The National Labor Relations Board earlier today held that a courier services company misclassified drivers as independent contractors instead of employees protected under the National Labor Relations Act. The Board also held that the company violated the NLRA when it terminated its relationship with one of the couriers because of her activities raising group complaints about the company’s classification of the drivers. With one member dissenting, the NLRB refused to conclude, however, that the company’s act of misclassifying the couriers as ICs was, standing alone, a violation of the NLRA. It also rejected the argument that it should issue an order mandating that the courier company reclassify its drivers as employees and notify them that they are not ICs under the NLRA.
At first blush, the Board’s decision may seem internally inconsistent – finding that the company misclassified the workers in question and committed an unfair labor practice by terminating a worker for engaging in protected activity, but concluding that the company did not violate the law by its act of misclassifying the workers and advising the workers that they are independent contractors. Yet a close review of the majority’s opinion demonstrates that the Board’s decision on the “stand-alone” issue was mandated by the “free-speech” provisions of the NLRA as well as public policy considerations.
Despite the Board majority’s view that misclassification itself is not an unfair labor practice, its decision today should not be read to suggest that the NLRB’s Republican-appointed members countenance IC misclassification. The Board unanimously held that the drivers had been misclassified as ICs and, as a result, they are now subject to unionization. For that reason, we discuss in the “Takeaways” below a means by which many businesses that utilize an IC business model can meaningfully enhance their IC compliance – and do so in a customized manner consistent with their business strategy.
The Misclassification of the Couriers
Before reaching the issue of whether the act of misclassifying employees as ICs violated the NLRA, the Board majority first addressed the threshold question of whether the company, Velox Express, Inc., had actually misclassified the drivers who provided services to Velox and its customers. Applying the Board’s new test for IC status as set forth in its January 25, 2019 decision in SuperShuttle DFW, which was the subject of our blog post that day, the majority of the NLRB concluded that the Velox couriers were employees and not ICs under the NLRA’s test for IC status.
In concluding that the couriers were misclassified, the Board majority found the following factors supported employee status: Velox’s drivers must personally service pre-established routes in which they had no proprietary interest and must service those routes during certain specific time periods on designated days with no discretion to determine when and how long they work; they received flat fees over which they had no input or control; they had to request time off from Velox when they did not wish to work a scheduled day; and they had to follow detailed procedures and respond to all Velox communications or be subject to disciplinary fines.
The “Stand-Alone” Issue
After finding the couriers were statutory employees under the NLRA, the Board addressed the following question, which was posed by the Board 18 months ago when it issued a Notice and Invitation to File Briefs: “Under what circumstances, if any, should the Board deem an employer’s act of misclassifying employees as independent contractors a violation of Section 8(a)(1) of the Act?”
In addition to the briefs of the parties and the General Counsel of the NLRB, over a dozen amicus curiae briefs were filed, including from the AFL-CIO and Teamsters, on the one hand, and the American Trucking Association and the Chamber of Commerce of the United States, on the other hand.
In finding that an employer’s classification of workers as ICs and its “mere communication to its workers that they are classified as independent contractors” does not violate the NLRA, the Board majority first addressed Section 8(c) of the Act, the so-called “free speech” section, which 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 . . . , if such expression contains no threat of reprisal or force or promise of benefit.” It concluded that when an employer decides to classify its workers as independent contractors, it forms a legal opinion regarding the status of those workers and “its communication of that legal opinion to its workers is privileged by Section 8(c) of the Act . . . .”
Notably, the NLRB majority concluded that even if a company is wrong in its view that certain workers are ICs and is determined to have misclassified the workers, “erroneously 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.”
As a policy matter, the Board majority noted that “[i]ndependent-contractor determinations are difficult and complicated enough when only considering the Act, but the Act is not the only relevant law.” It added: “An employer must consider numerous Federal, State, and local laws and regulations that apply a number of different standards for determining independent-contractor status. Unsurprisingly, employers struggle to navigate this legal maze. Further, in 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.”
The final issue addressed by the Board majority was the appropriate remedy for the unfair labor practice it found that Velox had committed. The majority opinion, in a lengthy footnote, declined to order Velox to reclassify the workers as employees, finding that such a remedy only should be considered where the posting of a notice – the standard NLRB remedy – is insufficient, and there was no reason to believe that a notice would not dissipate the unlawful discharge of the driver.
In Member McFerran’s dissent, she focused on what she referred to as the “chilling effect” of misclassification, arguing that the IC agreement that declared each driver to be an IC “implied that drivers had no rights under the Act,” which she regarded as unlawful. She also viewed Section 8(c)’s free speech provisions as inapplicable because, in her view, the communication of IC status to the drivers was not a “legal opinion” and itself restrained, coerced, and interfered with the drivers’ rights under the NLRA. Finally, Member McFerran asserted that because Velox committed an unfair labor practice by terminating a driver for engaging in protected activities, it is necessary for Velox to inform the other drivers that they are not ICs but rather employees entitled to rights protected by the NLRA.
Analysis and Takeaways
This issue – whether the act of misclassifying workers as ICs is itself an unfair labor practice – was the subject of a prior blog post on this site. On August 30, 2016, we commented on an “Advice Memorandum” issued by the General Counsel of the NLRB, an Obama appointee, who stated: “Although 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.” However, when we closely examined those NLRB decisions, we found that they all required what we referred to at the time as “misclassification-plus” – an unfair labor practice added to misclassification. That issue is at the core of this case, and Member McFerran has essentially adopted the position of the former General Counsel.
The Board majority, though, essentially has adopted a “misclassification-plus” approach, but in its mind the “plus” needs to be “super-plus” – an unfair labor practice that applies not to a single worker but to the entire group of misclassified employees. As noted above, the Board majority favorably cited to existing NLRB cases which held that companies will violate the NLRA if they seek to reclassify workers from employees to ICs to avoid unionization.
The lesson for businesses based on an IC model or that engage a considerable number of ICs is to avoid the consequences and risks now faced by Velox. While it likely Velox had a good faith belief that its classification of drivers as ICs was valid, at least one federal agency has now found its classification was unlawful, which makes it a target for unionization and/or a class action lawsuit for a wage and hour or other employment law violation.
How can companies minimize these types of risks?
One way by which an increasing number of businesses have elevated their level of IC compliance is through a process such as IC Diagnostics™, which provides companies with a customized means to restructure, re-document, and re-implement their IC relationships to minimize IC misclassification exposure without changing their business model. Had a company like Velox undertaken this type of process, the likelihood of it having to defend itself before the NLRB or risking unionization or being the subject of a class action would have been substantially reduced.
Written by Richard Reibstein