As summer turned to fall, the National Labor Relations Board (“NLRB” or the “Board”) issued a steady stream of decisions with significant and favorable implications for employers.  In the flurry of recent decisions, the Board addressed misclassification of workers as independent contractors, employers’ rights to control access to private property (Tobin Center for Performing Arts, UPMC, and Kroger Mid-Atlantic), the right to impose class action waivers in the wake of employment lawsuits, withdrawal of union recognition, the appropriate scope of bargaining units, and management’s right to make unilateral changes to terms and conditions of employment that are “covered by” a collective bargaining agreement (“CBA”).

The decision with possibly the most significant impact for employers with unionized workforces is MV Transportation, Inc., 368 NLRB No. 66 (September 10, 2019).  In MV Transportation, a 3-1 Board majority changed the longstanding legal standard applied in cases where employers make unilateral changes to the terms and conditions of employment for bargaining unit employees during the term of a CBA but without first providing the union with notice and an opportunity to bargain in each instance.  Under the National Labor Relations Act (“NLRA” or the “Act”) employers whose employees are represented by a union are required to bargain with that union over changes “to wages, hours, and other terms and conditions of employment” (commonly referred to as “mandatory subjects” of bargaining).  In the typical scenario, employers and unions hammer out a CBA aimed to address issues that may arise concerning mandatory subjects of bargaining over the term of the contract, usually including some sort of “management rights” provision, reserving to the employer the exclusive authority and discretion to take certain actions, provided they do not violate other provisions of the CBA.  Typical among these management-reserved rights is to implement and/or revise reasonable work rules and policies, for example.

As employers experienced with unionized workforces are all too aware, however, before the decision in MV Transportation the Board applied a “clear and unmistakable waiver” standard with respect to changes in mandatory subjects of bargaining.  Under that standard, absent a specific showing that a union had expressly waived its right to bargain over a particular policy or change in a mandatory subject, then implementing such a change without first giving the union a reasonable opportunity to bargain over the same would constitute an unlawful unilateral change under the NLRA.  This was so despite language in the parties’ CBA, whether found in the management rights provision or elsewhere, that generally gave the employer the right to implement or modify policies during the term of the CBA without further bargaining with the union.

Specifically, the old “clear and unmistakable waiver” standard required the parties to include language in a CBA that “unequivocally and specifically express[es] their mutual intention to permit unilateral action with respect to a particular employment term, notwithstanding the statutory duty to bargain that would otherwise apply.” Provena St. Joseph Medical Center, 350 NLRB 808, 811 (2007).  Application of the “clear and unmistakable waiver” standard proved problematic even for employers that bargained for broad contractual language intended to permit management to reserve to it certain flexibility and discretion to adjust terms and conditions of employment during the term of a CBA, such as through the adoption of common sense changes to safety rules or attendance policies.

Although the Board reaffirmed adherence to the “clear and unmistakable waiver” standard in 2007, both arbitrators and the courts, including the D.C. Circuit, have often applied a different, less-stringent “contract coverage” standard to allegations of unlawful unilateral change by employers.  Under the “contract coverage” standard, arbitrators and the courts examine whether an employer’s change falls within the scope of a CBA provision that grants the employer the right to act unilaterally in the future.  If so, then the change is found to be covered by the parties’ CBA and, therefore, does not constitute a unilateral change in violation of the Act.  The reasoning is that because the change is “covered by” and does not violate the parties’ CBA, then the change is not one about which the union did not have the opportunity to bargain, but, instead, it is a change about which the parties did bargain previously to agreement. That agreement was to allow management the discretion going forward to implement certain changes on subjects that are “covered by” the CBA–without engaging in further bargaining with the union.

