NLRB REVERSES COURSE ON “ENTREPRENEURIAL OPPORTUNITIES”
January 31, 2019
By: David R. Stone
In a decision that will benefit companies that rely on independent contractors, particularly ride-share services, the National Labor Relations Board issued an opinion last week reverting to its pre-Obama-Era standard for determining whether a worker is an independent contractor or an employee for purposes of the National Labor Relations Act.
The case, SuperShuttle DFW, Inc., 367 N.L.R.B. No. 75 (Jan. 25, 2019), involved a SuperShuttle franchise that served the Dallas-Fort Worth area. SuperShuttle DFW is an independent business which holds a license to use the SuperShuttle trademark and dispatch system within the local market. Prior to 2005, SuperShuttle DFW designated its drivers as employees and paid hourly wages. But, in 2005, SuperShuttle DFW began to consider every driver an independent franchisee, requiring each driver to sign a franchisee agreement. Franchisees were required to supply their own vans, pay all expenses related to operating the vans, and pay fees for utilizing the brand and dispatch network. The drivers kept all profits, set their own schedules, and could hire other drivers to operate their vans if they wished. A group of these franchise owners sought to unionize.
Under the NLRA, if the workers are considered “employees” under Section 2(3) of the Act, their union activities are protected. The NLRB found the franchisees to be independent contractors not subject to the NLRA. In so doing, it overturned its 2014 decision in FedEx Home Delivery, 361 N.L.R.B. 610 (Sept. 30, 2014), and explained its analysis of “entrepreneurial opportunities” with respect to the independent contractor/employee designation.
I. Decisions Predating FedEx Home Delivery
Prior to 2014, the NLRB followed the Restatement (Second) of Agency § 220 (1958), which provides a non-exhaustive list of ten factors that could be weighed to determine whether a worker is an independent contractor or employee, with no single factor determinative. But, the NLRB also considered some additional factors not identified in the Restatement, most notably: “whether putative contractors have ‘significant entrepreneurial opportunity for gain or loss.’” Id. at 851. This “entrepreneurial opportunity” factor considers whether putative contractors “have the ability to work for other companies, can hire their own employees, and have a proprietary interest in their work.” FedEx Home Delivery, 361 N.L.R.B. at 612. The Court of Appeals for the District of Columbia even noted that this factor had seemingly become the most important. FedEx Home Delivery v. NLRB, 563 F.3d 492 (D.C. Cir. 2009). But, the NLRB disagreed, stating that “the Board has never held that entrepreneurial opportunity, in and of itself, is sufficient to establish independent-contractor status.” FedEx Home Delivery, 361 N.L.R.B. at 618.
Thus, as of 2014, the uncertainty created by these opinions gave confusing guidance to employers and courts. The NLRB even acknowledged that at times, entrepreneurial opportunity had been an independent factor, at others it was integrated into analysis of other factors. Id. at 620. Thus, given that the NLRB itself said it had been “less than clear” on its approach, it sought to clarify the test.
II. FedEx Home Delivery’s “Clarification” of the Test
In FedEx Home Delivery, the NLRB attempted to “restate and clarify the board’s approach.” Id. at 619. First, it explained that the “entrepreneurial opportunity” factor applied only to “actual opportunities, which allow for the exercise of genuine entrepreneurial autonomy,” and not “those that are circumscribed or effectively blocked by the employer.” Id. Next, the NLRB explained that it was simple part of the “independent business” factor, which encompassed not only the entrepreneurial opportunity analysis, but whether the putative contractor had opportunities to work for other businesses, had an ownership interest in his or her work, and had control over decisions regarding hiring employees, purchasing equipment and controlling capital. Id. The independent business factor, according to the NLRB, was one of many factors and appropriate weight would be given to it in any given situation.
III. NLRB Overrules FedEx Home Delivery
In SuperShuttle DFW, it found that its holding in FedEx Home Delivery did not clarify the test, but “impermissibly altered the common-law test and longstanding precedent.” SuperShuttle DFW, Inc., 367 N.L.R.B. No. 75 (Jan. 25, 2019). The NLRB held that entrepreneurial opportunity is not “an independent common-law factor, let alone a ‘super-factor’ . . . .” Id. at 9. Rather, “employer control and entrepreneurial opportunity are two sides of the same coin: in general, the more control, the less scope for entrepreneurial initiative, and vice versa.” Id. Thus, the NLRB will “evaluate the common-law factors through the prism of entrepreneurial opportunity when the specific factual circumstances of the case make such an evaluation appropriate.” Id. Going forward, the NLRB states, “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.” Id.
IV. The SuperShuttle DFW Holding
As the first example of the NLRB’s new analytical framework, the NLRB held that the franchisees in SuperShuttle DFW were independent contractors because the opportunities for benefit and the risk of loss fell to the franchisees. The NLRB weighed eight factors, finding that a majority weighed in favor of independent contractor status. Notably, it found that although SuperShuttle exercised some degree of control, those instances did not outweigh the numerous instances in which no control was exercised. Id. at 12–13. Likewise, it found that the franchisees collected all fares and they retained freedom to work whenever they wished because they owned and possessed their own vans. Id. at 13. The NLRB found that these factors “provide franchisees with significant entrepreneurial opportunity and control over how much they make each month.” Id. at 14.
V. The New Test
It would appear from SuperShuttle DFW that “entrepreneurial opportunity” is no longer a factor to be analyzed, nor is it a part of a factor to be analyzed. Rather, the NLRB will examine its traditional common law factors and may find that such an opportunity exists, in which case, independent contractor status is more likely to be found. This analysis will benefit companies who operate under a franchisee model, particularly ride-sharing or delivery start-ups that permit contractors to utilize their platforms to obtain customers but operate on their own schedules.