Given the current business trends toward flexible, non-traditional relationships, including the increasing use of “contract labor,” the ability to differentiate between employees and independent contractors is increasingly critical.  Questions surrounding the classification of independent contractors are particularly important in determining what rights, if any, the contractor or employee may have under the National Labor Relations Act.  The importance of this issue has not gone unnoticed by the current NLRB, as evidenced by, among other things, recent comments by Board Member Sharon Block, in which she focused on the independent contractor issue.  In addition, there have been well publicized efforts by many major unions, including the International Brotherhood of Teamsters, to highlight what organized labor views as the misuse of contractor status by employers seeking to avoid unionization. 

Based the centrality of this issue under the NLRA, and the issue’s increasing profile at the Board and elsewhere, it is likely that the Board will revisit its current standards for independent contractor status as set forth in St. Joseph News-Press, 345 NLRB 474 (2005).  As part of this review, it is also likely, as discussed further below, that the Board will give greater weight to factors favoring employee status, including evidence that the individuals at issue are “economically dependent” on the entity with whom they contract.  In this regard, this Board also will likely give substantial weight  to whether the contracting entity ultimately controls each individual’s working conditions, whether the contract at issue is one “of adhesion,” and whether such contract ultimately determines the individual’s entrepreneurial opportunities, by controlling the price of the product  the individual must buy and sell and by controlling the growth of the individual’s customer base.

To review briefly the history of this issue, Section 2(3) of the NLRA provides that the term “employee” should not include “any individual having the status of independent contractor.”  29 U.S.C. 2(3).  In NLRB v. United Insurance Co. of America, 340 U.S. 254, 256 (1968), the Supreme Court stated that the common-law agency test should be applied in distinguishing an employee from an independent contractor.

Thereafter, the Board in 1998 reconsidered its standard for determining independent contractor status under the NLRA in two companion cases, Roadway Packaging Systems, 326 NLRB 842 and Dial-A-Mattress Operating Corp., 326 NLRB 884.  The Board in Roadway found that the company’s delivery drivers were employees, rather than independent contractors, based on the degree of financial support they received from the company, the requirements that the drivers display the corporate logo on their vehicles and be present for work every workday, and especially the company’s control over the drivers’ manner of performing their work, particularly by setting the drivers’ schedules and by prohibiting refusals of delivery.

In Dial-A-Mattress, by contrast, the Board found the delivery drivers to be independent contractors, based on the company’s lack of control over the drivers’ performance of work, the drivers’ ownership of, and control over, their vehicles, and the drivers’ control over employees who  delivered some of the company’s goods.

Thereafter, in St. Joseph News-Press, the most recent major case on the issue, the Board held that the newspaper carriers and haulers at issue were not employees, but were instead independent contractors excluded from the protection of the National Labor Relations Act (NLRA).  It rejected any focus on the carriers’ asserted lack of bargaining power.  Not surprisingly, then-Member Liebman dissented.

In determining the status of the newspaper carriers in St. Joseph News-Press, the Board found, on balance, that the carriers were independent contractors because they provided their own tools, vehicles and supplies; received little training from the newspaper; were not supervised by the newspaper while performing their work; could hire their own employees;  could work for more than one party; could solicit new business; and could subcontract their routes to others.  The Board found the degree of degree of control exercised  by the company was demonstrably less than in Roadway because the carriers were free to change the order of deliveries, could disregard customers’ delivery requests without fear of discipline and could refuse to deliver to customers they deemed unlikely to pay or otherwise economically unfeasible.

The Board in St. Joseph News-Press recognized that several factors in the parties’ relationship weighed in favor of employee status (e.g., that the carriers’ work was an integral part of the company’s business, that the work performed was not particularly skilled, that the carriers were hired for an indefinite period, rather than merely for a specific project, and that the company employed several undisputed employees who made deliveries).  The Board, however, rejected dissenting Member Liebman’s contention that the carriers should be deemed employees because of their economic circumstances (low incomes, few if any fringe benefits) and little or no bargaining power.  The Board reasoned that it was constrained by the language of the statute explicitly excluding independent contractors.  Similarly, the Board rejected then-Member Liebman’s argument that the common law itself required an analysis of the parties’ “relative bargaining strength.”

In looking to the future, given the current make-up of the Board, it is likely that the Board will adopt the position of then-Member Liebman’s dissent in St. Joseph News-Press to give more substantial weight to “economic dependence” in its application of the  common law agency test. Thus, the disparity between the parties will be considered.  The Board also may give greater weight to other factors supporting a conclusion that the individuals at issue are employees–such as the centrality of the work to the Company’s business and whether other “employees” are performing work that is similar in nature to the contractors.

A change by the Board in how it applies the common law agency test in determining independent contractor status by giving substantial weight to “economic dependence” and giving greater weight to the factors  supporting employee status will have a significant practical impact.  Such a change will cast uncertainty as to the continuing viability of independent contractors relationships across industry lines.  It is likely that some, if not many, of these relationships will not withstand this Board’s scrutiny under the Liebman test for independent contractor status.  Companies, therefore, should audit their independent contractor relationships and consider the Liebman test, including the factor of “economic dependence,” in determining whether such independent contractor relationships will withstand scrutiny from this Board.