Featured on Employment Law This Week: Should the misclassification of an employee as an independent contractor be found to violate the NLRA?

The National Labor Relations Board is seeking amicus briefs on whether the misclassification of an employee as an independent contractor should be found to violate the National Labor Relations Act. Former NLRB general counsel Richard Griffin argued that misclassification violates the NLRA because it impacts the rights that employees have under the Act, including the right to engage in concerted activities with co-workers, join a union and engage in bargaining. To date, the Board has not ruled on the question. Amicus briefs must be filed by April 16th.

Watch the segment below and read our recent post.

Steven M. Swirsky
Steven M. Swirsky

In a further incursion into the area of the gig and new age economy, the Regional Director for the National Labor Relations Board’s Los Angeles office has issued an unfair labor practice complaint alleging that it is a violation of the National Labor Relations Act (the “Act”) for an employer to misclassify an employee as an independent contractor.

The Complaint, which is based on a charge filed by the International Brotherhood of Teamsters, through its’ Justice For Port Truck Drivers  campaign, asserts that Intermodal Bridge Transport (“IBT”) “has misclassified its employee drivers as independent contractors, thereby inhibiting them from engaging in Section 7 activity and depriving them of the protections of the Act. The theory behind the ULP charge and complaint is that the Act gives employees the right to unionize and engage in other protected, concerted activity, and that if an employer misclassifies a worker as an independent contractor, it unlawfully deprives the worker of those rights.

The issuance of the complaint in this case comes less than a month after the Board’s General Counsel issued General Counsel Memorandum 16-01, Mandatory Submissions to Advice, identifying the types of cases that reflected “matters that involve General Counsel initiatives and/or priority areas of the law and labor policy.”  Among the top priorities are “Cases involving the employment status of workers in the on-demand economy,” and “Cases involving the question of whether the misclassification of employees as independent contractors,” which as reflected in the IBT complaint the General Counsel contends violates Section 8(a)(1) of the Act.

Clearly organized labor is using the General Counsel Memorandum as an invitation to present cases raising the issues the General Counsel is seeking to litigate.  We will continue to report as additional cases emerge from the General Counsel’s wish list of priorities and initiatives.

On August 12, 2021, Jennifer A. Abruzzo issued her first memorandum as newly sworn National Labor Relations Board (“NLRB” or “Board”) General Counsel. The memo, Mandatory Submissions to Advice, Memorandum GC 21-04 (“GC Memo 21-04”), serves as a road map of the new General Counsel’s plans and her intent to depart from the priorities of her predecessor, Peter Robb, and to target cases and initiatives from the Trump Board that overruled the precedent from the Obama Board. As we have previously reported, President Biden, on the day of his inauguration, took the unprecedented step of firing Mr. Robb from the General Counsel position, a clear indicator of his intention for a significant change in direction for the NLRB to a more union-friendly agenda.

On August 19, 2021, one week after setting forth her pro-union agenda, the General Counsel issued a second memo, Utilization of Section 10(j) Proceedings (“10(j) Utilization Memo”), stating her intention to “aggressively seek” federal court interim injunction relief under Section 10(j) of the National Labor Relations Act (“NLRA” or “Act”) to help give teeth to her enforcement priorities. Section 10(j) of the Act authorizes the NLRB to seek temporary injunctions against employers and unions in federal district courts to stop unfair labor practices (“ULPs”) while the ULP allegations are being litigated before administrative law judges and the Board.

GC Memo 21-04 consists of three distinct sections, each addressing a separate aspect of the General Counsel’s priorities and instructions to the NLRB’s Regional Directors and staff. The first section identifies 11 categories of cases in which the General Counsel seeks to present a new Democratic majority Board with the opportunity to reverse recent Trump-era holdings. The second section identifies other initiatives and areas that, while not necessarily the subject of a more recent Board decision, are nevertheless ones the General Counsel would like to carefully “examine.” The third section identifies other case handling and related issues that the agency’s Regional Offices have traditionally submitted to the Division of Advice for guidance.

In these issuances, the new General Counsel has identified at least 40 Board decisions and principles that she would like to “carefully examine” and undo. The General Counsel cautions readers in a footnote that more changes will come: “[T]here are many important cases and issues not included in this initial memo; I fully expect that this memo will be supplemented at some point in the future to include other important issues, as well as refinements.”

The 10(j) Utilization Memo, calling for more aggressive use of what has been considered to be a tool for use in extraordinary matters, is likely to be but the first in what is expected to be an aggressive agenda by the new General Counsel.

