On August 26, 2016, the National Labor Relations Board made public an Advice Memorandum from the NLRB’s Office of General Counsel regarding an unfair labor practice case arising in the context of independent contractor misclassification. The Advice Memo has already been reported in the trade as ruling that the misclassification of employees as independent contractors, in and of itself, violates the National Labor Relations Act.  A close reading of the Advice Memo, however, reveals that it never quite reaches that conclusion – but nonetheless seems to have extended the law to create a “misclassification-plus” type of unfair labor practice. Pacific 9 Transportation, Inc., Case 21-CA-150875 (Div. of Advice Memo, Dec. 18, 2015, released to public August 26, 2016).

What Does the NLRB Advice Memo Actually Say?

The Advice Memo instructs the Region where the charge was filed to issue a Section 8(a)(1) complaint “in these circumstances, where the Employer told its drivers that they were independent contractors and had no right to form a union but treated them as employees in virtually every respect.”

In the Advice Memo, the NLRB’s Office of General Counsel acknowledges that “[a]lthough the Board has never held that an employer’s misclassification of statutory employees as independent contractors in itself violates Section 8(a)(1), there are several lines of Board decisions that support such a finding.” Yet, when those lines of NLRB decisions are examined, they too depend on acts beyond simply classifying an employee as exempt or not under the NLRA. The first line of Board decisions focuses on actions that prevent employees from engaging in protected conduct, while the second line of cases highlights statements that engaging in union organizing would be futile because the company “would never accept an employer-employee relationship with its workers [that were classified as ICs].” In contrast, merely classifying workers as ICs does not prevent workers from engaging in union organizing nor suggest futility to employees where the company does nothing more than maintain its legal position that the workers in question are ICs and not employees. The third line of cases involves “misstatements of law . . . if the statement reasonably insinuates adverse consequences for engaging in [union] activity.”  Again, merely classifying workers as ICs does not suggest adverse consequences for those who may seek to unionize, even though, as a matter of law, ICs have virtually no protection from termination under the NLRA.

The Advice Memo then examined the allegations in the Pac 9 case, focusing on the following: (1) the company entered into IC agreements providing the drivers with a fair degree of independence but did not abide by those terms, instead directing the manner of performance of the drivers; (2) the company sent drivers a memo that “only ‘employees (not owner operators or independent contractors) have the right to form a union’”; and (3) insisting that drivers are independent contractors, after the Region determined that they were not, “is tantamount to the Employer telling its employees that they engage in Section 7 [union] activities at the risk of losing their jobs.”  The Advice Memo concludes:  “For these reasons, we conclude that on these facts, the Employer’s misclassification of its employees as independent contractors acts to interfere and restrain its employees in the exercise of their Section 7 rights.”

Analysis

On April 21, 2016, I commented in a blog post about another NLRB case involving misclassification of ICs. That case, Intermodal Bridge Transport, Case 21-CA-157647, involved a claim of IC misclassification in the context of unfair labor practices including allegations of interrogation, promises, and threats. We stated at that time that “Because the Intermodal case included allegations of other “classic” violations of the law (threats, interrogations, and promises), it is too early to tell if the General Counsel of the NLRB is taking the position that mere misclassification of workers as independent contractors violates the National Labor Relations Act – or that something more must be done to a worker whom the General Counsel believes should be classified as an “employee” under NLRB and court decisions defining that term.”

The Pac9 case is a significant step beyond Intermodal, where there was no need for the NLRB to stretch the law. In contrast, in Pac9, no overt interrogation, threats, or promises were present. While a close reading of the Advice Memo makes it clear that misclassification itself is not an unfair labor practice, the NLRB seems to have created an unfair labor practice premised on IC misclassification plus something more – even a statement that may be nothing more than a comment protected by Section 8(c) of the NLRA. That time-honored section provides: “The expressing of any views, argument, or opinion, or the dissemination thereof, whether in written, printed, graphic, or visual form, shall not constitute or be evidence of an unfair labor practice under any of the provisions of this Act, if such expression contains no threat of reprisal or force or promise of benefit.” Presumably, Pac9 would have been better off if it expressly told the drivers that, “in our view, you have no right to form a union.”

The first part of the NLRB General Counsel’s proposed remedy would be to require the company to “communicate to its drivers that they are independent contractors and not employees within the meaning of the Act.” While that remedy may be within the Board’s authority, because it qualified the communication by limiting it to the National Labor Relations Act, there is a final part of the proposed remedy that is unlikely to survive judicial scrutiny: “requiring that [Pac9] take affirmative action to rescind any portions of its Agreements with its drivers that purport to classify them as independent contractors and to post the appropriate notice.” As I have observed in many of my blog posts, most federal and state laws use varying tests for IC status, and an NLRB finding that the drivers are employees and not ICs does not mean that the drivers are employees under an abundance of other federal and state laws governing ICs including the federal tax laws.  For the NLRB to require that the company’s IC agreements be re-written would amount to the NLRB imposing its authority well beyond its legal limits. 

Takeaway

As I have previously noted in other blog posts, businesses that utilize independent contractors would be wise to focus on enhancing their compliance with applicable IC laws instead of concerning themselves about an agency that may be expanding its notion of what constitutes an unfair labor practice in the area of IC misclassification. The NLRB Advice Memo in the Pac9 case would have little or no impact on a company that properly classifies its workers under NLRB law.

Businesses interested in enhancing their compliance with IC laws can do so in a variety of ways, as detailed in my White Paper on minimizing IC misclassification risks, including the use of a process such as IC Diagnostics,™ which assesses IC compliance under applicable law, restructures and re-documents the IC relationship in a more compliant manner, and then implements the IC relationship in a customized and sustainable fashion.

Written by Richard Reibstein.