and (1) of the NLRA by refusing to recognize and bargain with the union as those drivers' representative.
The majority noted that:
  • It is bound by NLRB v. United Insurance Co. of America (390 U.S. 254 (1968)), which states that all aspects of a relationship should be considered and weighed, with no factor being decisive, and that there is no formula or magic phrase to determine whether a worker is an employee or independent contractor.
  • The Supreme Court has relied on an independent contractor test from the Restatement (Second) of Agency § 220 (1958) when determining independent contractor status under other federal statutes. The Restatement identifies as non-exhaustive factors:
    • the extent of control the employer has over the worker;
    • whether the worker is engaged in a distinct job or business;
    • the kind of job the worker has, with reference to whether the work is usually done under the direction of the employer or by an unsupervised specialist;
    • the skill required in the particular job;
    • whether the instrumentalities, tools and place of work are provided by the employer or the worker;
    • the length of time the person works for the employer;
    • the method of payment;
    • whether the work is part of the employer's regular business;
    • whether or not the parties believe they are creating a master and servant relationship; and
    • whether the principal is in the business.
  • The DC Circuit vacated an earlier Board decision about the status of FedEx Home Delivery drivers in Massachussetts and held on essentially same facts as those in this case that the drivers were independent contractors (see FedEx Home Delivery, 563 F.3d 492).
  • The Board has rejected the notion that the employer's right to control the manner and means of an individual's work is the primary factor in the analysis (Roadway Package System, 326 N.L.R.B. 842 (1998)). In Roadway, the Board laid out principles for an independent contractor evaluation:
    • all factors must be assessed and weighed;
    • no one factor is decisive;
    • other relevant factors may be considered; and
    • the weight to be given to a particular factor depends on the facts of each case.
      (326 N.L.R.B. at 850-851.)
  • The Board has considered whether the worker has had significant entrepreneurial opportunity for gain or loss by considering many factors, such as whether the worker:
    • has the ability to work for other companies;
    • can hire his own employees; and
    • has a proprietary interest in his work.
  • It rejects the DC Circuit's interpretation of the NLRA in FedEx Home Delivery because it:
    • suggested that the Board treats entrepreneurial opportunity as a decisive factor in its independent contractor assessment;
    • adopted a broader exclusion of workers from NLRA coverage than Congress intended; and
    • failed to afford the Board's interpretation of its own jurisdiction due deference.
  • While asserting that it was clarifying its independent contractor status test, revised the test to:
    • subsume the entrepreneurial opportunity factors collectively into the distinct job or business factor;
    • give weight to entrepreneurial opportunities that purported contractors seized (deemed actual opportunities) while disregarding their unseized opportunities (deemed theoretical opportunities);
    • decline to consider evidence that workers similarly situated to the purported contractors seized entrepreneurial opportunities that were deemed hypothetical for the purported contractors; and
    • evaluate the constraints imposed by the company on the worker's ability to pursue an entrepreneurial opportunity.
The Board weighed each of the Restatement factors, ultimately determining that they favored a finding that the Hartford FedEx drivers were employees.
The Board found that the Extent of Control by Employer factor weighed in favor of employee status:
  • Because FedEx Home Delivery:
    • exercised control over the drivers' day-to-day work details;
    • controlled the number of packages delivered and stops to be made;
    • required drivers to make their vehicles available for Tuesday through Saturday; and
    • required all packages delivered by 8:00 p.m.
  • Even though drivers:
    • had discretion over in what order they delivered packages;
    • set the specific routes they drove to make their assigned deliveries; and
    • had some control over start times and breaks.
The Board found that the Whether an Individual Engaged in a Distinct Occupation or Business factor weighed in favor of employee status:
  • Because:
    • drivers were required to wear FedEx Home Delivery uniforms;
    • drivers had to have FedEx Home Delivery's logo and colors on the sides of their trucks;
    • drivers operating as incorporated businesses did so under FedEx Home Delivery's name;
    • FedEx and its management provided substantial assistance and guidance; and
    • if not affiliated with FedEx Home Delivery, drivers would lack infrastructure to operate as separate entities, since they rely on FedEx Home Delivery's systems and package handlers.