Cases Involving Board Doctrinal Shifts

In the first section of GC Memo 21-04, the General Counsel identifies 11 broad categories of Board cases, which are referred to as “doctrinal shifts,” where the Trump Board “overrul[ed] many legal precedents which struck an appropriate balance between the rights of workers and the obligations of unions and employers.” Those topics targeted for review include the following:

  • Employers Should Expect More Restrictive Employee Handbook Rules. The Board’s 2017 decision on employer policies and handbooks in The Boeing Company balanced an employer’s business justifications for a work rule with its effect on employees’ rights under the Act. The General Counsel is seeking to review that test and return to the Obama Board standard set out in Lutheran Heritage, where the Board determined that facially neutral work rules and policies would be deemed unlawful if the Board concluded that an employee could reasonably read the rule to prohibit or limit the exercise of their rights under Section 7 the NLRA. In GC Memo 21-04, the General Counsel specifically targets a wide array of common workplace rules that include, but are not limited to, rules concerning confidentiality, non-disparagement, media communications, and social media; civility rules; respectful and professional manner rules; offensive language rules; and rules restricting employee photography in the workplace.
  • Employers Should Expect More Restrictions Concerning Confidentiality Provisions in Separation Agreements. According to GC Memo 21-04, separation agreements that contain confidentiality requirements and/or non-disparagement clauses and confidentiality rules governing workplace investigations are now subject to reexamination. Confidentiality in workplace examinations in particular is a concern in sexual harassment cases, and the new General Counsel’s position is at odds with the EEOC and common sense practices that encourage employers to maintain confidentiality in workplace investigations.
  • The General Counsel Will Pursue a Broader Definition of “Protected Concerted Activity.” Section 7 of the NLRA guarantees employees “the right to self-organization, to form, join, or assist labor organizations, to bargain collectively through representatives of their own choosing, and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection,” as well as the right “to refrain from any or all such activities.” Section 8(a)(1) of the NLRA, in turn, makes it a ULP for an employer “to interfere with, restrain, or coerce employees in the exercise of the rights guaranteed in Section 7” of the Act. Activity is “concerted” if it is engaged in with or on the authority of other employees, including where a single employee seeks to initiate group action or brings a group complaint to the attention of management. The General Counsel seeks to expand what the Board considers protected concerted activity and appears to have adopted the controversial March 31, 2021, memo issued by then-Acting General Counsel Peter Sung Ohr, whom Ms. Abruzzi has appointed as her Associate General Counsel. During his brief tenure as Acting General Counsel, Ohr also revoked 10 memos issued by former General Counsel Robb. The March 31 Ohr memo, which we previously blogged about, argued for an expansive broadening of the types of activities to be protected as “protected concerted activity” under Section 7 of the NLRA to include a wide host of political advocacy and social justice issues that may have, at most, an attenuated connection to employees’ workplace issues. The initiatives and changes of direction now outlined in GC Memo 21-04 and the 10(j) Utilization Memo build upon those initiatives.
  • The General Counsel Will Pursue Greater Employee Rights to Use Workplace Email and Communications Systems. The General Counsel also seeks to review cases involving employees’ use of employer-sponsored e-mail and other electronic platforms in the workplace systems to require employers to open up their systems to union organizing and employee communications. Additionally, the General Counsel wants to make it harder for employers to restrict employee conversations about unions while working. While the rules governing what is permissible employee solicitation on behalf of unions is generally well established, the General Counsel seeks to reexamine Board cases involving the distinction between what is considered union “solicitation”—e.g., convincing co-workers to sign union authorization cards—and “mere union talk,” which should not be distinguished from other permissible employee conversations while working.
  • The General Counsel Will Seek to Ease the Wright Line/General Counsel’s Burden in ULP Litigation. In cases where an employer’s motivation for an employee’s discipline or discharge is at issue, the Board utilizes its long-established test under Wright Line. Under Wright Line, in a ULP hearing, the NLRB’s General Counsel must initially show that an employer imposed discipline or otherwise took an adverse action against an employee because of their Section 7 activity. If that threshold is met, an employer can defend its actions by showing that it would have taken the same action even in the absence of the Section 7 activity. In Tschiggfrie Properties, Ltd., the Board held that the General Counsel must show a connection or line between the employer’s alleged animus and the discipline involved. The General Counsel has now announced her intention to ask the Board to reexamine Tschiggfrie and replace it with a new standard that would make it easier for the General Counsel to prove anti-union animus and pretext and more difficult for employers to defend against such claims.
