In a recent Advice Memorandum (Pacific 9 Transportation, Inc. (Pac 9), dated December 18, 2015, but released August 26, 2016), the National Labor Relations Board’s (NLRB or the Board) General Counsel (the General Counsel) took the position that misclassifying employees as independent contractors and advising them that only “employees” had a right to request union representation, interfered with the employees’ rights under the National Labor Relations Act (the Act) to organize or engage in concerted activity for their mutual aid or protection.
The employer had been engaged in a long-running dispute with the Teamsters Union concerning the alleged misclassification of port drivers who transport cargo containers in California as independent contractors. The NLRB’s regional office with jurisdiction over the company concluded that the drivers were employees protected under the Act, and that the company’s actions interfered with their rights in violation of Section 8(a)(1) of the Act.
After PAC 9 settled that charge, it distributed a memorandum to its drivers telling them that it had no “employee” drivers and that the settlement with the NLRB did not apply to “independent contractors.” The Union filed a new unfair labor practice (ULP). The issue of the company’s continued “misclassification” of its drivers was referred to the Board’s Division of Advice (the Division). In its Advice Memorandum, the Division concluded that the evidence “overwhelmingly” demonstrated that the drivers were employees rather than independent contractors. Although the Memorandum acknowledged that the Board “has never held that an employer’s misclassification of statutory employees as independent contractors in itself violates Section 8(a)(1),” the Division found that there were several lines of Board decisions that supported such a finding. The Memorandum concluded that “treating the drivers as employees on a daily basis while continuing to insist that they are independent contractors . . . is without any legitimate business purpose other than to deny the drivers protections that inure to them as statutory employees and [it] operates to chill its drivers’ exercise of their Section 7 rights.” The Memorandum concludes that the employer’s continued insistence to its drivers that they were independent contractors was “tantamount to the employer telling its employees that they engage in Section 7 activity at the risk of losing their jobs . . . .”
Although the classification of employees as independent contractors raises issues under tax laws, the FLSA, and other federal and state employment statutes, this position taken by the NLRB’s General Counsel establishes a new risk for an employer when individuals classified as independent contractors engage in an effort to be represented by a labor organization. Although the Advice Memorandum stopped short of finding that the misclassification alone constituted a violation of the Act, it did conclude that taking that position, and then advising the employees that they had no right to union representation, violated the employees’ rights. With increased scrutiny by a number of federal and state agencies on the accurate classification of “independent contractors,” employers should seek competent legal advice to make sure that such a classification will pass enhanced legal scrutiny, particularly when facing union organizing activity among those individuals.