Published on Feb 17, 2022
Public interest, government, and industry groups recently submitted more than 30 amicus briefs to the NLRB in a case called Atlanta Opera that could redefine the distinction between employees and independent contractors, and in turn have significant implications for prominent gig economy, construction, trucking, home care, and janitorial services firms.
The NLRB’s request, originally made in late December, included two questions: Should the Board adhere to the independent contractor standard it established its 2019 gig-economy-friendly SuperShuttle DFW decision? And if not, then what standard should replace it—should the Board return to its 2014 standard set by the more worker-friendly FedEx Home Delivery, either in its entirety or with modifications?
Given the varying interests at play, the briefs were far from unanimous in their recommendations. Nonetheless, among the significant new developments to emerge was the emphasis on considering antitrust liability when addressing employee misclassification.
A spokesperson for the NLRB told The Capitol Forum that parties in Atlanta Opera may file responsive briefs until February 25, and then after that, the labor board will draft its decision.
Competition policy plays a starring role in debate. In its filings to the NLRB, DOJ’s Antitrust Division, led by Assistant Attorney General Jonathan Kanter, argued that “a vague or under-inclusive” employee standard could harm workers, employers, and competition directly. It cites collusion among employers, one-sided contracts, a broader industry “race to the bottom” as all possible consequences of misclassification.
DOJ said Congress had always intended for antitrust laws and labor laws to be “interpreted in harmony” in part because some labor-organizing activities are exempt from antitrust laws, and because misclassification of workers could unfairly undercut rivals who abide by labor law. Under the Clayton Act and the Norris-LaGuardia Act, for example, labor-related activities like picketing and boycotts are exempted from the antitrust laws. And the courts have also recognized an exemption.
The National Employment Lawyers Association, a national advocacy group of over 4,000 attorneys representing unions and workers, also emphasized antitrust questions in its brief. “The Board not only has the discretion to consider the antitrust, trademark and tort-law implications of an ‘independent contractor’ claim; it has the duty to consider such implications,” the group argued.
Both the Justice Department and the National Employment Lawyers Association cite two cases in their brief that suggest lawyers are thinking about how Section 1 liability under the Sherman Act could be relevant to misclassified workers. While the U.S. Supreme Court ruled in its 2007 Leegin decision that vertical price restraints are not necessarily per se illegal under Section 1, the Second Circuit in 2013 held that Apple had developed an illegal hub-and-spoke price-fixing conspiracy, and rejected Apple’s contention that the per se rule should not apply to a price fixing conspiracy because it was “vertical.”
In another antitrust case, Meyer v. Kalanick, a Southern District of New York court denied Uber’s motion to dismiss a price-fixing complaint, saying the plaintiff had made a plausible claim of price fixing. The Second Circuit later vacated that order, on the grounds that the individual plaintiff had been a driver bound by an arbitration clause in Uber’s terms of service. An arbitration clause, however, could not bar prosecution by the FTC or DOJ.
“I think the problem is too long the debate over employee status has just had each side sort of pushing in the direction it wants, and to just say, ‘Gosh we think that employee status should be read more broadly because that would be good for social justice,’ that’s fine, I agree with that, but that’s not going to cut any ice with the D.C. Circuit,” said Michael Anderson, who led the National Employment Lawyers Association brief. “But what does really jump out when you read FedEx and SuperShuttle is that the D.C. Circuit and the NLRB are all talking about entrepreneurial control as if there’s no such thing as the Sherman Act.”
Anderson told The Capitol Forum he does not think the NLRB necessarily needs to revise its independent contracting standard to engage in interagency consultation and consider tort, trademark and antitrust law in its future calculations. “Our hope is that if agencies like the FTC and the DOJ start taking the antitrust consequences of these arguments seriously, then hopefully in a few years we’re going to see businesses like Uber desperately claiming employer status because that’s going to be the only escape route out of Sherman Act liability,” he said. Uber did not return request for comment.
Additionally, DOJ, via its brief, and the FTC, via a tweet from Chair Lina Khan, both weighed in to say that misclassifying workers may constitute an unfair method of competition, a term of art that suggests the FTC could also attack such practices under its Section 5 authority (see Capitol Forum report discussing rules targeting gig economy). Shortly after DOJ submitted its brief, the NLRB’s General Counsel, Jennifer Abruzzo, issued a memo on interagency cooperation in which she said she would “establish partnerships with IRS, DOJ’s Antitrust Division, and FTC to address unfair methods of competition that undermine workers’ rights.”
Michael Lotito, an attorney at Littler Mendelson who helped draft an amicus brief submitted by the firm, told The Capitol Forum that it is clear that the Federal Trade Commission “is the new player in town” on issues pertaining to independent contracting. “I suspect the Board and its general counsel will find sympathetic ears to alleged IC misclassification issues at the FTC,” he said.