  • The General Counsel Will Pursue Less Restriction on Abusive Language and Conduct. The General Counsel has also now announced her intention to ask the Board to reexamine its decision in General Motors LLC, 369 NLRB No. 127 (2020), which rejected the notion that abusive language must be tolerated in furtherance of Section 7 rights. The Obama Board previously allowed employees substantial leeway and protected so-called intemperate employee outbursts and other abusive conduct if they occurred in the context of an employee exercising their Section 7 rights, such as during a strike or on a picket line.
  • The General Counsel Intends to Seek Greater Remedial Authority in ULP Cases. Another area where the new General Counsel seeks to makes changes concerns the settlement of ULP charge complaints. GC Memo 21-04 indicates employers may no longer be able to settle Board cases where the employee is willing to waive reinstatement in exchange for a cash settlement.
  • The General Counsel Will Pursue Greater Union Access to Employer Property for Unions. The General Counsel proposes to expand the access rights of outside unions to an employer’s private property for organizing and other purposes. For example, employers that permit nonprofit groups, such as Girl Scouts selling cookies on their property, would no longer be exclude non-employee union organizers from their property.
  • The General Counsel Will Seek to Reduce Management Rights When Contracts Expire. Under long-standing Board precedent, dues check off are solely a creature of a union contract, meaning that once a collective bargaining agreement has expired, typically while an employer and union are negotiating a new contract or an extensions, employers have the legal right to cease withholding dues from employees’ paychecks and remitting them to the union. This right can be a powerful tool for an employer seeking to negotiate terms. GC Memo 21-04 indicates that the new General Counsel will seek an appropriate case to present to the Board to ask it to reverse this and to hold that an employer must continue to withhold and remit dues even after a contract has expired. This is just one of a number of ways in which the General Counsel will seek to shift the balance in collective bargaining in favor of unions.
  • The General Counsel Will Seek a Broader Definition of Employee Status. Independent contractors are in the General Counsel’s crosshairs. GC Memo 21-04 indicates that the General Counsel will ask the Board to adopt a new definition of independent contractor that would result in many workers who are now not considered employees for purposes of the Act to be deemed employees. Notably, during the Obama administration, the General Counsel’s office argued that classification of a worker who it believed to be an “employee” as an independent contractor was itself a ULP.
  • The General Counsel Will Seek to Exercise Broader Jurisdiction Over Religious Institutions as Employers. The General Counsel intends to seek to review and expand instances where religious institutions are subject to NLRB jurisdiction. Under existing precedents, the Board has long held that such institutions are not employers for purposes of the Act and their employees are not entitled to the Act’s protections.
  • The General Counsel Plans to Seek to Expand Employer Duty to Recognize and/or Bargain with Unions. The General Counsel broadly wants to examine a host of Board cases addressing the duty to recognize and bargain with a labor union. Specifically, the General Counsel plans to examine whether an employer (i) is permitted to act unilaterally concerning matters that fall within the compass or scope of a management rights clause, or other contract provision; (ii) can withdraw recognition from a union when a majority of employees no longer desire representation; (iii) has taken an action consistent with a management rights clause after a collective bargaining agreement has expired; (iv) has claimed an “inability to pay,” thus triggering an obligation to provide the union with access to the employer’s financial records; (v) is required to make increased contributions to medical and other benefits funds after a collective bargaining agreement has expired; (vi) is required to bargain over disciplinary action against newly represented employees before a collective bargaining agreement has been negotiated; (vii) refuses to provide the union with information related to customer complaints. The General Counsel also seeks to review when to impose the affirmative remedy of a bargaining order as a remedy for ULPs where a union has not won a representation election.
  • The General Counsel Intends to Cut Back on Deferral to Arbitration. The General Counsel seeks to make it harder to defer to the arbitration process where the case involves an alleged ULP.

