NLRB Effectively Expands Definition of "Employee"

A June 13th National Labor Relations Board (the “Board”) ruling effectively increases the number of workers who have a right to unionize under the National Labor Relations Act (the “Act”).[1]

The issue before the Board was whether certain workers – artists, hairstylists, and wig artists – are independent contractors or employees of The Atlanta Opera, Inc. The Make-up Artists and Hair Stylists Union, Local 798, filed a petition to represent those workers and The Atlanta Opera, Inc. asserted that the petition should be denied because the workers are not covered by the Act; they are independent contractors, not employees. The Board disagreed and found the workers to be statutory employees, entitled to the right to unionize.

This decision is particularly significant in its clarification of the independent contractor standard.

The Act provides that the “term ‘employee’ shall include any employee … but shall not include … any individual having the status of an ‘independent contractor.’”[2] Beginning with the 1968 Supreme Court decision in NLRB v. United Insurance Co. of America, courts have applied a common-law agency test to determine whether workers are employees or independent contractors under the Act. The non-exhaustive list to be considered has historically included:

1. the extent of control which, by the agreement, the master may exercise over the details of the work;
2. whether or not the one employed is engaged in a distinct occupation or business;
3. the kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the employer or by a specialist without supervision;
4. the skill required in the particular occupation;
5. whether the employer or the workman supplies the instrumentalities, tools, and the place of work for the person doing the work;
6. the length of time for which the person is employed;
7. the method of payment, whether by the time or by the job;
8. whether or not the work is a part of the regular business of the employer;
9. whether or not the parties believe they are creating the relation of master and servant; and
10. whether the principal is or is not in business.

Alongside those factors, the Board has considered whether workers have significant entrepreneurial opportunities, and in making that determination, has assessed whether they have the ability to work for other companies and hire their own employees and whether they have a proprietary interest in their own work. In 2014, in FedEx Home Delivery (FedEx II),[3] the Board clarified that entrepreneurial activity is only one of the factors to be considered in the analysis.

In 2019, in SuperShuttle DFW, Inc.,[4] the Board overruled FedEx II and stressed the primacy of “entrepreneurial opportunity” in the common-law agency test. The SuperShuttle Board determined that going forward, it would “evaluate the common-law factors through the prism of entrepreneurial opportunity when the specific factual circumstances of the case make such an evaluation appropriate.”[5]

In Atlanta Opera, Inc., the Board overruled SuperShuttle. According to the Board, there is no precedential basis on which to use entrepreneurial opportunity as a “super-factor” in the determination of a worker’s status. Moreover, the Board emphasized that the “dimensions of the employer-employee relationship [ ] cannot be reduced to a single comparison between employer control and entrepreneurial opportunity.”[6] Instead, a nuanced, multi-factor inquiry – including entrepreneurial opportunity as one of its factors – is required.

The Board also stressed the distinction between “theoretical entrepreneurial opportunity” and “genuine entrepreneurial opportunity.” If a company offers its workers entrepreneurial opportunities but imposes obstacles and conditions that limit such opportunities, then independent contractor status is not supported by the presence of entrepreneurial opportunities.  

With Atlanta Opera, Inc., the Board returns to its Obama-era standard for independent contractor status. Businesses must be aware that workers with entrepreneurial opportunities – even if those entrepreneurial opportunities are genuine – will not be deemed independent contractors based primarily on that factor of the analysis. Instead, all the factors must be considered and weighed in determining whether workers are considered employees and therefore, provided the rights and protections afforded by the Act.

Employers should pay particular attention when hiring independent contractors or when making the unilateral decision to designate employees as independent contractors or 1099 employees. This decision will impact an employer’s workforce and the workplace environment. It is also possible that other government entities follow the Board and expand the technical definition of “employee,” thereby affording rights to these new employees and creating additional obligations for employers.