As the Board majority noted in MV Transportation, the view of the D.C. Circuit favoring “contract coverage” over the “clear and unmistakable waiver” standard carried particular weight as the D.C. Circuit has plenary jurisdiction over all Board decisions. Indeed, the Board majority observed that it has even been sanctioned by the D.C. Circuit for failing to abide by the Circuit’s prior decisions in this regard. See Heartland Plymouth Court MI, LLC v. NLRB, 838 F.3d 16, 19-20 (D.C. Cir. 2016) (granting employer’s motion for attorneys’ fees). Accordingly, the Board majority in MV Transportation found that continued adherence to the “clear and unmistakable waiver” standard in unilateral change cases during a CBA had simply “become indefensible.” The Board majority also explained that adherence to the “clear and unmistakable waiver” standard had the undesirable effect of undermining the provisions of CBAs, which rendered less effective clauses such as management rights provisions that parties specifically negotiated into their labor agreements.

In MV Transportation, the Board applied the contract coverage standard to find that the employer had not violated the Act when it implemented five policies affecting bargaining unit employees’ terms and conditions of employment without first bargaining with the union to impasse.  Specifically, the Board majority found the implemented policies at issue were covered by the “Management Rights” and “Discipline and Discharge Procedures” provisions in the parties’ CBA, which reserved to the employer the right “to adopt and enforce reasonable work rules” and “issue, amend and revise policies, rules, and regulations” without first having to bargain with the union to impasse or agreement.

The Board’s embrace of the contract coverage standard provides employers with greater flexibility to take action under such reservation of rights language, and not just in future contract negotiations. Significantly, the Board found “it appropriate to apply the contract coverage test retroactively,” which breathes new life into the language of existing management rights clauses in CBAs. Now, it will be incumbent on the unions to try and negotiate this sort of reservation of rights language out of CBAs.  Before the Board’s decision in MV Transportation, unions were less concerned about including such general reservation of rights language in CBAs. Under the “clear and unmistakable waiver” standard, the effect of such language was severely limited by the ability to file an unfair labor practice charge claiming that any implementation prior to agreement or impasse constituted an unlawful unilateral change.  That is no longer the case under MV Transportation, and employers no longer have to be committed to litigate such cases to the D.C. Circuit to prevail on the issue.

Henceforth, and retroactively, in unilateral change cases occurring during the term of a CBA, the NLRB will first seek to “give effect to the plain meaning of the relevant contractual language” by examining whether the parties’ CBA can be said to cover the employer’s disputed act.  If so, then there will not be a violation of the Act. Unions may, of course, still challenge such actions through the grievance and arbitration procedure to seek a final ruling on whether the employer or union’s interpretation of the applicable CBA language is correct, but the slanted field of the “clear and unmistakable waiver” standard in NLRB litigation will only come into play if and when the NLRB determines that an employer action is not “covered by” the parties’ CBA.

The MV Transportation decision underscores the imperative of negotiating (and taking advantage of) robust management rights provisions and other contractual language that provides greater flexibility for employers to exercise discretion and make reasonable adjustments to employees’ terms and conditions of employment over the life of a CBA. As Member McFerran, the Board’s current lone Democratic member, noted in her dissenting opinion: “The implication of the majority’s new standard is clear: If a management-rights provision in a collective-bargaining agreement is sufficiently general, it will permit an employer to act unilaterally with respect to any specific term or condition of employment that plausibly fits within the general subject matters of the provision.”  Whether Member McFerran’s prediction that the Board’s decision MV Transportation will ultimately lead to a destabilizing of collective bargaining remains to be seen.  What is clear, however, is that negotiating and preserving broad management rights provisions has moved to center stage. Particularly for employers seeking to preserve flexibility and exercise discretion in taking actions deemed good for the business without having to first bargain with a union to impasse or agreement, or potentially spend years litigating the issue through the NLRB and up to the courts of appeal.

The U.S. Department of Labor’s Wage and Hour Division (“WHD”) recently issued an opinion letter regarding the designation of FMLA leave in the context of employees covered by collective bargaining agreements (“CBA”) with a union.  This opinion letter provides helpful clarification on an issue that is often a source of confusion for employers (as well as for unions).