Other Areas and Initiatives

In addition to targeting the specific areas outlined above, the new General Counsel has indicated in the second section of GC Memo 21-04 that the areas listed below, while not necessarily the subject of a more recent Board decision, are nevertheless ones that she plans to “carefully examine.”

  • Misclassification as an Independent Contractor as a ULP and Other Issues Concerning Employee Status: Cases addressing whether (i) employer misclassification of an employee as an independent contractor, standing alone, violates the Act; (ii) individuals with disabilities working in a rehabilitative setting are deemed employees; and (iii) union “salts” are employees because they are not truly interested in working for the employer.
  • An Expansion of “Weingarten Rights” to Unrepresented Employees: The issue of whether “Weingarten Rights” applies in a non-union setting has significant implications for employers because it allows employees who are subject to discipline to introduce a union to an employer setting employer where the employees have not elected to have a union represent them for collective bargaining. The General Counsel also wants to review and extend the union’s right to obtain a pre-interview right to review information pertaining to a subsequent interview.
  • National Mediation Board vs. NLRB Jurisdiction: The General Counsel wants to reexamine the jurisdictional standards and coverage between the NLRB and the National Mediation Board, which has jurisdiction over the airline and railroad industries;
  • Employer Duty to Recognize and Bargain with a Union: The General Counsel has indicated an intent to target cases in which employers are alleged to have engaged in “surface bargaining” and/or a refusal to furnish information in the context of a plant relocation under Dubuque Packing, and overturning Shaw’s Supermarkets, Inc., which permits mid-term withdrawals of recognition after the third-year of a contract.
  • Employees’ Section 7 Rights to Strike and/or Picket: The General Counsel’s has her sights on limiting (i) an employer’s right to permanently replace economic strikers, (ii) what the Board considers an illegal intermittent strike, (iii) what is considered a strike with an unlawful secondary object, and (iv) an employer’s right to unilaterally set terms and conditions for strike replacements.
  • Remedies and Compliance: The General Counsel has indicated that she will seek greater relief for employees terminated or disciplined in cases involving construction industry applicants and union salts, i.e., union employees who take jobs with the intent of “organizing from within” an employer’s workforce, by limiting such discriminatees’ obligation to conduct an “adequate search” for interim employment.
  • Employer Interference with Employee’s Rights: The General Counsel has indicated that she will ask the Board to hold statements by an employer during an organizing campaign that imply employees access to management will be limited if a union is voted in, involving an employer’s threat to close a plant where there is little evidence the threat was disseminated to other employees, and the promulgation of a mandatory arbitration agreement in response to employees engaging in collective action, to be ULPs.

Enhanced Use of Section 10(j) Injunctive Relief

Under Section 10(j) of the Act, the Board can seek authorize the General Counsel to seek injunctive relief as an interim remedy against an alleged ULP when the General Counsel, on behalf of the Board, convinces the court that (i) there is reasonable cause to believe that a ULP has been committed or there is a likelihood of success on the merits in a ULP proceeding, and (ii) issuing such an injunction is just and proper. Under the first prong of this standard, the courts give the NLRB considerable deference to its belief that a violation has occurred, and frequently rely on a very limited evidentiary record in finding reasonable cause/likely success on merits. The second prong of this test looks to see whether remedial failure is likely if the court does not grant the injunction. If ordered, injunctions can require employers and unions to refrain from certain actions (such as refraining from interfering with employees’ Section 7 rights) to take certain affirmative actions (such as requiring employers to reinstate employees or to bargain with a union even if the union did not win an NLRB representation election). In practice, the pursuit of Section 10(j) injunctive relief has been quite limited throughout the history of the NLRA.

The 10(j) Utilization Memo signals that the current General Counsel will seek to pursue injunctive relief on a much broader basis than has been the case to date. The memo suggests that the General Counsel intends to target the following types of cases as warranting consideration for Section 10 (j) relief: (i) cases involving discharges from employment during union organizing campaigns; (ii) charges alleging other ULP violations during organizing campaigns that lead to a need for a Gissel bargaining order, that is where the General Counsel alleges that the employer’s alleged ULP conduct will prevent the holding of an election in which employees can vote freely; (iii) charges alleging failure to bargain in good faith and other violations following a union’s certification as the bargaining representative, when parties should be negotiating an initial collective bargaining agreement; (iv) cases involving allegations of unlawful withdrawals of recognition from incumbent unions; and (v) cases involving a successor’s refusal to bargain and/or refusal to hire. According the 10(j) Utilization Memo, pursuit of Section 10(j) injunctions should all be considered when the Regional Offices believe there is a threat of remedial failure—that is, a Board Order after a ULP hearing and review by the Board will be too little or too late. According to the memo, the General Counsel is now urging the Board’s Regional Offices to examine all ULP charges as potential candidates for Section 10(j) relief at the earliest stages of the litigation.

The General Counsel’s stated intent to aggressively seek Section 10(j) relief is a stark departure from the Trump Board and a return to the approach of the Obama Board, which sought 10(j) relief on a more frequent basis than prior administrations. See the Board’s 10-year record in seeking Section 10(j) injunctive relief. (The Board sought eight Section 10(j) authorizations in 2020 and 13 in 2019; the Board under Obama sought 37 Section 10(j) injunctions in 2017.)

