NLRB Clarifies Its Independent Contractor Test

The National Labor Relations Board recently issued a ruling in a case involving the employment classification of FedEx delivery drivers, ruling that the drivers were employees, not independent contractors. The most important piece of the NLRB’s ruling was the role of the factor of “entrepreneurial opportunity for gain or loss” in conjunction with the other factors of the employee/independent contractor test. The factors of the primary employee/independent contractor test include the extent of the employer’s control over the work, whether the work is typically done under the direction of a supervisor or by a specialist without supervision, whether the worker is engaged in another business, whether the worker supplies his or her own tools, materials, and place of work, the length of time of the job, whether payment is by time or by the job, whether the work is part of the regular business of the employer, and the expectations of the parties. The “entrepreneurial opportunity for gain or loss” factor, added by the NLRB and the courts, examines whether the worker has the opportunity for both profit or loss from the work and whether the worker has the opportunity make profit or loss in general by seeking other work. The NLRB’s ruling clarified what it saw as an overemphasis on the entrepreneurial opportunity factor by the courts. The Board stated that entrepreneurial opportunity should be considered alongside the other factors, but should not be granted overriding “animating” importance. Furthermore, the NLRB emphasized that any alleged entrepreneurial opportunity must be real and not hypothetical — for example, just because an alleged contractor can obtain other work, doesn’t mean he or she can because he or she is working 40+ hours a week for the employer. Of course, the employee/independent contractor test is a fact-specific test, and the factors in the test are not a checklist, as any one factor, in the totality of the circumstances, can sway the decision one way or another. It is also worth noting in conclusion that each agency that distinguishes between employees and independent contractors does so according to its own standards, and is not necessarily constrained by the views of other agencies — accordingly, the IRS’ independent contractor test may end up being slightly different from the NLRB’s test, and may even reach a different conclusion. For startups and small businesses, the NLRB’s test can be important in the context of a disgruntled “contractor” who feels that he or she is an employee entitled to minimum wage, overtime, benefits, etc.; whereas the IRS is concerned with ensuring that payroll taxes are properly paid.

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