Overview

Earlier this year, the WHD advised that once an eligible employee communicates a need to take leave for a FMLA-qualifying reason, an employer may not delay the designation of FMLA-qualifying leave as FMLA leave (i.e., an employee cannot opt to preserve FMLA leave for future use).  See WHD Opinion Letter FMLA2019-1-A (Mar. 14, 2019).  In Opinion Letter FMLA2019-3-A, the WHD addressed whether an employer may delay designating paid leave as FMLA leave if the delay is permitted under the applicable CBA and is the employee’s preference.

The employer at issue was a local government public agency that provides CBA-protected accrued paid leave to its employees in accordance with the negotiated terms of the contract.  According to the employer, its employees prefer to take CBA-protected accrued paid leave because under the state civil service rules and the CBA, time during such a leave is treated as part of an employee’s period of continuous employment that does not affect an employee’s seniority status, unlike unpaid FMLA leave.

Starting with general principles, the WHD reiterated that an employer may require, or the employee may elect, to “substitute” accrued paid leave to cover any portion  of the of the unpaid FMLA entitlement period, meaning that any such paid leave will run concurrently with unpaid FMLA leave.  In terms of the accrual of benefits such as seniority, the WHD advised that an employer must treat the accrual of benefits during paid leave the same as the accrual of benefits during FMLA leave – i.e., allow the accrual of seniority and other benefits during an unpaid FMLA leave if permitted for paid leave.  While employers can adopt more generous leave programs by contract or policy, they must at a minimum comply with the FMLA and not reduce or deny FMLA benefits and protections.

The WHD ultimately concluded that based on the facts presented, the employer could not delay the designation of FMLA-qualifying leave even if the employer is obligated to provide job protection and other benefits equal to or greater than those required by the FMLA pursuant to a CBA or state civil service rules, and must treat the employee’s seniority accrual and status the same on FMLA leave that runs concurrently with CBA-protected accrued paid leave as it would if the employee took only protected accrued paid leave provided for by the CBA.

What This Means for Employers

Care should be taken in the negotiation and administration of collective bargaining agreements to ensure that employees’ leave rights are in accordance with the terms of the FMLA and other applicable leave laws.

This Employment Law This Week® Monthly Rundown discusses the most important developments for employers in July 2019. Both the video and the extended audio podcast are now available.

This episode includes:

  • State Legislation Heats Up
  • NLRB Overturns Another Long-Standing Precedent
  • SCOTUS October Term 2018 Wraps Up
  • Tip of the Week: How inclusion and trust can increase innovation in the workplace

See below to watch the full episode – click here for story details, the video, and the extended audio podcast.

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Last Friday, the National Labor Relations Board (“NLRB”) in UPMC overturned 38-year old precedent and held that employers may lawfully prohibit non-employee union solicitation in public spaces on their property absent evidence of discriminatory enforcement. This ruling may seem like common sense to many as employers have long been permitted to control what types of activities occur on their private property in other contexts.  However, for the past four decades, the NLRB has compelled employers to allow non-employee union organizers to engage in non-disruptive solicitation in areas, such as cafeterias and restaurants, where the Employer had opened its private property to the public.  The NLRB’s ruling in UPMC ends this compelled acquiesce and affirms employers’ property rights.

Although labor organizations will undoubtedly decry this decision as an unjustified departure from precedent, the holding in UPMC merely conforms Board law to Supreme Court precedent and eliminates an intrusion to employer property rights that has long been widely criticized and soundly rejected by federal courts.

The Facts in UPMC.  

In UPMC, security officers removed two nonemployee union representatives from the cafeteria at the University of Pittsburg Medical Center Presbyterian Shadyside.  At the time they were removed, the nonemployee union representatives were sitting at tables on which union pins and flyers were displayed and were discussing union organizational matters with employees.    Security informed the union representatives that the cafeteria was only for the use of patients, their families and visitors, and employees.  In response, the union representatives pointed out that there was at least one other nonemployee in the cafeteria waiting to eat lunch with a friend who worked at the Medical Center.  However, security did not remove that patron.

The NLRB Realigns the Standard with Supreme Court Precedent.