Conclusion

GC Memo 21-04 and the 10(j) Utilization Memo signal that substantial changes are taking place at the NLRB as the agency seeks to put teeth to President Biden’s promise to be the most pro-union President in history. Employers can no longer expect that the precedent established under the Trump Board will stand and will protect them from union organizing, strikes, or other concerted activities by employees or from ULP charges.

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.

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.

Steven M. SwirskyOver the past week the U.S. Court of Appeals for the District of Columbia Circuit weighed in on two separate related efforts by the Obama-Board to expand the protections of the National Labor Relations Act (the “Act”) to workers who are not in traditional employer-employee relationships.

One Court – Two Cases

In a March 3, 2017 decision, the Court rejected the National Labor Relations Board’s (“NLRB”) finding that FedEx Home Delivery drivers were employees and agreed with the company that the drivers were independent contractors and therefore did not have the right to union representation under the Act.   On March 9th, the Court heard the much anticipated argument on the challenge by Browning –Ferris Industries of California Inc., to the Board’s 2015 decision adopting a new and much looser standard for determining joint employer status. While it is not certain when the Court’s decision will be released, the questions asked by the judges who heard the appeal suggested that they are by no means convinced that the new test articulated in Browning-Ferris is the correct one and consistent with what Congress intended when it passed the Act.

The Court Found FedEx Ground Drivers Are Independent Contractors, Not Employees

A key question in the gig economy is the relationship between a worker and the company for whom they provide services. Those workers who are employees under the Act have the right to join and be represented by unions; independent contractors do not.  The NLRB has gone so far in its efforts as to hold that misclassification of a worker the Board considers to be an independent contractor commits an unfair labor practice when it does so.  The Board has also argued before the Courts that its views on whether a worker is an employee or an independent contractor should be afforded deference by the Courts.

The D.C. Circuit’s decision in the FedEx case is of particular interest with regard to each of these propositions. First, the Court noted that under the Supreme Court’s 1968 decision in NLRB v. United Insurance Company of America, the “determination of whether a worker is a statutorily protected ‘employee’ or a statutorily exempt ‘independent contractor’ is governed by common law” and “there is no shorthand formula or magic phrase that can be applied to find the answer.” Thus, while the Board argued that the Court should afford great weight to its application and analysis of the common law test for determining whether the drivers were employees or independent contractors, because the question is “a question of pure common law agency principles ‘involv[ing] no special administrative expertise that a court does not possess,” the Court found that deference to the Board’s views was neither appropriate nor required.

The Court in its analysis and application of the common law test found that the NLRB was wrong to place greater weight on certain factors than others. Because the facts in the FedEx case were virtually identical to an earlier case the Court had considered with the same parties in 2009, the Court held the Board was not entitled to the deference that would be due “between two fairly conflicting view,” because the Court had previously considered and decided the issue.

The Board’s Browning-Ferris Joint Employer Test

The Board’s 2015 Browning-Ferris decision held that an employer could be deemed a joint-employer of another employer’s employees if it was found to exercise or even just has the right to exercise “indirect control” over the other employer’s employees. The D.C. Circuit heard argument on March 9th on the company’s challenge to this standard.  While it is too early to say whether the Court will defer to the Board in this case, the Court’s questions suggested that it at least has doubt as to the Board’s new standard.  For example, Judge Patricia Millet questioned the practicality and future application of the indirect control standard, asking the Board’s attorney “What assurance do we have that this test and particularly indirect control is going to continue to police the line properly between genuine joint employers and [contractors]?

As in the FedEx decision, the application of the common law standards was before the Court, this time in connection with the common law test for determining the existence of an employer-employee relationship, which is one of the requirements of the Browning-Ferris standard. Counsel for Browning-Ferris argued that “the notion of exertion control dovetails with Congress’ understanding of the essence of a common-law employment relationship as direct supervision.” If the Court agrees with this proposition, then it would seem questionable that the Court will accept the Board’s view that possession, without exercise, of indirect control is sufficient to find a joint-employment relationship.

What Do These Cases Tell Us?

Since last November’s election, there has been a great deal written and said about what a Trump Labor Board will likely mean for the legacy of the Obama Board. However, in examining that legacy it is important not to lose sight of the fact that the Board’s decisions are not self-enforcing and are subject to review and enforcement by the Courts of Appeal.  While the Board continues to follow its Doctrine of Non-Acquiescence, meaning it will not accept the holdings of any court other than the United States Supreme Court as binding upon it if it disagrees with the Court’s interpretation of or views concerning the application of the Act, the D.C. Circuit and other Courts have continued to take serious issue with the Board’s position.

