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Employee or Independent Contractor? The Return to Common Law and Role of Entrepreneurial Opportunity

Employee or Independent Contractor? The Return to Common Law and Role of Entrepreneurial Opportunity

Businesses often misclassify workers as independent contractors, most times inadvertently. In determining the correct classification, we summarize the various questions as: how much control does the business have over the worker and what is the intention of the parties?  In reality, the analysis goes much deeper, and the National Labor Relations Board’s many opinions, until recently, have seemed less helpful and sometimes defiant of logic.  Previously, in FedEx, the NLRB seemed to entirely discount the worker’s entrepreneurial opportunity as only one factor of another factor to consider, altering the long-standing common law standard.  Most recently, however, in SuperShuttle DFW, Inc., the NLRB returned to the common law standard, clarifying that you must consider all factors of the common law standard and then decide whether these factors demonstrate that the worker possesses an entrepreneurial opportunity.

Analysis of the NLRB’s decision is detailed below.  SuperShuttle DFW, Inc. confirms that the common law standard should be applied.  To determine whether a worker constitutes an independent contractor or an employee, a business needs to evaluate: the control that the business, by agreement, may exercise of the details of work; whether the worker is engaged in a distinct occupation or business; the type of occupation, in reference to whether such work is usually done under direction of the business or by a specialist without supervision; the skill required in the particular occupation; whether the business supplies the tools of the occupation and place of work; the length of the time the worker provides services; whether compensation is paid by time or by project; whether the work is part of the regular business of the business; the intention of the parties; and whether the principal is or is not in business.  No one factor is determinative and all must be taken into consideration with the others.  After considering all factors, you should then consider whether the factors lend in favor of the worker exercising an entrepreneurial opportunity.

The Perils of Misclassification

Many ramifications exist for a business’ wrongful classification of a worker, with the main ones regarding taxes and penalties owed to the IRS and Pennsylvania Department of Revenue and money owed to the worker. Businesses and other potential “employers” should proceed with caution when classifying a worker as an independent contractor.  Consult with your attorney if you’re uncertain of how to classify a worker and be prepared to discuss the amount of control you exercise over the worker and terms of work, along with the intention of the parties.  Properly documenting the relationship and parties’ intention can help significantly in demonstrating that a worker serves as an independent contractor.

The Need to Overrule FedEx Home Delivery

The NLRB’s FedEx decision only complicated the analysis, confusing employers and workers, and supporting more findings that workers constituted employees.  Prior to FedEx, entrepreneurial opportunity for economic gain had been considered after analyzing the common law factors as an aid in interpreting the factors. The NLRB would consider how the evidence in a particular case, viewed in light of all the factors, revealed whether the workers at issue did or did not possess entrepreneurial opportunity. The intentions of the parties mattered.  In FedEx, however, decided in 2014, the NLRB departed from its prior holdings and held that entrepreneurial opportunity represented merely one aspect of one of the factors of the test called “rendering services as part of an independent business.” This decision de-emphasized the intention of the parties and opportunities and risks taken by the worker, and instead focused on the right of a business to control a worker.

The SuperShuttle Reversal

The NLRB recently, in January 2018, revisit the independent contractor analysis and newly promulgated standard from FedEx when determining the status of workers in SuperShuttle who acted pursuant to a shared-ride contract between a business and the Dallas-Fort Worth International Airport Board.

The Board decided in SuperShuttle that the FedEx decision had impermissibly altered the factor test that had been used for such a long time by creating a new factor and then making entrepreneurship opportunity one aspect of that factor. The Board decided to overrule its previous decision and return to the traditional test applied prior to FedEx.

The case involved shuttle-van driver franchisees of SuperShuttle. SuperShuttle drivers sign a Unit Franchise Agreement (“UFA”) that expressly characterizes them as nonemployee franchisees who operate independent businesses. The UFA also provides, among a hundred other pages, that:

  • Franchisees are required to supply their own shuttle vans;
  • Franchisees are required to pay SuperShuttle an initial franchise fee and a flat weekly fee for the right to utilize the SuperShuttle brand and its Nextel dispatch and reservation device;
  • Franchisees are not required to work a set schedule or number of hours or days per week (they work as much as they choose, whenever they choose);
  • Franchisees do not incur any negative consequences for passing on a trip, unless they accept a trip and then do not complete it;
  • Franchisees are entitled to the money they earn for completing the assignments that they select.

The NLRB also considered the fact that individual franchisees must maintain a permit issued by Airport Operations, though SuperShuttle must perform criminal background checks, a driving history check, and drug and alcohol screening.  The workers at issue, who own or lease their own vehicles, park the vehicles at their homes and there are no restrictions on franchisees using their vehicles for personal use.  Franchisees provide their own insurance but must obtain it through a designated insurer.  In the end, however, similar to previous cab driver related cases, the NLRB emphasized the fact that drivers paid the company a fixed rental and then retains all fares collected without accounting for those fares.  This fact represents strong inference that the company does not control the means and manner of the workers’ performance and afforded the workers entrepreneurial opportunity.

The Clarified Standard

The NLRB decided to return to the traditional view of looking at how the evidence in a particular case affects the factors of the test, and from there deciding whether or not the evidence shows that the worker had an entrepreneurial opportunity. The NLRB held that entrepreneurial opportunity is a principle by which to evaluate the overall significance of the factors. The Board compared entrepreneurial opportunity with the principle of employer control and mentioned that factors that support a worker’s entrepreneurial opportunity will indicate independent contractor status; while factors that support employer control will indicate employee status.  If the evaluation shows significant opportunity for economic gain and significant risk of loss, the worker is likely an independent contractor.