NLRB Revises Approach to the Age-Old Question: Employee or Independent Contractor?

On January 25, 2019, the National Labor Relations Board (NLRB) released a decision that changes the way the agency differentiates between employees and independent contractors. Employers can expect that the NLRB is more likely to find an independent contractor relationship going forward.

The relationship between employers and their employees is governed by a host of federal, state and local laws. But in most cases these laws do not apply when a person working for an organization is an independent contractor rather than a true employee. The distinction is both critical and difficult to pin down — each law takes a slightly different approach to sorting independent contractors from employees, and the courts and agencies that interpret those laws occasionally change the standards (often according to the political party that appointed the decisionmakers).

Last year the California Supreme Court broadened the definition of “employee” for wage order claims, but federal agencies under President Trump are moving in the other direction. In 2017, the U.S. Department of Labor rescinded Obama-era guidance that had restricted an employer's ability to classify workers as independent contractors under the Fair Labor Standards Act. And now the NLRB has weighed in with its own employer-friendly change.

In the new NLRB decision, the agency returns to the way it looked at independent contractors before an Obama-era decision made it harder to find an independent contractor relationship. The main difference between the new test and the Obama-era one is how the agency looks at whether the workers have “entrepreneurial opportunity.” The Obama-era decision de-emphasized that concept. It gave weight only to actual entrepreneurial activity, and even then only when looking at just one part of a multi-factor test. With this new decision, the NLRB re-establishes the importance of entrepreneurial activity by using that principle to evaluate the overall effect of each of the 10 factors in a traditional, common-law analysis of an independent contractor relationship.

Employers looking for a bright-line rule in the new NLRB decision will be disappointed — any legal test with 10 factors is bound to boil down to a case-by-case approach. But employers should still study the details of the NLRB’s revised approach and analyze their own independent contractor relationships in light of it. And of course the NLRB is just one voice among a crowded field of agencies and courts, so employers should continue to watch for further evolution in other independent contractor tests.