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NLRB Rules Independent Contractor Misclassification Does Not Violate NLRA

In a case of first impression, a divided panel of the National Labor Relations Board (NLRB or Board) ruled that the stand-alone misclassification of a worker as an independent contractor instead of an employee does not violate the National Labor Relations Act (NLRA or Act). Velox Express, Inc., Case 15-CA-184006 (August 29, 2019).

On February 15, 2018, the Board invited interested parties to submit briefs on the following issue: “Under what circumstances, if any, should the Board deem an employer’s act of misclassifying statutory employees as independent contractors a violation of Section 8(a)(1) of the Act?” After considering the entire record, the majority concluded that the answer was “under no circumstances.”

Section 8(a)(1) provides that it is an unfair labor practice for an employer “to interfere with, restrain, or coerce employees in the exercise of the rights guaranteed in section 7” of the Act. The Charging Party and the amici in support of a stand-alone misclassification violation argued that an employer’s misclassification of its employees as independent contractors inherently coerces employees in the exercise of their Section 7 rights and does so regardless of the employer’s intent. According to the NLRB majority, “this argument assumes that a misclassification of employees as independent contractors is, in fact, coercive. We are unpersuaded that it is.” The majority reasoned that an employer’s mere communication to its workers that they are classified as independent contractors does not expressly invoke the Act. It does not prohibit the workers from engaging in Section 7 activity and it does not threaten them with adverse consequences for doing so, or promise them benefits if they refrain from doing so. The majority observed that employees may disagree with their employer, take the position that they are employees, and engage in union or other protected concerted activities. “If the employer responds with threats, promises, interrogations, and so forth, then it will have violated Section 8(a)(1), but not before.”

In some novel reasoning, the majority invoked an employer’s free speech rights under the Act. It claimed that when an employer decides to classify its workers as independent contractors, it forms a legal opinion regarding the status of those workers, and its communication of that legal opinion to its workers is privileged by Section 8(c) of the Act, which states: “The expressing of any views, argument, or opinion, or the dissemination thereof, whether in written, printed, graphic, or visual form, shall not constitute or be evidence of an unfair labor practice . . . , if such expression contains no threat of reprisal or force or promise of benefit.”

The majority further concluded that “it is a bridge too far for us to conclude that an employer coerces its workers in violation of Section 8(a)(1) whenever it informs them of its position that they are independent contractors if the Board ultimately determines that the employer is mistaken.” They did not agree with the dissent that by doing so, an employer inherently threatens that those employees are subject to termination or other adverse action if they exercise their Section 7 rights or that it would be futile for them to engage in union or other protected activities. According to the majority, “in and of itself, an employer’s communication of its position that its workers are independent contractors simply does not carry either implication.”

The majority also found that “important legal and policy concerns weigh against finding a stand-alone misclassification violation.” It observed that independent contractor determinations are difficult and complicated enough when only considering the Act, but the Act is not the only relevant law. “An employer must consider numerous Federal, State, and local laws and regulations that apply a number of different standards for determining independent-contractor status. Unsurprisingly, employers struggle to navigate this legal maze. Further, in classifying its workers as independent contractors, an employer may be correct under certain other laws but wrong under the Act — which is all the more reason why it would be unfair to hold that merely communicating that classification is unlawful.”

The majority also noted that “once a classification determination is made by the employer, it must be communicated to its workers. An employer must first inform its workers of their classification status before it can intelligently discuss other facets of their business relationship.” They concluded that “[i]f the Board were to establish a stand-alone misclassification violation, it would penalize employers for taking this step whenever the employer’s belief turns out to be mistaken.”

The majority observed that any decision by an employer to classify its workers as independent contractors would subject the employer to a potential unfair labor practice charge, and with it the possibility of protracted litigation — even if it is ultimately determined that the employer was correct. To avoid this risk, employers may decide to forgo entering into or continuing independent-contractor relationships. The majority does not believe Congress intended to chill such relationships. In the Taft-Hartley amendments, Congress excluded independent contractors from the definition of “employee” in Section 2(3) of the Act. It did so in response to the Board’s and the Supreme Court’s more expansive interpretation of the definition of “employee” in the early years of the Act. Thus, the majority concluded that Congress sought to preserve independent-contractor relationships.

The majority also agreed with the General Counsel that establishing a stand-alone misclassification violation would improperly shift the burden of proof in unfair labor practice cases. Section 10(c) of the Act places the burden on the General Counsel to establish by a preponderance of the evidence that the respondent engaged in an unfair labor practice.

Finally, the majority held “that establishing a stand-alone misclassification violation would have far-reaching implications for the Board’s treatment of other statutory exclusions. Neither Charging Party Edge nor the amici supporting a stand-alone misclassification violation have explained how the rationale for finding such a violation would not apply equally to an employer’s misclassification of its employees as supervisors or any other category of workers excluded from the Act’s coverage.”

Takeaways

The Velox decision is the latest pro-employer decision by a Board with a Republican majority. It supports a company’s decision to explore the efficacy of properly structured independent contractor relationships without violating the Act.

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