In a much anticipated decision, the National Labor Relations Board recently ruled that misclassifying employees as independent contractors does not violate the National Labor Relations Act. The Velox Express Inc. and Jeannie Edge decision brings clarity to companies that rely on independent contractor relationships to grow and drive their businesses.
The Upshot: Key Takeaways for Employers
The board’s decision is welcome news for companies, and is yet another example of the Republican-majority NLRB finding in favor of employers. With this decision, companies can be more confident that liability under the NLRA will not flow from the misclassification of its workforce alone.
However, employers can of course still be liable under the act if they take actions in conjunction with such misclassification that interfere with workers’ rights to bargain and self-organize.
On a broader level, companies utilizing independent contractors should take a close look at their workforce relationships and determine whether independent contractors are properly classified in accordance with NLRB law, other federal law, and state law.
The Decision: Misclassification Alone Doesn’t Violate the Act
In holding that an employer does not violate the act by misclassifying employees as independent contractors, the board relied on the following rationale.
1. There is nothing actually coercive about a company’s classification decision. Simply alerting individuals that they are independent contractors and not employees “does not prohibit the workers from engaging in [protected] activity” under the act, nor does it “threaten them with adverse consequences for doing so, or promise them benefits if they refrain from doing so.”
Rather, the board noted, a classification decision is simply a legal opinion expressed by a company as to how its workforce should be classified based on its interpretation of the law. As such, the board stated that the act of deciding how individuals working with a company should be protected under Section 8(c) of the NLRA. The board carefully noted that misclassification can be used to interfere with NLRA-provided employee rights, but misclassification alone cannot support such a theory.
2. Fairness and related policy considerations strongly militate against finding that misclassification alone violates the act. The NLRB reasoned that it is relatively easy to misclassify a workforce given the complex, highly fact-dependent inquiry companies must undertake in reaching such a decision. And relatedly, once a decision on classification is made, a company must necessarily communicate that classification decision to members of the workforce, to permit the company and the workers to define the parameters of their relationship.
Given the many complexities in making a classification decision and because such classification decisions must necessarily be communicated to the workforce once they are made, the board determined that it would be “unfair to hold that merely communicating … classification is unlawful.”
3. A per se violation rule for misclassification would “significantly chill the creation of independent-contractor relationships.” Given the heightened legal stakes of inadvertent misclassification, companies otherwise well within their rights to classify workers as independent contractors may “decide to forgo entering into or continuing independent-contractor relationships,” which according to the board runs counter to the intent of Congress and the U.S. Supreme Court.
4. A per se violation rule for misclassification would defy decades of precedent interpreting the NLRA, as such a rule would improperly conflate the burden of proof in determining whether a violation of the act occurred. Instead of needing to establish that an employer engaged in an unfair labor practice precluded by the act, the party alleging act violations would need only to establish misclassification.
If shown, then the employer would be strictly liable under the act. Relatedly, the board said, a per se violation rule would effectively shift the burden in cases brought under the act. A mere allegation by a litigant that they were misclassified as independent contractors would then require a company to respond by presenting evidence to the contrary to avoid liability, something that the board noted squarely contradicts basic standards and methods of proof.
5. A per se violation rule for misclassification would have “far-reaching implications” for other exclusions under the act. The board noted that there would be little basis for not extending a per se violation rule to an employer’s classification of employees as managers and non-managers (managers are generally excluded from the act’s protections). Without other solid legal or logical underpinnings, the board said, the inevitable expansion of this rule supports rejecting it.
First published in Bloomberg Law 17 October 2019.