In NLRB v. Babcock & Wilcox Co., 351 U.S. 105 (1956), the United States Supreme Court held that an employer may deny access to its property by nonemployee union organizers, absent two limited exceptions: (1) inaccessibility (i.e., company towns and other situations where employees are largely otherwise secluded) and (2) activity-based discrimination (i.e., treating unions differently from other third parties engaged in similar activities).  The Board noted that the Supreme Court viewed both exceptions narrowly and imposed a heavy burden on the party attempting to establish either one.

However, in deciding cases in which union organizers sought access to a portion of private property open to the public, the Board created an additional exception that effectively disregarded Babcock’s limited exceptions to the general rule restricting nonemployee access.  Specifically, in Ameron Automotive Centers, 265 NLRB 511, 512 (1982), the Board stated that where an employer has opened up its property the “Babcock & Wilcox criteria need not be met, since nonemployees cannot in any event lawfully be barred from patronizing the restaurant as a general member of the public.”

This third Board-created exception, referred to as the “public space” exception, found discrimination based solely on the fact that nonemployee union organizers were denied access to areas of an employer’s private property where the employer has arguably permitted the public general access.  Under this exception, the Board did not consider “whether the employer permitted any other nonemployees to engage in the same solicitation or promotional activities engaged in by the union.”

As noted, federal courts, including the 4th, 6th, and 8th Circuits, soundly rejected this additional exception created in Ameron Automotive Centers. 

Accordingly, relying on Babcock and its progeny, the current Board has now overruled Ameron Automotive Centers and any decision which permitted nonemployee union solicitation based on the “public space” exception, explaining that to allow such an exception, absent inaccessibility or activity-based discrimination, was “irreconcilable with well-established Supreme Court precedent” as set forth in Babcock.  Importantly, the Board specifically noted:

[A]n employer does not have a duty to allow the use of its facility by nonemployees for promotional or organizational activity. The fact that a cafeteria located on the employer’s private property is open to the public does not mean that an employer must allow any nonemployee access for any purpose.

The Board further ruled that this new standard will be applied retroactively.

The Medical Center Was Within Its Rights to Eject the Nonemployee Union Organizers.

In applying this standard to the facts of the case, the Board held that there was no violation “because there is no evidence that the Respondent permitted any solicitation or promotional activity in its cafeteria.”  In fact, the employer had a practice of removing all nonemployees engaged in promotional or solicitation activities in or near the cafeteria.

Moreover, the Board rejected the argument that discrimination occurred because there was another nonemployee present in the cafeteria that day who was not ejected.  The Board reasoned that this individual was using the cafeteria consistent with the purposes authorized by the Medical Center, i.e., to eat lunch.  By contrast, the nonemployee union organizers sought to use the cafeteria in a manner that went well beyond eating lunch with friends.  Thus, they were rightfully ejected while the friend of the employee was permitted to remain.

Applying this Standard Moving Forward.

The core holding in UPMC recognizes employers’ property rights and employers’ rights to determine the use of their property.  Specifically, UPMC recognizes that an employer can invite members of the public to patronize its facilities or even rest or congregate in open spaces on the private property, such as tables and benches, without forfeiting its right to prohibit solicitation and other antagonistic activities.

Under UPMC, employers are no longer required to allow nonemployee union solicitation in areas of their property just because these areas are open to the public.  Rather, an employer can now prohibit such activities on its property without fear of violating the Act “so long as it applies the practice in a nondiscriminatory manner by prohibiting other nonemployees from engaging in similar activity.”  In other words, employers are again in control of what activities may take place in their own facilities.

In light of UPMC, employers should review their policies on access, solicitation, and distribution with labor counsel to ensure they are providing the desired protections.

In its new podcast series, Employment Law This Week has released an extended Monthly Rundown, discussing some of the most important developments for employers in June 2019.

This episode includes:

  • Worker Classification in the Gig Economy
  • NLRB Announces Rulemaking Agenda
  • National Backlash Builds Against Non-Compete Agreements
  • Tip of the Week: Compliance with New Jersey’s Equal Pay Act

Stay tuned: Listen to the latest episode on our website or on your preferred platform – iTunes, Google Play, Soundcloud, or Spotify – be sure to subscribe!