  • Even though:
    • the drivers that the union sought to represent in limited circumstances actually did hire helpers and buy or sell routes;
    • theoretically the drivers could hire another FedEx Home Delivery-approved driver, lease or buy multiple trucks to service more routes and acquire and service multiple FedEx Home Delivery routes; and
    • the drivers could therefore sell their place in the bargaining unit.
The Board found that the Whether the Work is Usually Done under the Direction of the Employer or by a Specialist Without Supervision factor weighed in favor of employee status:
  • Because:
    • drivers were required to follow company protocol and guidelines on dress, appearance, safety and package delivery detail;
    • FedEx Home Delivery conducted audits and appraisal of the performance of drivers;
    • FedEx Home Delivery could track major work activities via a scanner; and
    • FedEx Home Delivery could cancel contracts with drivers (characterized as imposing discipline on drivers) who fail to follow rules.
  • Even though drivers were free of continuous supervision in their work duties.
The Board found that Skill Required in the Occupation factor weighed in favor of employee status because drivers were not required to have any special training or skill, receiving only two weeks of training at FedEx.
The Board found that the Whether the Employer or Individual Supplies Instrumentalities, Tools and Place of Work weighed neutrally between employee status and independent contractor status because:
  • Some factors favored employee status, including:
    • FedEx dictated vehicle specification;
    • FedEx facilitated vehicle transfer between drivers and provides prospective drivers and dealers; and
    • drivers operation out of FedEx's Hartford terminal.
  • Drivers owned their vehicles and paid for operation costs.
The Board found that the Length of Time for Which Individual is Employed factor weighed in favor of employee status:
  • Because:
    • the agreements entered by drivers were automatically renewed after the expiration of the initial agreement; and
    • the drivers contributed significant capital in vehicles and equipment which signifies long-term commitment.
  • Even though the drivers entered into agreements of only one or two years.
The Board found that the Method of Payment factor weighed in favor of employee status:
  • Because FedEx Home Delivery:
    • established non-negotiable rates of compensation for drivers;
    • guaranteed a daily vehicle availability payment to drivers who show up when mandated;
    • subsidized drivers with a Temporary Core Zone Density settlement to compensate the drivers for a normal level of packages and deliveries;
    • granted drivers a compensatory payment if FedEx reduced customer volume on their routes;
    • provided a subsidy if gas prices substantially increased; and
    • exerted control over service areas limiting the drivers' ability to increase earnings based on deliveries or mileage.
  • Even though FedEx Home Delivery did not :
    • provide vacation or paid holidays;
    • withhold takes; or
    • pay drivers' work accident insurance.
The Board found that the Whether or not Work is Part of the Regular Business of the Employer factor weighed in favor of employee status because FedEx's objective is to deliver packages to customers, and the drivers job is to accomplish that purpose. Drivers are the core of FedEx Home Delivery's business.
The Board found that the Whether or Not the Parties Believe they are Creating an Independent Contractor Relationship factor was inconclusive because:
  • FedEx Home Delivery believed it is creating an independent contractor relationship when drivers signed the contract which stated that they were independent contractors.
  • Drivers did not negotiate the terms of the agreement.
  • A majority of bargaining unit members voted to be represented as employees in collective bargaining with FedEx Home Delivery.
The Board found that the Whether the Principal is or is not in the Business factor weighed in favor of employee status because FedEx is engaged in the same business as its drivers.
The Board found that the Whether the Evidence Tends to Show that the Individual is, in Fact, Rendering Services as an Independent Business factor weighed in favor of employee status:
  • Because:
    • drivers' right to hire was more theoretical than actual;
    • FedEx Home Delivery had significant control over whether a driver may sell their routes and under what circumstances;
    • FedEx Home Delivery had the right to approve individuals who acquired routes and required them to enter a similar Agreement as the drivers;
    • only two route sales occurred in the Hartford terminal;
    • only three multiple route drivers were excluded from the petitioned-for unit;
    • the sale of a drivers route actually takes that driver out of the unit because it ends that driver's relationship with FedEx Home Delivery;
    • a driver's right to work for other employers was unrealistic because they worked for FedEx Home Delivery during the day, when most other opportunities are available;
    • drivers did not control important business decisions, including strategy, customer recruitment and customer prices; and
    • drivers did not advertise for business or maintain a separate business presence.
  • Even though FedEx Home Delivery's drivers have the right to:
    • hire and supervise supplemental drivers; and
    • use their vehicles for other commercial purposes when not delivering for FedEx Home Delivery.