It’s also worth noting that gig economy companies face another FTC rulemaking risk, starting today at the commission’s monthly open meeting, where the FTC will likely vote on a business opportunity proposal to ramp up penalties for companies that engage in earnings misrepresentations to participants in a business opportunity. That rule could have some interaction with the NLRB standard and its enforcement, as an honest assessment of independent contractors’ entrepreneurial potential at certain companies may prove less compelling than what the companies promise.
Further, it may ultimately prove harder to recruit new independent contractors if companies are not able to embellish the earnings potential of the opportunity. Lastly, whatever information the FTC gathers in its rulemaking process could be used to inform courts when they seek to understand a worker’s “entrepreneurial potential” in a business opportunity.
A closer look at new proposals. While many labor advocates simply suggested the NLRB revert to its FedEx standard, some groups offered more compelling and creative solutions.
Perhaps the AFL-CIO gave the most candid assessment of the NLRB’s tactic of ping-ponging back and forth between the SuperShuttle and FedEx decisions, saying “The courts have made all too clear their impatience with attempts by the Board to explicate the common law standard.”
The labor federation recommended instead looking to the D.C. Circuit’s 2016 Lancaster Symphony decision as “a productive path forward” for the NLRB when determining independent contractor questions. In that case, the appellate court deferred to the NLRB’s finding that Lancaster Symphony musicians were employees, not independent contractors, because the court found the ten-factor common law test pointed in two different directions for the musicians. The D.C. Circuit said it would defer to the board in instances when “presented a choice between ‘two fairly conflicting views.’” The AFL-CIO did not return requests for comment.
The United Food and Commercial Workers International Union urged the NLRB to overturn its SuperShuttle standard and return to the traditional multifactor balancing test, but in a way that requires taking into account a worker’s actual conditions. “A company asserting that a worker is an independent contractor cannot merely rely on company policies to establish opportunity and control in their favor, but has the burden of presenting evidence that the worker at issue actually exercises entrepreneurial opportunity and control,” they wrote.
In a brief filed by Democratic attorneys general representing 15 states and Washington D.C., the prosecutors argued that the “entrepreneurial opportunity” standard currently privileged by SuperShuttle is “particularly vulnerable to evasion” by employers. They urged instead weighting the three factors that undergird the so-called “ABC” tests used by many states to determine employee status, a test that makes it harder to classify an individual as an independent contractor. In particular, under the last prong of the test, “entrepreneurial opportunity” is insufficient to merit independent contractor status. Rather, the AGs write, “the worker must operate a ‘stable and lasting’ enterprise that ‘will clearly continue despite termination of the challenged relationship.’”
The National Employment Law Project, a pro-union advocacy group, put forth one of the more innovative attempts to both push the courts in a different direction on employee classification, while still maintaining a deference to common law in hopes of withstanding judicial scrutiny.
In its brief the National Employment Law Project urged the federal labor board to abandon its reliance on the Restatement of Agency’s multifactor test, which was published in 1958. Restatements, developed by lawyers and judges and law professors at the American Law Institute, are highly influential summaries of common law that guide courts and legislatures in decision-making.
Instead, NELP urged an embrace of an alternative common law test articulated in the Restatement of Employment Law, published in 2015. The latter test, NELP said, is better suited to meet the worker-protection statutes like the NLRA because it specifically addresses more recent developments in the common law as applied to employment and labor laws.
“Historically important and useful in its time, the Restatement of Agency is only one interpretation of common law agency principles…it is not the exclusive, be-all-end-all interpretation of the general common law, which continually changes and evolves over time,” they wrote.
Brian Chen, a senior staff attorney for NELP who drafted their brief, told The Capitol Forum that NELP has not made this argument before, but “the moment calls for bold thinking to ensure that the NLRB fulfills the Act’s purpose without risking an appellate challenge down the road.”
Buckle, a digital financial services company that provides insurance and credit options to drivers for ride-share and gig companies like Uber, Lyft, Grubhub, and Instacart, said the NLRB “should not be afraid to set a precedent allowing both employees and independent contractors.” For example, they said, their data indicates that 80-90 percent of drivers on gig platforms work less than 20 hours a week, but for the 10-20 percent who drive 20 hours or more per week, and who “are heavily relied upon” by the companies to maintain consistent service levels, there should be clearer pathways to distinguish between them and the more casual workers.
The Owner-Operator Independent Drivers Association, which represents more than 150,000 professional drivers and small businessmen and women who own and operate heavy-duty trucks, said in its brief that while maintaining independent contractor status is important to their members, they are “aware of, and sympathetic to, the plight of truck drivers who are mistreated by motor carriers.” In January hundreds of truckers who haul goods at the ports of Los Angeles and Long Beach in Southern California announced a petition to unionize with the Teamsters, despite their employer, XPO Logistics Inc, maintaining the workers are independent contractors.
