A New Development in Independent Contractor Compliance

The National Labor Relations Board (NLRB) today gave independent contractors a boost when it reversed a prior decision from the Obama era which had limited the definition of independent contractors.  This reversal should be a boon to some players in the #GigEconomy as well as the platforms that enable services and the companies that secure them. Independent contractor compliance may be a bit easier to manage…hard to imagine…

The case involved the Dallas Fort Worth (DFW) Super Shuttle System.  Historically, their drivers had been employees.  However nearly ten years ago, they changed their business model and created independent contractor (IC) franchisees.  The franchisees owned their own shuttles and set their own hours.  Their connection to the organization was through the dispatch system, which provided the routes.  In 2014, the NLRB relied on the idea of economic dependence to find that the drivers were employees; if a worker was deemed to be economically dependent on an enterprise for his/her livelihood, that created an employment relationship.  The recent reversal abandoned that position in favor of historical measures of Common Law.

The Common Law test applied includes many of the points that govern the IRS 20-point test, a collection of conditions that don’t so much define who qualifies as an IC, but rather creates a great deal of ambiguity about employment status. As I pointed out in my book, Thriving in the Gig Economy, the IRS itself points out on its web site:

The IRS emphasizes that factors in addition to the 20 factors identified in 1987 may be relevant, that the weight of the factors may vary based on the circumstances, that relevant factors may change over time, and that all facts must be examined. “

Clear as mud for sure.

At any rate, the NLRB relied on many of these common law tests, like whether there is direction and control of the worker and whether the worker has his/her own tools.  Of particular interest to me was the way the decision focused on “entrepreneurial opportunity” as a key factor in the analysis and that this factor should not be undervalued in the calculation. For once in the opinion, the idea was offered that the desire of the worker to be entrepreneurial should be taken into account.  Similarly, they also cited as a factor the intent of the parties involved and the existence of a contract outlining IC status.

(This was always a pet peeve of mine when I ran my company, that an IC would sign a contract and then renege and suggest that he/she was actually an employee.  I did love it one time when an Administrative Law Judge, who found in our favor, by the way, looked at this IC and asked, “Don’t you read the contracts you sign?” …But I digress…)

On the one hand, this new opinion could be valuable to the various pending lawsuits around the IC status of a host of gig economy companies. A someone who started an IC compliance company 25 years ago, I have watched the Uber lawsuits with great interest.  I chat with most of my Uber and Lyft drivers and I must say, my informal survey reveals that most do not want to be employees, because they want that entrepreneurial opportunity. Every study that has been done on Gig workers, concludes that independent workers want to be their own bosses; the 2018 Freelancing in America study done jointly by the Freelancers Union and Upwork found that 81% of full time independent workers and 63% of part-timers did so because they wanted to be their own bosses

That said, this decision may not be relevant at all.  Another mind boggling aspect of employment law, speaking as a non-lawyer, is that definitions of employees reside in many different bodies of law and are not necessarily consistent with each other. The IRS, Osha, Wage and Hour, NLRB and a raft of state agencies all have their own definitions. In May 2018, the California Supreme Court made a ruling that chilled the independent contractor community by narrowing the definition in the Dynamax case.  That involved a point of law around wage orders, so it is still unclear what precedents may be set from it.

So, even not knowing how far reaching this decision may be, I applaud the NLRB for recognizing the entrepreneurial spirit of independent workers and by extension independent contractors.

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