Independent Contractor Test Changed Again by NLRB

Ensuring that an employer has properly designated workers as independent contractors, as opposed to employees, is an important issue. The applicable test and factors to be considered and applied when making this important determination have often changed over time, with yet another significant change being recently adopted by the National Labor Relations Board (NLRB). In a January 25, 2019, decision in SuperShuttle DFW, Inc., the NLRB relaxed the test, making it easier for a worker to qualify as an independent contractor and effectively reversing a more stringent test adopted by the NLRB in 2014.

According to the NRLB, key factors involved in analyzing independent contractor status include:

• The extent of control by the company over the details of the work to be performed (such as the hours when work is to be performed, amount of time to be worked, and the level of supervision, if any);
• Whether or not the worker is engaged in a distinct occupation or business;
• The level of skill needed in the particular occupation;
• Which party supplies any tools or devices necessary to perform the work;
• The duration of the working relationship;
• The manner and method of payment to the worker for services rendered;
• Whether the worker has an ownership or proprietary interest in their work product; and
• Whether the worker has significant entrepreneurial opportunity for gain or loss through the work.

The recent NLRB decision overruled a 2014 decision, FedEx Home Delivery, 361 NLRB 610 (2014), issued by the then Democratic majority of NLRB members. In that earlier decision, the NLRB modified the independent contractor test to greatly minimize the importance of the entrepreneurial opportunity for economic gain factor, making it much harder for a worker to qualify as an independent contractor. Under the SuperShuttle decision, the NLRB reverts back to the preexisting test.

Employers must be mindful of numerous legal considerations when deciding whether they can properly classify a provider of services as an independent contractor rather than as an employee. Misclassifying a worker as a contractor can implicate a variety of types of potential liability, such as, wage and hour, benefits, tax, unemployment, and workers compensation liability. In addition, in some states, other statutory contexts are implicated, such as a Minnesota statute applicable to construction contractors. Significant liability can result from an incorrect independent contractor classification, with harsh economic consequences.

In the eyes of reviewing authorities like the NLRB, U.S. Department of Labor, and the IRS, control is a key factor in determining whether a worker is an independent contractor or an employee. What is said in a company policy or independent contractor agreement about the relationship between the company and service provider matters far less than the actual details of day-to-day control of the worker and their work. 

The bottom line is that employers should have an organized, systematic approach when determining whether a worker may be properly designated as an independent contractor rather than an employee. Businesses must carefully set up contractor relationships, and - even more importantly - monitor actual, day-to-day contacts and realities with the independent contractor. Getting the designation wrong may create significant legal exposure for businesses.