It will be interesting to see, once a new Board with a majority of members is appointed by the new President, not only how it addresses the myriad of representation and unfair labor practice precedents that are the product of the Obama Board, but also whether it continues to stand by the Doctrine of Non-Acquiescence and how this shapes its relationship with the judiciary.

The National Labor Relations Board (NLRB or Board) has ruled that graduate teaching assistants, i.e. graduate students who provide instruction and assist faculty with research as part of their own post-graduate education are “employees” within the meaning of the National Labor Relations Act (NLRA or Act), and thus have the right to join unions and engage in collective bargaining with the universities and colleges where they study.

For those who follow the Board, the 3-1 decision in Columbia University in, 364 NLRB No. 90 (2016) should come as no surprise. This past January, following a Regional Director’s Decision dismissing the representation petition filed by Graduate Workers of Columbia-GWC, UAW, (UAW or Union) because she found that under Board law, the graduate teaching assistants and research assistants the union sought to represent, were not employees as that term has been defined under the Act, but rather were students.

The Board Asked Four Questions

After the Regional Director issued her decision, the Union requested review by the Board and asked the Board to overrule its earlier holdings concerning graduate students and researchers such as those in the petitioned for unit. On January 13, 2016, the Board issued a Notice and Invitation to File Briefs, indicating that the Board would consider the Union’s appeal and that it would consider the Union’s argument that the Board should overrule its 2004 decision in Brown University, 342 NLRB 483, in which it had found graduate teaching assistants and research assistants were students and not employees under the Act. The Board invited interested parties to offer their views on the following questions:

  1. Should the Board modify or overrule Brown University, 342 NLRB 483 (2004), which held that graduate student assistants who perform services at a university in connection with their studies are not statutory employees within the meaning of Section 2(3) of the National Labor Relations Act?
  2. If the Board modifies or overrules Brown University, supra, what should be the standard for determining whether graduate student assistants engaged in research are statutory employees, including graduate student assistants engaged in research funded by external grants? See New York University, 332 NLRB 1205, 1209 fn. 10 (2000) (relying on Leland Stanford Junior University, 214 NLRB 621 (1974)).
  3. If the Board concludes that graduate student assistants, terminal masters degree students and undergraduate students are statutory employees, would a unit composed of all these classifications be appropriate?
  4. If the Board concludes that graduate student assistants, terminal masters degree students and undergraduate students are statutory employees, what standard should the Board apply to determine whether they constitute temporary employees?

The very fact that the Board was asking these questions was seen at the time as a strong indication that it would reject Brown and find a way to reclassify graduate teaching assistants as employees. Notably, two years ago, when the Board considered the Steelworkers effort to organize and represent student athletes who played football for Northwestern University on scholarships, the Board found the scholarship students to be “employees” but declined to exercise what it said was its jurisdiction that would have permitted it to conduct an election and require collective bargaining on what it characterized as considerations of public policy.

The NLRB Has Overruled Brown – The Answers to the Four Questions

The decision reverses and rejects the Board’s 2004 decision in Brown University, 342 NLRB 483, which the majority characterizes as “a sharply divided decision.” In Brown, the Board found that “graduate assistants who perform services at a university in connection with their studies are not statutory employees under the National Labor Relations Act.”

In jettisoning Brown, the majority concluded that the Board majority in that case “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 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.”

A quick read of the majority opinion and the dissent of Member Miscimarra suggest however that what the majority actually meant was that in the absence of express statutory language covering graduate students and research assistants, the majority felt comfortable substituting their views for those of the Brown majority, with whom they disagreed.  Columbia answers the four questions in the following way:

  1. The Board has overruled Brown and held that graduate teaching assistants and research assistants will now be considered to be statutory employees entitled to all of the Act’s protections.
  2. The Board will treat graduate research assistants as employees. Their positions will be examined under a traditional community of interest standard.
  3. The Board will apply its traditional community of interest standards in determining what are appropriate units for bargaining.
  4. While teaching assistants’ relationships with the University “are ‘temporar” in the sense that they are employed for short, finite periods of time averaging about two (not necessarily consecutive) semesters of work,” the Board nonetheless concluded that “all the employees in the unit, which we find to be appropriate, serve finite terms,” but that such finite terms alone cannot be a basis on which to deny bargaining rights.” Thus the Board rejects the argument that the limited duration of the teaching and research assistants means they should not be allowed to vote in representation elections.

