March 22, 2019, Vol. 7
by Marc Campsen
UPDATE: Did You Just Hire An Employee Or An Independent Contractor? And Why It Matters.
In January, Volume VI of this Blawg addressed the differences between independent contractors and employees under certain Maryland and federal laws that apply either the “economic realities” test or the “right to control” test. At the end of January, the National Labor Relations Board (“NLRB”) weighed in on how it views the issue under the National Labor Relations Act in a case evaluating the status of franchisees who operate shared-ride passenger vans for a transportation company. The NLRB affirmed its reliance on a test that falls somewhere between the “economic realities” and “right to control” test. The good news for employers is that, again, the underlying factors the NLRB relies on overlap with factors used in the various other tests identified in Volume VI.
The NLRB’s January 2019 decision affirmed that it will apply the 10-factor “common-law agency” test in evaluating the status of an individual worker. Under this test, the NLRB evaluates: (i) the extent of control the parties agree to permit the employer to exercise over the work; (ii) whether or not the worker is engaged in a distinct occupation or business; (iii) whether the work is usually done under the direction of the employer or by a specialist without supervision; (iv) the skill required for the work; (v) whether the employer or individual supplies the instrumentalities, tools, and the place of work; (vi) the length of time the individual is hired to work; (vii) method of payment – by time worked or by the job; (viii) whether or not the work is part of the regular business of the employer; (ix) whether the parties believed they were in a master-servant relationship; and (x) whether the individual is or is not in business.
Regarding the last factor, the NLRB stated it would focus on whether the individual owns the business or has significant control (e.g., scheduling, hiring, purchasing power, commitment of capital) and has a realistic opportunity to work for another company. The NLRB also clarified that requirements imposed by governmental regulations that all workers must comply with while on a job – regardless of their status – does not constitute control by the employer because it is the government imposing the regulations, not the employer creating and imposing its own requirements.
The NLRB instructed that each of the 10 factors must be assessed together and no single factor is decisive. However, the NLRB explained that the effect of the 10-factors must be analyzed through the lens of the “entrepreneurial opportunity” of the individual as compared to the employer’s “right to control.” “Entrepreneurial opportunity” is measured by the individual’s opportunity for economic gain, and equal risk of loss. If that economic gain/risk is significant, meaning it outweighs the employer’s “right to control” under the 10-factors, the individual will likely be an independent contractor. In this regard, the NLRB noted that its January 2019 decision was necessary to address recent NLRB decisions that shifted the analysis closer to the “economic realities” test that “greatly diminishes the significance of entrepreneurial opportunity” and over emphasized the “right to control” factors relevant to economic dependence on the employer. In sum, the NLRB has made clear its intent to shift the employee–independent contractor analysis away from focusing on the level of economic dependence of the individual on the employer and, instead, evaluate all factors together and neutrally. If the 10-factor test demonstrates the individual has significant entrepreneurial opportunity, the individual is probably an independent contractor and not an employee.
On the whole, despite adding another “test” into the mix of an already jumbled employee-independent contractor analysis, the NLRB’s decision still falls on the “economic realities” and “right to control” spectrum. As noted in Volume VI, because the factors under whichever test will be imposed to the particular scenario giving rise to the employee-independent contractor question facing you overlap extensively, the result will often be the same.
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About The Author:
Marc A. Campsen is an attorney at Wright, Constable & Skeen, LLP, where he focuses his practice primarily on litigating employment and business law matters. He is recognized as a Maryland Super Lawyer.
DISCLAIMER: The materials available on this blog are for informational purposes only and not for the purpose of providing legal advice. You should contact your attorney to obtain advice with respect to your particular issue or problem.