The rulemaking priorities of the National Labor Relations Board (“NLRB” or “Board”) have been released, signaling what Board Chairman John F. Ring described as “the Board majority’s strong interest in continued rulemaking.” The announcement was contained in the Unified Agenda of Federal Regulatory and Deregulatory Actions, published by the Office of Management and Budget’s Office of Information and Regulatory Affairs.

Issues Identified by the Board for Further Rulemaking

The Board majority has identified the following as areas in which it intends to engage in additional rulemaking:

  • The Board’s current representation-case procedures.
  • The Board’s current standards for blocking charges, voluntary recognition, and the formation of Section 9(a) bargaining relationships in the construction industry.
  • The standard for determining whether students who perform services at private colleges or universities in connection with their studies [including student athletes on a scholarship] are “employees” within the meaning of Section 2(3) of the National Labor Relations Act (29 U.S.C. Sec. 153(3)).
  • Standards for access to an employer’s private property.

The Board noted that, in addition to these areas, it is “proceeding with its rulemaking regarding the joint-employer standard.”

Notably, each of the identified issues is one that the current Board majority has identified as an area in which it questions Obama-era Board rulemaking (in the case of representation case and election procedures) or Board decisions that have been seen as advancing the agenda of organized labor and its supporters.

The Board’s Representation Election Rules

One of the Obama Board’s most controversial actions was its own exercise in rulemaking, which resulted in the 2015 implementation of expedited election rules that not only reduced the average time between the filing of a representation petition and the holding of a vote from approximately 45 days to something in the 25-day range, but also limited employer rights to resolve legal issues at a pre-election hearing and increased union rights to information about employees at an earlier stage.

In December 2107, the then-new Republican majority announced that it was seeking comment from interested parties concerning the impact of the changes in the representation case rules that took effect two years earlier. Specifically, the Board posed three question in its Request for Comments:

  • Should the 2014 Election Rule be retained without change?
  • Should the 2014 Election Rule be retained with modifications? (If so, what should be modified?)
  • Should the 2014 Election Rule be rescinded? (If so, should the Board revert to the Election Regulations that were in effect prior to the 2014 Election Rule’s adoption, or should the Board make changes to the prior Election Regulations? If the Board should make changes to the prior Election Regulations, what should be changed?)

In explaining its decision to issue the Request for Comments, the Board majority made clear that it is seeking the views of all interested parties, including labor and management, those in government and the Board’s General Counsel. The Board has also made clear that while it is possible that it may engage in rulemaking to further amend the election rules and procedures, it may maintain the 2014 Election Rules without change, noting that “the Board merely poses three questions, two of which contemplate the possible retention of the 2014 Election Rule.”

While the Board has not yet released the results of its Request for Comments, it is likely that they will be reflected in any new proposed rulemaking in connection with the processing of representation petitions and the holding of elections.

The “Blocking Charge Rule”

The Blocking Charge Rule, which holds that in many circumstances the Board will not conduct a representation election while there are pending unfair labor practice (“ULP”) charges, is another area in which members of the current Board majority indicated an interest in changing and is also identified in the Rulemaking Agenda.

Under the Board’s 2014 Amended Election Rules, the NLRB holds that, when a ULP charge is filed during the pendency of a representation petition, the Board will not conduct the election if the party that has filed the charge—typically the petitioning union or, in the case of a decertification petition, the incumbent union facing a vote to decertify it as the representative—asks that the election be deferred until after the charges are resolved, provided that the charges allege actions by the employer that the union claims prevent or interfere with a fair election. Many observers believe that such blocking charges are used tactically by unions that are concerned that they will face defeat at the polls.

Section 103.20 of the final rule requires that a party wishing to block processing of the petition must file a request to block and simultaneously file a written offer of proof in support of its unfair labor practice charge. If the Region believes the charge precludes a question concerning representation and no request is filed, the Region may ask the Charging Party if they wish to request to block. If so, the Charging Party should be informed that they must file a request to block and an offer of proof, including the names of witnesses who will testify in support of the charge and a summary of each witness’s anticipated testimony. In addition, the Charging Party must promptly make the witnesses available to the Region.