Member Miscimarra Notes Real Risks In the Majority’s Approach

In addition to explaining why he believes as a matter of law and statutory construction why he believes the majority got it wrong and that the Brown majority was correct, Member Philip Miscimarra in his lengthy dissent points out a number of important policy considerations that the majority ignored, any and all of which can have profound negative consequences not only for the universities affected by this decision, but also for the students that they educate, both undergraduate and those the majority has now chosen to treat as statutory employees.

They include the following:

  • The Financial Investment Associated With a University Education, and the Mistake of Making Academic Success Subservient to the Risks and Uncertainties of Collective Bargaining and the Potential Resort to Economic Weapons.
    • Strikes
    • Lockouts
    • Loss, Suspension or Delay of Academic Credit
    • Suspension of Tuition Waivers
    • Potential Replacement of Striking Teaching and Research Assistants
    • Loss of Tuition Previously Paid
    • Misconduct, Potential Discharge, Academic Suspension/Expulsion Disputes
  • The many reasons that the “Board’s Processes and Procedures Are Incompatible With Applying the Act to University Student Assistants.”

What Columbia Means Going Forward

While the immediate impact of the decision is that the NLRB will now conduct a representation election in a unit of “All student employees who provide instructional services, including graduate and undergraduate Teaching Assistants (Teaching Assistants, Teaching Fellows, Preceptors, Course Assistants, Readers and Graders): All Graduate Research Assistants (including those compensated through Training Grants) and All Departmental Research Assistants,” to allow them to vote on representation by the UAW, the decision raises troubling questions both within academia and elsewhere and should be seen as part of a broader trend by the Board’s majority appointed by President Obama, to jump start collective bargaining and union organizing and bring unions into settings where until now they have not been found.

As we have previously reported, the NLRB has been broadly examining the nature of the employer-employee relationship, not only in the context of joint employment and co-employment but also in new areas of the gig economy, where unions and employees are arguing that workers traditionally recognized to be independent contractors have been “misclassified” and that such misclassification is in and of itself an unfair labor practice.

Steven M. Swirsky
Steven M. Swirsky

NLRB General Counsel Richard F. Griffin, Jr. has released a General Counsel Memorandum that offers an unusually frank insight into how he intends to use his office for the remainder of his term to pursue what he calls “initiatives and/or priority areas of the law and/or labor policy” to set an agenda to expand the rights of both represented and unrepresented employees and to pare back, substantially in many circumstances, the rights of employers in collective bargaining, responding to union organizing and to protect their businesses and reputations when they are attacked by employees and unions.

General Counsel Memorandum 16-01 also focuses on cases involving “difficult legal issues where the General Counsel contends “there is no governing precedent or the law is in flux.”  A closer examination of this group of cases in fact reveals that the legal principles involved have been long established by the National Labor Relations Board (“Board” or “NLRB”) with the approval of the courts, but in reality the GC and former pro-union Board members have argued that the law should be changed to expand union rights or cut back on employers’ rights.

The General Counsel has now directed the Board’s Regional Offices, which investigate and process Unfair Labor Practice charges, to submit all cases in which issues identified in the Memo to the Division of Advice, the unit in the General Counsel’s Office’s Division of Advice that provides legal analysis and guidance to the Regions on cases involving complex and novel legal issues.  While the Board’s Regional Directors routinely decide, after investigation of an Unfair Labor Practice charge whether a complaint should be issued, and what legal theory should be relied upon and what remedies should be pursued, in cases referred to Advice, the General Counsel’s office makes those decisions.

As the Memo explains, the General Counsel is looking for cases that will offer the opportunity for the General Counsel to seek to persuade the Board to change its interpretation of the National Labor Relations Act (the “Act”).

Types of Cases Involving “the General Counsel’s Initiatives or Policy Concerns

The Memo identifies 10 categories of cases that raise issues said to involve the General Counsel’s initiatives or policy concerns.  Among the most significant to employers and others interested in what changes in the interpretation and application of the Act and precedents the General Counsel and the Board are likely to focus on in the near term can be grouped in several categories.  A number of the Initiatives and/or Policy Concerns in fact call into several of these groupings.

  • Initiatives and Policy Concerns Curbing Employers’ Rights

Cases involving an allegation that an employer’s permanent replacement of economic strikers had an unlawful motive – while the Board and the courts have long recognized that an employer has a right to hire permanent replacement when employees go on strike to exert economic pressure during contract negotiations provided the hiring of replacements was not in retaliation for employees engaging in conduct protected by the Act, the General Counsel’s inclusion of this category of cases in the memo is both a clear signal to unions to raise such claims when permanent replacements for strikers are hired and a strong suggestion that the General Counsel is likely to relax the existing standards for finding replacement of strikers to be a ULP.  This is one of a number of cases that appear to reflect an initiative to shift the balance of power in contract negotiations towards unions.