Member Miscimarra recused himself from the proceeding.
In dissent, Member Johnson argued that:
  • The majority's approach is not permitted by the NLRA because it resurrects the economic realities or economic dependence standard from NLRB v. Hearst Publications (322 U.S. 111 (1944)) that Congress abrogated by amending the NLRA in 1947 to exclude independent contractors and include a common-law test (see Nationwide Mutual Ins. Co. v. Darden, 503 U.S. 318, 324-25 (1992)).
  • The majority appears to improperly make a policy decision that the NLRA should be construed to protect service providers from any imbalance in economic bargaining power between them and the other contract party.
  • The majority set-up a straw-man to knockdown by finding that the DC Circuit elevated entrepreneurial opportunity factors above others in the earlier FedEx Home Delivery matter. The court merely recognized the importance of those factors in an independent contractor test factor.
  • By reducing entrepreneurial opportunity factors part of the distinct business factor, the majority improperly diminished entrepreneurial opportunities as factors in future cases.
  • By minimizing entrepreneurial opportunity, the majority disregarded the principle that weight be given to factors depending on the factual circumstances of each case (Roadway, 326 N.L.R.B. at 850-851).
  • The Hartford FedEx drivers' ability to sell their routes was evidence of actual entrepreneurial opportunity, not just theoretical opportunity. Member Johnson notes that:
    • the fact that someone seized an entrepreneurial opportunity is proof that the opportunity existed in the first place; and
    • the majority did not give sufficient weight to this ability or evidence that others seized it.
  • Some restraints and required approval are not meaningful barriers to selling a route. In typical contracts with common-law employees, assignment is totally forbidden.
  • There is a fundamental problem with the premise that a low number of sales transactions automatically means that there were no opportunities.
  • In approaching the issue of entrepreneurial opportunity, the majority should have reviewed whether there was a market for route sales and the case could have been remanded to allow the regional director to accept system-wide evidence of fair market value of entrepreneurial opportunities.
  • The majority failed to provide any benchmark of what would be acceptable as evidence of actual entrepreneurial opportunity as opposed to theoretical opportunity.
  • The Board is not entitled to Chevron deference when overriding statutory language and Congressional mandates that it use common law independent contractor test factors rather than interpreting law where there are gaps in statutes (compare Chevron U.S.A., Inc. v. Natural Res. Defense Council, Inc., 467 U.S. 837, 842-43 (1984) with NLRB v. Bell Aerospace Co., 416 U.S. 267, 289 (1974)).

Practical Implications

In FedEx Home Delivery, the majority asserted that it was merely clarifying its independent contractor status test. However, it is clear that the majority reshuffled and reweighed factors and types of evidence that it traditionally considered to create a new independent contractor status test.
The maneuver may permit it to side-step the DC Circuit's determination that FedEx Home Delivery drivers in essentially the same circumstances were independent contractors without completely rebuking the DC Circuit's analysis.
Parties may find the Board's analysis of many facts within the new test useful when evaluating their own independent contractor classifications. However, the subsumed entrepreneurial factors will be challenging to evaluate. Contracting relationships may afford workers entrepreneurial opportunities, but until workers (that seek union representation or file ULP charges) seize those opportunities, the Board majority pays them little attention. The standard may create a paradox where workers performing the exact same functions are found to be independent contractors or employees based on evidence of their personal initiative, willingness to take economic risks and attempts to build personal enterprises. Moreover, as the dissent notes, the majority also failed to provide a benchmark for what qualifies as actual entrepreneurial opportunity.
The majority's analysis of entrepreneurial opportunity appears to be an outlier as other agencies and independent contractor tests:
  • Focus on whether the worker had access to, rather than seized the opportunity.
  • Consider evidence of how similarly situated workers seized those opportunities as evidence that the opportunities were more than theoretical.
This case will likely head to the DC Circuit. At least until then, companies that use independent contractors should expect unions will have success in petitioning to represent workers at the margin between independent contractors and employees if they do not exhibit enterprising or entrepreneurial initiative.
UPDATE: ON MARCH 3, 2017, The DC Circuit granted FedEx Home Delivery's petition for review, rejecting the NLRB's conclusion that delivery drivers were employees rather than independent contractors. The DC Circuit: