NLRB Changes Its Independent Contractor Test—Again

The National Labor Relations Board (NLRB) issued a hotly contested decision earlier this month that makes it harder for employers to demonstrate that their workers are independent contractors. The legal test for employment status in this context—which determines whether workers have the right to organize—is especially important for gig economy companies that rely on contract labor to avoid the costs associated with employing workers.

In its 3-1 decision in Atlanta Opera, the NLRB overturned the 2019 decision in SuperShuttle DFW, Inc., issued by the Board during the Trump administration. The Board in SuperShuttle had decided that the question of whether workers have “entrepreneurial opportunity” is more important than nine other factors in determining worker classification.

Interestingly, the new NLRB test is actually an old NLRB test. Atlanta Opera reverted to the previous standard articulated in FedEx Home Delivery, an Obama-era decision, which imposed a more demanding standard for employers to prove that a worker is an independent contractor under the National Labor Relations Act (“the Act”).

Section 2(3) of the Act defines “employee” and specifically excludes independent contractors from that definition. Therefore, an employer who engages independent contractors rather than “employees” does not fall under the jurisdiction of the NLRB with respect to those independent contractors.

Both the SuperShuttle and FedEx tests used the same 10 factors drawn from common-law agency principles, which include the amount of control a company has over the work, the skill required for the job, and how the worker is paid.

They differ, however, in their treatment of the entrepreneurial opportunity factor. The FedEx ruling held that, while the entrepreneurial opportunity factor is relevant, it requires evidence that such opportunities actually resulted in a worker conducting independent business activities.

In this newest decision in Atlanta Opera, the Board returned to the FedEx test, while also declining to adopt a different standard proposed by worker advocates. For example, the board rejected the “ABC test” used in California, Illinois, New Jersey, and other states because of uncertainty over whether that test comports with the common-law standard adopted by the U.S. Supreme Court.

The NLRB sharply criticized the SuperShuttle decision’s elevation of entrepreneurial opportunity as a super factor, saying it "subordinated the common law to a particular vision of supposed 'economic reality' where workers are deemed 'entrepreneurs'."

“To be clear, the Supreme Court has never suggested, let alone held, that ‘entrepreneurial opportunity’ is the principal guidepost in the common-law analysis,” the Board said. The Board reaffirmed the proposition that entrepreneurial opportunity must involve an actual, and not merely theoretical, opportunity for gain or loss.

The case is The Atlanta Opera, N.L.R.B., Case 10-RC-276292, 6/13/23.

Key Takeaways

• The Atlantic Opera decision applies only when determining whether a worker is an employee or independent contractor entitled to protections afforded by the National Labor Relations Act. The decision has no application when determining a worker’s classification under the federal Fair Labor Standards Act (FLSA), which governs minimum wage and overtime; federal non-discrimination laws (such as Title VII, the Americans with Disabilities Act, and the Age Discrimination in Employment Act); and the federal law governing pensions and employee benefits (ERISA) – each of which have their own tests for independent contractor status.
• Companies will now need to be armed with evidence that their workers have actual, not just theoretical, opportunity to pursue economic gain with the company’s competitors or other business entities.
• The Atlantic Opera decision may yet be challenged and may not survive judicial review. This is especially true because the SuperShuttle decision expressly adopted the test set forth by the U.S. Court of Appeals for the District of Columbia, which has exclusive jurisdiction to review decisions issued by the NLRB.