November 18, 2019

November 18, 2019

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NLRB Decision Shines Spotlight on “Entrepreneurial Opportunity,” Returns to Prior Independent Contractor Analysis

On January 25, 2019, the National Labor Relations Board issued a decision friendly to businesses—particularly those operating in the gig economy—in SuperShuttle DFW, Inc., 367 NLRB No. 75 (2019). The Board’s decision marks a return to the traditional independent contractor analysis and restores significance to a worker’s “entrepreneurial opportunity” for financial gain in determining whether the individual is an employee or independent contractor under the National Labor Relations Act (NLRA). That distinction matters because employees enjoy many rights and protections under the NLRA—whether they are represented by a union or not—whereas independent contractors do not. With this opinion, the Board reversed an Obama-era Board decision that minimized entrepreneurial opportunity in its independent contractor analysis and thus granted more workers NLRA rights by classifying them as employees.

Background

SuperShuttle DFW contracted with an airport to provide shared-ride services to airport travelers. The agreement between SuperShuttle DFW and the airport provided extensive terms that controlled SuperShuttle DFW’s business, including requirements to maintain a customer complaint procedure, to screen drivers for drugs and alcohol, to perform criminal background checks of drivers, and to train drivers.

SuperShuttle DFW also entered into franchise contracts, called Unit Franchise Agreements (UFAs), with individual drivers seeking to operate under the SuperShuttle name. These agreements established an initial fee the franchisee-driver paid SuperShuttle DFW for access to airports, a weekly system fee, and a decal fee. Under the UFA, SuperShuttle DFW also required franchisee drivers to incur the cost to purchase or lease a vehicle within specified requirements and to use its Nextel dispatch and reservation system to bid on passenger routes. While SuperShuttle DFW set the fares for passenger rides, the franchisees received all fares paid by customers. SuperShuttle DFW did not assign drivers to any schedule, so franchisees had the flexibility to work as much or as little as they preferred. Through the terms set by the SuperShuttle DFW’s contract with the airport, franchisees were also subject to general conduct guidelines while driving, such as acting in a reasonable manner, not using improper language, and refraining from the consumption of food or drink in plain sight.

The case arose after a local union sought to represent a unit of SuperShuttle DFW drivers. SuperShuttle DFW resisted by arguing that, under the NLRA, franchisee-drivers could not organize because they were independent contractors, not covered employees.

The Board’s Decision

The Board first reviewed the legal analysis for determining whether an individual is a covered employee under the NLRA. This inquiry requires the Board to examine a set of factors that include:

  1. the extent of control which, by the agreement, the master may exercise over the details of the work;
  2. whether or not the one employed is engaged in a distinct occupation or business;
  3. 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;
  4. the skill required in the particular occupation;
  5. whether the employer or the workman supplies the instrumentalities, tools, and the place of work for the person doing the work;
  6. the length of time for which the person is employed;
  7. the method of payment, whether by the time or by the job;
  8. whether or not the work is part of the regular business of the employer;
  9. whether or not the parties believe they are creating the relation of master and servant; and
  10. whether the principal is or is not in business.

The majority writing for the Board then criticized and ultimately overturned its 2014 decision examining delivery drivers, finding that the prior decision did not give proper consideration to the significance of a worker’s “entrepreneurial opportunity for gain or loss.” The Board described that the prior decision “purported to ‘refine’ the independent-contractor test by confining the significance of entrepreneurial opportunity to ‘one aspect of a relevant factor that asks whether the evidence tends to show that the putative contractor is, in fact, rendering services as part of an independent business.’” The NLRB, in SuperShuttle DFW, concluded that this past analysis incorrectly limited the extent to which entrepreneurial opportunity impacts whether an independent contractor relationship exists.

With this decision, the Board has restored entrepreneurial opportunity to greater prominence in the independent-contractor-or-employee analysis. It reasoned that “entrepreneurial opportunity, like employer control, is a principle by which to evaluate the overall effect of the common-law factors on a putative contractor’s independence to pursue economic gain.” Thus, under the Board’s new standard, all common-law factors will be evaluated “through the prism of entrepreneurial opportunity” when the circumstances make this analysis appropriate. In effect, the Board made entrepreneurial opportunity an important, overarching consideration in the analysis.

Applying this new analysis, the Board concluded that the SuperShuttle DFW franchisee-drivers were independent contractors to whom the NLRA does not apply. Thus, those drivers had no right to organize and be represented collectively by a union. The Board gave significant weight to the little control that SuperShuttle DFW exercised over the franchisees, including that they were free to set their own schedules, could choose where to work, and could select what passenger routes to accept. The Board also determined that the fact SuperShuttle DFW did not share in the profits from fares with the drivers, the drivers bore the cost of the vehicles they drove, and the general lack of supervision exercised by SuperShuttle DFW over the drivers all strongly supported that they were independent contractors. Based on these facts, the Board concluded that the drivers had “significant entrepreneurial opportunity,” which “strongly point[s] toward independent-contractor status.” In short, the structure of the relationship was such that the drivers were each running their own business, rather than working for SuperShuttle DFW as employees.

Key Takeaways

The SuperShuttle DFW decision expands the definition of “independent contractor” under the NLRA, which is significant when determining to whom this law applies. This decision likely offers the greatest benefit to businesses that engage workers to provide temporary or short-term services. These types of businesses, including those providing services in the “gig economy,” are now more likely able to avoid union organization and charges of unfair labor practices under the NLRA. While SuperShuttle DFW involved an attempt to unionize workers, this analysis could also apply to determine whether a putative employer violated Section 7 rights to engage in protected, concerted activity, such as publicly criticizing management with or on behalf of others.

Employers may want to keep in mind that this decision relates only to the NLRA, and the analysis to determine whether a worker is an employee or independent contractor varies under different employment laws, such as the Fair Labor Standards Act, state unemployment compensation laws, and others. But this decision is certainly a welcome change for businesses that offer workers substantial flexibility to earn as much or as little as they choose.

© 2019, Ogletree, Deakins, Nash, Smoak & Stewart, P.C., All Rights Reserved.

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Jesse R. Dill attorney Ogletree Deakins
Attorney

Jesse has a wide range of employment law litigation and compliance counseling experience. He has obtained successful verdicts for his clients in multiple forums, including state circuit courts, Federal Mediation and Conciliation Service arbitration proceedings, and administrative hearings before the Equal Rights Division. This litigation experience complements Jesse’s compliance counseling for clients on all aspects of the employment relationship. He regularly assists clients to assess legal liability related to personnel decisions, prepare employment law policies that...

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Bernard Bobber Employment Lawyer Ogletree
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Bernard J. (“Bud”) Bobber is a shareholder in the Milwaukee office of Ogletree Deakins. Mr. Bobber represents employers before federal and state courts and administrative agencies throughout the country in all areas of employment law, with particular focus on wage and hour, trade secrets/noncompete, employee benefits and employment discrimination matters. Mr. Bobber has extensive experience in the defense of class action cases. He also routinely represents clients in labor arbitrations and in unfair labor practice proceedings before the National Labor Relations Board.

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