In the latest Weekly Wright Report:
- Shout-out to the Entrepreneurial Spirit of My Uber Driver- read now
- Get a Grip on Your Cyber Security Because the DoD is Beginning Compliance Reviews – read now
Shout-out to the Entrepreneurial Spirit of My Uber Driver
By Don Walsh
There has been a legal battle for years over whether an individual is properly classified as an employee or an independent contractor. The costs of being an employer include taxes, benefits, workers compensation, and compliance with state and federal leave and discrimination laws. Being an employee also means that an individual sacrifices freedom to work for multiple companies and projects, the pride of independent ownership and greater flexible personal planning. Although there are ample occasions in which the relationship is intentionally set to evade the law, in the current emerging gig economy (a labor market characterized by the prevalence of short-term contracts or freelance work as opposed to permanent jobs), a push exists for better appreciation of the economic realities of the relationship.
In SuperShuttle DFW, Inc. (January 25, 2019), the National Labor Relations Board, it returned to its long-standing independent-contractor standard, reaffirming traditional common-law tests but more importantly, the Board clarified the role of “entrepreneurial opportunity” in its determination of independent-contractor status opening the door for this rapidly emerging business model and greater economic freedoms.
The Board concluded in SuperShuttle DFW, Inc. that the franchisees under consideration were not statutory employees under the National Labor Relations Act but were considered independent contractors. The Board examined the common-law test for assessing whether an employment relationship existed which includes consideration of a nonexhaustive common-law factors first enumerated in the Restatement (Second) of Agency §220 in 1958:
(a) The extent of control which, by the agreement, the master may exercise over the details of the work.
(b) Whether or not the one employed is engaged in a distinct occupation or business.
(c) The kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the employer or by a specialist without supervision.
(d) The skill required in the particular occupation.
(e) Whether the employer or the workman supplies the instrumentalities, tools, and the place of work for the person doing the work.
(f) The length of time for which the person is employed.
(g) The method of payment, whether by the time or by the job.
(h) Whether or not the work is part of the regular business of the employer.
(i) Whether or not the parties believe they are creating the relation of master and servant.
(j) Whether the principal is or is not in business.
These same set of factors are generally seen in any number of contexts where the employee v. independent contractor analysis is undertaken. In evaluating them, the Courts and the Board have all agreed that there is no “shorthand formula” and held that “all the incidents of the relationship must be assessed and weighed with no one factor being decisive.”
Despite consideration of these factors, the Board found that the franchisees’ leasing or ownership of their work vans, their method of compensation, and their nearly unfettered control over their daily work schedules and working conditions provided the franchisees with significant entrepreneurial opportunity for economic gain. Coupling this with the absence of supervision and the parties’ understanding that the franchisees are independent contractors, the Board concluded that the franchisees are not employees under the Act. In its decision the Board provided particular emphasis to the “entrepreneurial opportunity” presented in the relationship.
Most importantly, the Board’s decision provided a subtle shift in emphasis from control to entrepreneurial opportunity. As stated, control and entrepreneurial opportunity are two sides of the same coin: the more of one, the less of the other.
As the D.C. Circuit has made clear, the Board’s independent-contractor analysis is qualitative, rather than strictly quantitative; thus, the Board does not merely count up the common-law factors that favor independent contractor status to see if they outnumber the factors that favor employee status, but instead it must make a qualitative evaluation of those factors based on the particular factual circumstances of each case. Where a qualitative evaluation of common-law factors shows significant opportunity for economic gain (and, concomitantly, significant risk of loss), the Board is likely to find an independent contractor. . . . And where the common-law factors, considered together, demonstrate that the workers in question are afforded significant entrepreneurial opportunity, we will likely find independent-contractor status.
This decision does not provide carte blanche to establishing independent contractor status in all situations. However, it certainly lends credence to more situations where there is a negotiated choice to be an independent contractor and those increasing scenarios presented by a gig economy which provide greater rewards and freedoms to hustle and ambition.
If you have questions regarding how to characterize your workforce, reach out to the Employment & Labor Group.
Get a Grip on Your Cyber Security Because the DoD is Beginning Compliance Reviews
In a prior WWR article, we warned of the impending deadline of December 31, 2017 for defense contractors to comply with DFARS 252.204-7012 (Safeguarding Covered Defense Information & Cyber Incident Reporting). DFARS 252.204-7012 requires contractors, and applicable subcontractors, to provide “adequate security” for covered defense information that is processed, stored, or transmitted on the contractor’s internal information system or network. To provide adequate security, the contractor must, at a minimum, implement National Institute of Standards and Technology (NIST) Special Publication (SP) 800- 171, “Protecting Controlled Unclassified Information in Nonfederal Information Systems and Organizations.” NIST S P 800-171 was developed for use on contractor and other nonfederal information systems and networks to protect Controlled Unclassified Information (CUI). NIST SP 800-171 Security requirement 3.12.4 (System Security Plan or “SSP”), requires the contractor to develop, document, and periodically update, system security plans that describe system boundaries, system environments of operation, how security requirements are implemented, and the relationships with or connections to other systems. In addition, contractors are required to flow down certain provisions in subcontracts for which subcontract performance will involve DoD’s information.
On January 21, 2019, the Under Secretary of Defense for Acquisition and Sustainment announced that the Defense Contract Management Agency (DCMA), on contracts that it manages, will begin validating contractor compliance with the requirements of 252.204-7012. Specifically, DCMA will review contractor procedures to ensure contractual DoD requirements for marking and distribution statements on DoD CUI flow down appropriately to Tier 1 level suppliers and review contractor procedures to assess compliance of their Tier 1 level suppliers with 252.204-7012 and NIST SP 800-171. Similar reviews will be implemented for other DoD contractors as well. Now is the time to get your cyber security house in order before the DCMA comes knocking on your door. Get your SSP’s in order and check in with your Tier 1 level suppliers to make sure they are compliant.
Want more? Visit the Weekly Wright Report page to browse past issues.