On January 25, the National Labor Relations Board returned to its long-standing independent-contractor standard, which reaffirms the Board’s adherence to the traditional common-law test. The main rollout from this is that the Board described clearly the significance that entrepreneurial opportunity has in its determination of independent-contractor status.
The Obama-era standard decided whether workers are employees protected by federal labor law or independent contractors who are not, which in turn gave a boost to companies that prefer to use contract labor. This has the opportunity to disrupt everything from how companies hire workers to get their jobs done to how independent contractors look into commercial truck insurance. Read on to get more information on this ruling.
The legal test for employment status properly accounts for workers’ entrepreneurial opportunity for economic gain. This was limited severely back in 2014 due to a ruling that involved FedEx Corp. Members from the NLRB, appointed by the new administration in the White House, pointed this out in their case to return to the old standard.
Many freight companies, for instance, use independent contractors in part to avoid the expense and legal liability that comes with hiring full-time, permanent employees on their payroll. The ruling gives implications for a range of businesses, including ride-hailing companies (think Uber and Lyft), which rely on drivers who are independent contractors and not official employees of the company itself.
According to the U.S. Labor Department, nearly 7 percent of the American workforce counts as independent contractors (around 10.6 million workers), a number that is projected to rise in the coming years as the gig economy grows.
While the ruling has been debated for a number of years, this overturn was sparked by a case regarding a shuttle-van accident at the Dallas-Fort Worth Airport which ended in injuries caused by the driver. This prompted the NLRB to change its legal standard for employment status, stating that the franchisees aren’t employees under the National Labor Relations Act and therefore fall outside of the coverage that law provides.
Only employees are covered by the NLRB, which provides the right to unionize and engage in collective bargaining.
The NLRB set forth a legal outline that blends an analysis under the common law with an examination of what entrepreneurial opportunity is. The ruling from the NLRB uses a common-law test drawn from the 1958 version of the Restatement of Agency; this was a legal treatise that states 10 non-exhaustive factors to determine whether a worker is an independent contractor or employee. Those factors that are outlined include the level of control a business exercises over a worker as well as the method of payment and the amount of autonomy they are allowed in their role.
The board states that it can “evaluate the common-law factors through the prism of entrepreneurial opportunity when the specific factual circumstances of the case make such an evaluation appropriate.”
During the Obama-era ruling, the board at that time changed the traditional test for independent contractors by underplaying the importance of entrepreneurial opportunity. It also highlighted workers’ economic dependency on companies, but this was overruled in 2017 when the U.S. Court of Appeals for the District of Columbia Circuit pointed out the importance of considering entrepreneurial opportunity.
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