NLRB Restores Former Independent Contractor Test, Vets Airport Shuttle Franchisees' Entrepreneurial Opportunities | Practical Law

NLRB Restores Former Independent Contractor Test, Vets Airport Shuttle Franchisees' Entrepreneurial Opportunities | Practical Law

In SuperShuttle DFW, Inc., the National Labor Relations Board (NLRB) returned to its long-standing independent-contractor standard, reaffirming the NLRB's adherence to the traditional common-law test. The NLRB overruled FedEx Home Delivery, a decision that modified the applicable test for determining independent-contractor status by limiting the significance of a worker's entrepreneurial opportunity for economic gain. The NLRB concluded that the workers (franchisees) are not employees under the National Labor Relations Act (NLRA), but rather independent contractors.

NLRB Restores Former Independent Contractor Test, Vets Airport Shuttle Franchisees' Entrepreneurial Opportunities

by Practical Law Labor & Employment
Law stated as of 13 Jun 2023 • USA (National/Federal)
In SuperShuttle DFW, Inc., the National Labor Relations Board (NLRB) returned to its long-standing independent-contractor standard, reaffirming the NLRB's adherence to the traditional common-law test. The NLRB overruled FedEx Home Delivery, a decision that modified the applicable test for determining independent-contractor status by limiting the significance of a worker's entrepreneurial opportunity for economic gain. The NLRB concluded that the workers (franchisees) are not employees under the National Labor Relations Act (NLRA), but rather independent contractors.
On January 25, 2019, in SuperShuttle DFW, Inc., a majority of the panel (Board) heading the NLRB's judicial and election functions overruled its court-rejected independent contractor test from FedEx Home Delivery, which reduced considerations of contractors' entrepreneurial opportunities to one aspect of a new factor, whether the contractor is rendering services for an independent business. The Board returned to its traditional common-law multi-factor test which considers whether those factors qualitatively tend to show the contractors either have entrepreneurial opportunities like independent businesses or are subject to employer control like employees. Applying its traditional common law test, the Board decided that franchisees who operate shared-ride vans for SuperShuttle Dallas-Fort Worth are independent contractors rather than employees covered under Section 2(3) of the NLRA. The Board affirmed the dismissal of a union's petition for a representation election, resolving the union's request for review of that dismissal dating back to 2010. (367 N.L.R.B. No. 75 (Jan. 25, 2019)).

Background

SuperShuttle DFW, Inc. operates shared-ride van services in the Dallas-Fort Worth area. Drivers, whom Local 1338 of the Amalgamated Transit workers petitioned the NLRB for an election to represent, signed one-year unit franchise agreements characterizing them as nonemployee franchisees operating as independent businesses. The drivers supply their own shuttle vans and pay SuperShuttle an initial franchise fee and a flat weekly fee for the right to use the SuperShuttle branch and its Nextel dispatch and reservation apparatus. Furthermore, drivers take advantage of permits that SuperShuttle maintains with Dallas-Fort Worth and Love Field airports. Drivers do not negotiate about the Agreement's terms, but are free to:
  • Accept or decline any trips.
  • Create their own schedules.
  • Sell their franchise with limited stipulation.
  • Keep all money earned from driving assignments.
  • Hire and employ qualified relief drivers when unable to drive.
An NLRB regional director found SuperShuttle established that its drivers were independent contractors, because:
  • The hearing record suggested that:
    • SuperShuttle did not exercise substantial control over the drivers' job performance details;
    • SuperShuttle drivers were entitled to all fares earned from accepted trips;
    • the drivers' right to sell their routes was substantially important because they would be permitted to gain from their investment; and
    • if the sale of the franchise was not approved by SuperShuttle, the franchisee may challenge.
  • The franchisees failed to show that SuperShuttle:
    • significantly controls franchisees' business; or
    • exercises control over the 'manner and means' by which the franchisees conduct the actual business of transporting customers.
The union filed a request for review, challenging the regional director's independent contractor analysis and conclusion. The NLRB granted that review in 2010, but did not issue a decision in this case while FedEx Home Delivery proceeded through successive Board decisions and US Court of Appeals for the District of Columbia Circuit denials of enforcement (see Legal Update, NLRB Finds Fedex Home Delivery Drivers Employees Under New Independent Contractor Test, Rejects DC Circuit Independent Contractor Finding on Same Facts).

