NLRB Reverses Employer-Friendly Independent Contractor Standard

Last week, National Labor Relations Board (NLRB) voted to reverse a more employer-friendly test to determine whether an individual is an independent contractor or an employee. The decision overturned a Trump administration decision that had elevated “entrepreneurial opportunity” as the key factor for worker classification.

According to a footnote in the decision, the NLRB will apply the new standard retroactively and to all cases currently pending before the board.

Experts at the law firm Ford Harrison said the NLRB’s new standard encompasses considerations it examined in previous cases, including not only whether the worker has a significant entrepreneurial opportunity, but also whether the worker:

• Has a realistic ability to work for other companies;
• Has proprietary or ownership interest in their work; and
• Has control over important business decisions, such as hiring, selection, and assignment of employees, the purchase and use of equipment, or the commitment of capital.

The NLRB also said it also will continue to give “full consideration and appropriate weight to all of the traditional common-law factors,” which, according to another analysis include:

• The extent of control that the business exercises over the details of the work;
• Whether the worker is engaged in a distinct occupation or business;
• Whether, in the locality, the work is usually performed under the direction of the employer, or by a specialist without supervision;
• The skill required in the particular occupation;
• Who supplies the instrumentalities, tools, and place of work for the person performing the work;
• The length of time for which the worker is engaged;
• Whether the worker is paid by the time spent working, or by the job;
• Whether the work is a part of the entity’s regular business;
• Whether the parties believe they are creating an employment relationship; and
• Whether the worker is in business.

The new standard could shift the employment status of millions of Americans, including many in the metals and manufacturing industries, leading to unpredictable and less flexible labor flows.

The Coalition for a Democratic Workplace, which MSCI is a member of, said, with this decision, the NLRB “has chosen to ignore the concerns raised by the employer and freelance communities, and its actions threaten to destabilize a number of industries and deprive many independent contractors of the flexible work methods and entrepreneurial opportunities they value.” The CDW said it is likely to pursue litigation against the rule. Read the decision here.