While the Owner-Operator Independent Drivers Association said that generally “entrepreneurial opportunity” can be an appropriate way to determine trucker classification, they conceded there are exceptions, such as when a motor carrier is depriving a driver of discretion to run their business. “The entrepreneurial opportunity test should…be recognized as a potential basis, alone, upon which to make a classification decision,” the group wrote. “But it should not be used in a vacuum when the strong presence of any of the traditional common law factors, such as control, demand attention.”
Briefs in favor of the status quo. A brief representing 12 Republican U.S. Senators and another brief representing 30 Republican U.S. Representatives pointed out that the Democratic-backed Protecting Right to Organize Act, which would have amended the National Labor Relations Act by adopting the aforementioned “ABC” test, has failed to pass their chamber. “Congressional opposition to the change is, in part, because many Members believe that the current approach is best adapted to a twenty-first century economy,” the GOP lawmakers wrote.
The U.S. Chamber of Commerce, the world’s largest business federation, echoed Republican members of Congress in warning of overreach. There is no reason for the NLRB to depart from its SuperShuttle standard, the Chamber wrote, and to do so “is a plain instance of its policy reach far exceeding its legitimate regulatory grasp.” The Society for Human Resource Management, representing HR employees and business executives, stressed that the SuperShuttle standard both preserves opportunities for workers and is “necessary for business to compete in today’s global marketplace.”
A brief filed on behalf of major trade groups like the National Retail Federation, the National Federation of Independent Businesses, and the National Association of Wholesaler Distributors, said that overruling SuperShuttle would violate the NLRA and would result in judicial intervention and possibly sanctions. Revising the standard “for no justifiable reason other than ideology… greatly diminishes the Board’s standing as a governing agency,” lawyers with the management-side labor law firm, Littler Mendelson, wrote on their behalf.
The Littler Mendelson lawyers warned that reclassifying independent contractors will lead to a “severe reduction” in the number of jobs ultimately available. As evidence they cited an Uber-led study examining Uber Eats drivers in Geneva who were reclassified as employees following a series of court rulings. The company claimed classifying their drivers as employees put 77 percent of couriers, or 1,000 people, out of work.
Gig economy policy problem becoming more acute. The problem that NLRB policymakers face during this latest round of assessing the definition of an “employee” is that some companies appear to be pushing risk and cost onto its independent contractors, resulting in them earning substandard wages that would be illegal if they were employees. Traditional employees are entitled to a host of labor protections, including the right to a minimum wage, overtime pay, insurance and the ability to join a union.
Some reports have shown that Uber drivers can earn significantly below the minimum wage.
An article in the American Prospect recently reported that more than one quarter of long-haul truckers are misclassified, according to the Berkeley Labor Center, and that “long-haul independent contractors also have to wait, unpaid, in pandemic-lengthened lines to pick up their loads, so that their hourly wage often falls below the legal minimum.”
A 2019 study by I.R.S. economists found the fastest-growing group of independent contractors were those in the bottom quartile of income. Other analyses have shown workers of color are overrepresented in sectors that frequently face charges of misclassification.
Ping pong history. For some history, this NLRB process is the latest iteration in more than a decade of ping-pong between political administrations on the question of how to demarcate an employee under U.S. federal law in an evolving digital and global economy.
The SuperShuttle decision was one where the NLRB, then governed by a Republican-majority, overturned an Obama-era decision—the aforementioned FedEx Home Delivery—where the board had concluded that no one factor in the traditional multifactor balancing test from the Restatement of Agency—including “entrepreneurial potential”—is decisive when determining a worker’s classification status.
In 1947, Congress explicitly carved out independent contractors from the National Labor Relations Act’s definition of “employee.” In 1968, the U.S. Supreme Court ruled in its United Insurance decision that the “obvious purpose” of Congress excluding independent contractors from the NLRA was to have the NLRB and courts “apply the common-law agency test” when distinguishing an employee from an independent contractor.” The common law agency test the board and courts have since proceeded to use, published in the Second Restatement of Agency, outlines a ten-factor test to adjudicate the question. Much of the legal debate over the last ten years has been over whether any of those ten factors, particularly entrepreneurial opportunity, should weigh more heavily than others in a decision.
This FedEx standard was rejected in 2017 by the U.S. Court of Appeals for the D.C. Circuit in 2017, which held that a worker’s entrepreneurial potential should be the decisive factor in determining contractor status. It was the second time the D.C. Circuit had reached this decision, striking down a similar NLRB ruling in 2009. However, the NLRB only considers holdings binding from the U.S. Supreme Court, hence why it’s asking publicly if it should return back to its 2014 standard once again.
The flux around the definition of independent contractors has also drawn some worry from freelancers who are happy with their status and don’t want a broad crackdown on misclassification to affect them. They point to government surveys, like a 2015 U.S. GAO report that found more than 85 percent of independent contractors and those self-employed appeared content with their status. In 2018, the U.S. Bureau of Labor Statistics reported 79 percent of independent contractors preferred their contracting arrangement over a traditional job.