Outcome

The Board majority (Chairman Ring and Members Kaplan and Emanuel) overruled FedEx Home Delivery to return to the common-law agency test and pre-FedEx Home Delivery Board precedent (see NLRB v. United Insurance Co. of Am., 390 U.S. 254, 256 (1968); compare Roadway Package Sys., Inc., 326 N.LR.B. 842 (1998) and Dial-A-Mattress Oper. Co., 326 N.L.R.B. 884 (1998) with FedEx Home Delivery, 361 N.L.R.B. 610 (2014), enforcement denied and order vacated by 849 F.3d 1123 (D.C. Cir. 2017)).
The majority noted that:
  • 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 the parties believe they are creating a master and servant relationship; and
    • whether the principal is in the business.
  • 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 850-51).
  • The Board has held that the common law factors supported finding an independent contractor relationship because they showed that contractors had entrepreneurial opportunity for gains or losses based on their own actions and choices (see St. Joseph News Press, 345 N.L.R.B. 474 (2005); Dial-A-Mattress, 326 N.L.R.B. 884 (1998)).
  • In the context of limousine and cab services, the Board has considered within the common law test:
    • the relationship between the company's compensation and the amount of fares collected; and
    • the manner and means by which the drivers conduct business after leaving the garage.
(AAA Cab Services, 341 N.L.R.B. 462, 465 (2004).)
The Board majority held that:
  • FedEx Home Delivery is overruled because it:
    • impermissibly altered the common law test; and
    • did not properly weigh entrepreneurial opportunity.
  • Common-law factors should be considered individually through the prism of entrepreneurial opportunity when the specific factual circumstances of the case make such an evaluation appropriate.
The Board majority ruled that:
  • SuperShuttle does not exercise control over the manner and means by which the franchisees conduct the actual business of transporting customers for the reasons identified by the NLRB regional director, including that the franchisees:
    • set their days, hours, and workloads as they wish; and
    • operate their vehicles with little oversight from SuperShuttle.
  • The method of payment factor supports an independent contractor finding. The lack of any connection between the fares franchisees collect and the monthly flat fee franchisees pay for the right to get referrals from SuperShuttle suggests entrepreneurial opportunities are determined by franchisees' own decisions about how often and when to work.
  • The instrumentalities, tools, and place of work factors supports an independent contractor finding. The franchisees ownership of their vans and possession of SuperShuttle's Nextel equipment under the franchise agreement permits the franchisees to work when they want and to take different types of assignments and therefore work in different places within the vicinity of the Dallas-Fort Worth area.
  • The supervision factor supports an independent contractor finding. The franchisees can turn on their Nextel equipment when they wish to receive work from the SuperShuttle dispatcher. They are not assigned particular work because they may accept or decline any bid. Isolated incidences of SuperShuttle imposing fines on franchisees for failing to complete an accepted bid do not outweigh that franchisees otherwise run their own days autonomously without supervision.
  • The parties' understandings of their relationship factor supports an independent contractor finding. The UFA clearly notes that there is no employment relationship and includes an acknowledgment that franchisee is an independent owner of its respective business. The facts that SuperShuttle does not provide employee benefits or withhold payroll taxes and that five of the franchisees are corporations further suggests the parties understand and acknowledge they are separate businesses.
  • The following four factors weigh in favor of finding the franchisees are employees:
    • driving is not a distinct business. Drivers do not have a specialized occupation such that they are typically perceived to be in business for themselves;
    • the franchisees are clearly part of SuperShuttle's business of transporting customers;
    • the franchisees contribute to the principal revenue generating activity of SuperShuttle, ensuring customers reach their destinations; and
    • the franchisees require no specialized training or skills.
      (Prime Time Shuttle Int'l, 314 N.L.R.B. 838, 840 (1994).)
  • The length of "employment" or engagement factor is neutral. The UFA's one-year duration is not so long that it suggests an employment relationship. However, the evidence suggested that franchisees tended to renew their UFAs annually and remain engaged with SuperShuttle for longer than one year.
In dissent, Member McFerran argued that:
  • The majority wrongly overruled the Board's 2014 FedEx Home Delivery decision without public notice and an invitation to file briefs.
  • The drivers perform work that is the core part of SuperShuttle's business, subject to a nonnegotiable "unit franchise agreement" that regulates their work.
  • The drivers cannot possibly perform the work for SuperShuttle without being completely integrated into SuperShuttle's system and infrastructure.
  • SuperShuttle's drivers are not independent in any meaningful way, and they have little meaningful "entrepreneurial opportunity."
  • Franchisees of SuperShuttle resemble the insurance agents found to be employees by the Supreme Court in United Insurance:
    • the drivers do not operate their own independent businesses, but perform functions that are an essential part of the company's normal operations;
    • they need not have any prior training or experience, but are trained by company supervisory personnel;
    • the agreement that constrains the terms and conditions under which they operate is unilateral; and
    • drivers have a permanent working relationship with the company and they may continue as long as their performance is satisfactory.

Practical Implications

The independent contractor analysis under the NLRA remains a multi-factor test. This decision restores common law independent contractor factors in place of self-determining economic dependence and business relatedness factors set out in FedEx Home Delivery. In light of this decision, NLRB regional directors and administrative law judges will engage in factfinding about each of the common law factors and then consider whether those factors qualitatively tend to show the contractors either have entrepreneurial opportunities like independent businesses or are subject to employer control like employees. For better or for worse, the analysis is not mechanical, and not simply a matter of counting factors in favor and factors against independent contractor status. However, with the restored independent contractor test, more entities, including franchisees, ride-sharers, owner-operators, freelancers, and consultants are likely to be held to be independent contractors than under the overruled FedEx Home Delivery test.

UPDATE:

On June 13, 2023, a Board majority overruled SuperShuttle and reinstated the FedEx Home Delivery standard for evaluating independent contractor status under the NLRA (Atlanta Opera, Inc., 372 N.L.R.B. No. 95 (June 13, 2023); for more information on this decision, see Practice Note, 2023 Traditional Labor Law Developments Tracker: Statutory Inclusions and Exclusions and NLRB Jurisdiction.)