In December 2017, in two decisions, one unpublished, Board Members Kaplan and Emanuel, who both participated in the Rulemaking Agenda, indicated that they believed that the Board should reexamine the Blocking Charge Rule.

The Board Intends to Engage in Rulemaking on the Issue of Whether Graduate Teaching Assistants Are Employees for Purposes of the Act

Another legacy of the Obama Board that the Rulemaking Agenda indicates is likely to be reversed is the Board’s holding in Columbia University that graduate teaching assistants and research assistants are employees under the National Labor Relations Act (“Act”), with the rights to organize and engage in collective bargaining.

In deciding Columbia University, the Board jettisoned its 2004 decision in Brown University in which graduate teaching assistants were held not to be employees for purposes of the Act. The Columbia University majority concluded that the Brown University majority “failed to acknowledge that the Act does not speak directly to the issue posed here, which calls on the Board to interpret the language of the statute in light of its policies.” The Columbia University majority noted that “the Brown University decision, in turn, deprived an entire category of workers of the protection of the Act, without a convincing justification in either the statutory language of the Act or the policies of the Act.”

The Agenda Suggests the Board Will Likely Increase Its Use of Its Rulemaking Authority

Commenting on the Rulemaking Agenda, Chairman Ring noted, “Addressing these important topics through rulemaking allows the Board to consider and issue guidance in a clear and more comprehensive manner.”

The Division of Advice of the National Labor Relations Board (“NLRB” or “Board”), in an Advice Memorandum, dated April 16, 2019 (“Advice Memo”),[1] has concluded that “drivers providing personal transportation services” using Uber Technologies Inc.’s “app-based ride-share platforms” were independent contractors and not employees, as the drivers had alleged in a series of unfair labor practice charges filed in 2014, 2015, and 2016. Based on the Division of Advice’s analysis of the relationship between Uber and the drivers, the General Counsel’s office directed that the Regional Directors in San Francisco, Chicago, and Brooklyn dismiss the charges.

Other Recent Developments 

Given recent pronouncements from the NLRB in decisions such as SuperShuttle DFW, Inc. (367 NLRB N0. 75, January 25, 2019), and the recently released U.S. Department of Labor (“DOL”) Opinion Letter, in which the Board and the DOL have found similar types of gig-economy workers to be independent contractors and not employees, the Advice Memo should not come as a surprise to those who follow developments in this area. In fact, the Advice Memo expressly states that the Division of Advice’s conclusion that drivers using the app are not employees and thus not entitled to the right to unionize or the other protections of the National Labor Relations Act (“Act”) is based on “the common-law agency test as explicated in SuperShuttle DFW, Inc.” As noted in the Advice Memo, the Act’s definition of the term “Employees” explicitly excludes independent contractors. See 29 U.S.C. Section 152(3).

The Board Will Continue to Rely Upon the Restatement (Second) of Agency

 While noting that the Board and the General Counsel will continue to apply these tests for distinguishing between employees and independent contractors, the Advice Memo includes a summary of the “ten nonexhaustive factors enumerated in the Restatement (Second) of Agency” that the Board relies upon:

  • The extent of control which, by the agreement, the master may exercise over the details of the work.
  • Whether or not the one employed is engaged in a distinct occupation or business.
  • The kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the employer or by a specialist without supervision.
  • The skill required in the occupation.
  • Whether the employer or the workman supplies the instrumentalities, tools, and the place of work for the person doing the work.
  • The length of time for which the person is employed.
  • The method of payment, whether by the time or by the job.
  • Whether the work is part of the regular business of the employer.
  • Whether or not the parties believe they are creating the relation of master and servant.
  • Whether the principal is or is not in business.

The Advice Memo notes that the analysis of these factors is qualitative and not “strictly quantitative” and that there is “no shorthand formula.” It also notes that the Board considers the questions of whether the worker is assuming “the opportunities and risks inherent in entrepreneurialism” with such factors likely to lead to a finding of independent contractor status.