Cases involving a refusal to furnish information related to a relocation or other decision subject to a Dubuque Packing analysis – the Memo suggests that the General Counsel is looking to expand unions’ rights when it comes to demanding that employers provide them with additional information where unions are seeking to challenge and resist employer plans to relocate unionized operations and to subcontract or outsource work performed by union represented workers.

Cases involving questions of whether an impasses over a single issue should constitute overall impasses because the issue is critical to one of both of the parties – this suggests the General Counsel intends to ask the Board to make it more difficult for an employer to declare an impasse in collective bargaining, which is a prerequisite to its implementing its last, best and final offer.

  • Initiatives and Policy Concerns Making It Easier for Unions to Organize

Cases that involve the application of Purple Communications to electronic systems other than email, cases where the employer has provided specific evidence of special circumstances privileging a denial of access to its email system, and when the Board issued its December 2014 decision in Purple Communication holding that in almost all instances in which employers granted their employees access to and use of company email systems, the Board noted that it was not addressing whether by the same reasoning employers would also be deemed obligated to allow workers to use other employer property and systems for union organizing and other protected concerted activity.  The General Counsel Memo makes clear that he is now looking for charges from unions and employees that will allow him to present the question to the Board and urge for an extension of Purple Communication to other employer property.  This could include text and other communication systems as well as conceivably the right to hold in person meetings for non-work purposes on an employer’s premises.

Cases presenting the question of whether the employer engaged in unlawful surveillance of employee emails – while the majority in Purple Communication held that employers may be able, in certain circumstances, to restrict or prohibit the use of the systems for communications concerning terms and conditions where such a restriction is necessary to “maintain production and discipline,” it also made clear that the burden is on the employer to establish why such a prohibition or restriction is necessary.  The Board has stated, while an employer may rebut the presumption (of the right to use the email systems) “by demonstrating special circumstances necessary to maintain production or discipline justify restricting its employees’ rights,” the burden will be steep and that “it will be the rare case where special circumstances justify a total ban on nonwork email use by employees,” and an employer seeking to meet that burden “must demonstrate the connection between the interest it asserts and the restriction.”  The General Counsel is now directing the Regional Directors to refer all cases in which this question arises to the Division of Advice, for close scrutiny and to identify cases in which the General Counsel can argue just how narrowly the standard should be applied and the burdens an employer will need to satisfy. 

Cases involving the whether extraordinary remedies such as access by non-employees to employer electronics communication systems , access by non-employees such as union organizers to work areas and providing unions with “equal time” to respond to employer “captive audience” speeches prior to representation elections –  this should be viewed in the context of the General Counsel’s interest in expanding Purple Communications beyond email systems; the General Counsel initiative should also be recognized as an effort to further change the way representation elections have changed under the “ambush election rules” that took effect in 2015.

  • Initiatives and Policy Concerns Expanding Rights of Unrepresented Employees

Cases involving the applicability of Weingarten principles in non-unionized settings today, under the Board’s Weingarten doctrine, union-represented employees have the right to request the presence of a shop steward, delegate or other union representative in investigatory interviews that have the potential to result in discipline.  Except for a brief interlude after the Board followed its 2004 IBM Corp. decision, that right was only afforded to those represented by a union.  By directing the Regional Offices to refer this category of cases to the Division of Advice, the General Counsel reveals his intention to ask the Board to expand Weingarten to unrepresented employees.

Cases involving allegations of “English-only” policies – The General Counsel appears likely to argue that a rule limiting employees to speaking English is an unlawful interference with the right to engage in concerted protected activity.

Cases involving the employment status of workers in the on demand economy  and Cases involving the question of whether the misclassification of employees as independent contractors violates Section 8(a)(1) – the General Counsel appears likely to argue that classifying an individual as an independent contractor when the General Counsel believes the worker should actually be considered as an employee inherently denies him or her the right or ability to engage in concerted protected activities concerning terms and conditions of employment.  This appears to be but one aspect of the General Counsel’s intention to pursue cases involving the gig and on demand economy.  We expect this to also reflect an effort to expand the application of the Board’s August 2015 Browning-Ferris Industries decision expanding the definition of joint employer.-

For additional insights concerning the General Counsel’s initiatives and goals as identified in General Counsel Memo 16-01, we suggest viewing the April 18, 2016 edition of Employment Law This Week.

We will continue to follow and report on the effort of the Board’s General Counsel to implement the initiatives identified in this GC Memo.