What This Means for Businesses

The NLRB, like the DOL, will continue to place great emphasis on whether an individual is taking risk in return for potential gain, finding that this is more consistent with an independent contractor relationship than an employer-employee relationship. However, the Advice Memo indicates that the NLRB will continue to assess each situation based on its own unique facts.

________________

[1] The Advice Memo notes that the Division of Advice’s analysis and conclusions are based on Uber’s “operations and policies” as in effect during the period February 27, 2015, and August 11, 2016, which includes the dates the unfair labor practice charges were filed and the six-month statute of limitations period preceding the filing of the first charge. The Advice Memo also notes that “some current terms” for drivers may now differ from those in effect during that period.

On April 29, 2019, the U.S. Department of Labor (“DOL”) issued an opinion letter concluding that workers providing services to customers referred to them through an unidentified virtual marketplace are properly classified as independent contractors under the Fair Labor Standards Act (“FLSA”).

Although the opinion letter is not “binding” authority, the DOL’s guidance should provide support to gig economy businesses defending against claims of independent contractor misclassification under the FLSA. The opinion letter may also be of value to businesses facing other kinds of claims from gig economy workers that are predicated on employee status, such as organizing for collective bargaining purposes.

Overview

An unidentified “virtual marketplace company” – defined by the DOL to include an “online and/or smartphone-based referral service that connects service providers to end-market consumers to provide a wide variety of services, such as transportation, delivery, shopping, moving, cleaning, plumbing, painting, and household services” – requested an opinion on whether service providers who utilize the company’s platform to connect with customers are employees or independent contractors under the FLSA.

To answer this question, the DOL analyzed whether, and to what extent, the service providers are “economically dependent” upon the company. Applying what is commonly referred to as the “economic realities test,” the DOL considered the following six factors:

  1. the nature and degree of the putative employer’s control;
  2. the permanency of the relationship;
  3. the level of the worker’s investment in facilities, equipment, or helpers;
  4. the amount of skill, initiative, judgment, or foresight needed;
  5. the worker’s opportunity for profit and loss; and
  6. the extent to which the worker’s services are integrated into the putative employer’s business.

The DOL noted that because status determinations depend upon the “circumstances of the whole activity,” it could not “simply count[] factors” when evaluating the service providers’ independent contractor status. Instead, it needed to weigh the relevant factors to determine whether the service providers are in business for themselves, or economically dependent on the company.

The DOL’s Analysis

The DOL began its analysis by explaining that because the service providers work for customers – and not the virtual marketplace, or the company that maintains it – it was “inherently difficult to conceptualize the service providers’ ‘working relationship’” with the company. The DOL then applied the factors listed above, finding that each weighed in favor of independent contractor status.

  • Control. The DOL determined that the “control” factor weighed heavily in favor of independent contractor status. In reaching this conclusion, the DOL noted that the service providers – who have the right to accept, reject, or ignore any opportunity offered to them through the platform – control “if, when, where, how, and for whom they will work,” and are not required to complete a minimum number of jobs in order to maintain access to the platform. The DOL also pointed to the service providers’ freedom to work for competitors, and to simultaneously use competing platforms when looking for work. Finally, the DOL found that the service providers are subject to minimal, if any, supervision. Although customers have the ability to rate the service providers’ performance, the company does not inspect the service providers’ work or rate their performance, or otherwise monitor, supervise, or control the details of their work.
  • Permanence. The DOL found that the lack of permanence in the parties’ relationship weighed strongly in favor of independent contractor status because: (i) the service providers have a “high degree of freedom to exit” the relationship; (ii) the service providers are not restricted from “interacting with competitors” during the course of the parties’ relationship (or after the relationship ends); and (iii) even if the service providers maintain a “lengthy working relationship” with the company, they do so only on a “project-by-project” basis.
  • Investment. The DOL next concluded that the level of investment favored independent contractor status, reasoning that although the company invests in its platform, it does not invest in facilities, equipment, or helpers on behalf of the service providers, who are responsible for all costs associated with the “necessary resources for their work.”
  • Skill and Initiative. Although the company did not disclose the specific types of services available to customers through the platform, the DOL concluded that the level of skill and initiative needed to perform the work supported independent contractor status. Regardless of the specific types of work they perform, the service providers “choose between different service opportunities and competing virtual platforms,” “exercise managerial discretion in order to maximize their profits,” and do not receive training from the company.
  • Opportunity for Profit and Loss. The DOL found that although the company sets default prices, the service providers control the major determinants of profit and loss because they are able to select among different jobs with different prices, accept as many jobs as they see fit, and negotiate with customers over pricing. The DOL also found that the service providers can “further control their profit or loss” by “toggling back and forth between” competing platforms, and determining whether to cancel an accepted job (and incur a cancellation fee) if they find a more lucrative opportunity.
  • Integration. The DOL concluded that the service providers are not integrated into the company’s business operations because: (i) the service providers do not develop, maintain, or operate the company’s platform; (ii) the company’s business operations effectively terminate at the point of connecting service providers to consumers; and (iii) the company’s “primary purpose” is to provide a referral system to connect service providers with consumers in need of services – not to provide any of those services itself.

The DOL found that these facts “demonstrate economic independence, rather than economic dependence,” and concluded that the service providers are independent contractors under the FLSA.

Takeaways

As noted by the DOL, determining “[w]hether a worker is economically dependent on a potential employer is a fact-specific inquiry that is individualized to each worker.” In addition, the tests for determining independent contractor status vary by statute, and by jurisdiction. Accordingly, agencies in some jurisdictions, including in states that apply the “ABC test” to determine independent contractor status in certain contexts, such as California and New Jersey, may disregard the opinion letter. Indeed, the New Jersey Labor Commissioner recently issued a statement indicating that the opinion letter “has zero effect on how the New Jersey Department of Labor enforces state laws … [because] the statutory three-part test for independent contractor status [in New Jersey] … is distinct from and much more rigorous than the standard referenced in the opinion letter.” Nevertheless, the opinion letter should provide support to gig economy businesses defending against claims of independent contractor misclassification under the FLSA, and in jurisdictions that apply tests that overlap with the FLSA’s economic realities test.

The opinion letter may also be of value to businesses facing other kinds of claims from gig economy workers that are predicated on employee status, such as organizing for collective bargaining purposes. Earlier this year, the National Labor Relations Board (“NLRB” or “Board”) adopted a new test to be used in distinguishing between “employees,” who have rights under the National Labor Relations Act (“NLRA” or “Act”) and independent contractors who do not. In its January 25, 2019 decision in SuperShuttle DFW, Inc., 367 NLRB No.75 (2019) the Board rejected the test adopted in 2014 in FedEx Home Delivery, 361 NLRB 610 (2014) and returned to the common-law test, finding that the test adopted in FedEx minimized the significance of a worker’s entrepreneurial opportunity.

SuperShuttle involved a union petition for an election among a group of franchisees operating SuperShuttle airport vans at Dallas-Fort Worth Airport. In response to the petition, SuperShuttle, the franchisor, argued that the franchisees who were seeking representation were not employees but rather independent contractors and as such were not entitled to vote in an NLRB election or to exercise the rights granted to employees, but not independent contractors, under the Act. The Board found that the franchisees’ leasing or ownership of their work vans, their method of compensation, and their nearly unfettered control over their daily work schedules and working conditions provided the franchisees with significant entrepreneurial opportunity for economic gain. These factors, along with the absence of supervision and the parties’ understanding that the franchisees are independent contractors, resulted in the Board’s finding that the franchisees are not employees under the Act. While the tests for determining independent contractor status under the NLRA and FLSA differ, both the Board’s decision in SuperShuttle and the DOL’s opinion letter emphasize similar themes, including the significance of a worker’s economic opportunity and discretion.

Our colleague Steven Swirsky is featured on Employment Law This Week – DOL Proposes New Joint-Employer Rule speaking on the recent Department of Labor (DOL) ruling regarding joint-employers status under the Fair Labor Standards Act while the The National Labor Relations Board’s (NLRB) joint-employment rule proposed in September 2018 is still pending.

Watch the interview below.