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Nov 3, 2014

By Nelson D. Cary

Employees are permitted to join unions. Independent contractors are not.

Thus, whether a particular working relationship involves an “employee” or an “independent contractor” is extremely important.

Recently, the National Labor Relations Board has made it easier to establish employee status and correspondingly more difficult to establish independent contractor status.

Are FedEx drivers independent contractors?

The case involved delivery drivers for Federal Express Home Delivery. The facts of the case are quite lengthy, so I will include a highly condensed summary of them here.

Each of the drivers sign an operating agreement with the company that describes the driver as an independent contractor. The drivers can negotiate over the particular route assigned to them and over one aspect of their compensation. Otherwise, the drivers cannot negotiate over the agreement and the company is able to make unilateral changes to it once a year upon 30 days notice.

The drivers own their own vehicles and can determine the make and size of vehicle, but the company can decide whether the vehicle is suitable. The company requires the vehicles to display FedEx logos and drivers are required to submit daily logs and other reports pursuant to U.S. Department of Transportation regulations.

The company sets certain expectations for the appearance of the drivers, discourages delivering packages after 8 pm, and requires driver audits and ride-alongs by company managers and other monitoring of daily work activities. Drivers must maintain their own insurance, which they can, but are not required to, purchase through an insurer with whom the company has a relationship.

Drivers need not personally perform all of their deliveries. They can hire another qualified driver to do so in their place. The company retains the right to approve that person.

Drivers can also sell their routes to others, but the company had to deem the buyers qualified and the buyer must be willing to enter into the operating agreement on substantially the same terms and conditions as the original driver. Finally, there were some drivers who operated multiple routes, and employed others to assist with that task, but those drivers were specifically excluded from the bargaining unit that the union sought to represent.

NLRB says that drivers are actually employees

On the facts in this case, the NLRB found that the drivers were employees, and not independent contractors. They could, therefore, join a union. The opinion and analysis is quite lengthy, and this post will not belabor the multi-factor test (you can find it on page 2 of the opinion) that the NLRB uses for independent contractor determinations.

For the labor professional, the significance of this case does not lie in that test.

Instead, the significance of the case is in how the NLRB dealt with a decision by the U.S. Court of Appeals for the District of Columbia Circuit in Washington, D.C. In a nearly identical fact pattern, that court found that FedEx drivers were independent contractors under the National Labor Relations Act.

The NLRB, purporting to merely “restate and refine” its test to determine independent contractor status in light of this court decision, in fact overruled portions of at least three prior opinions. In doing so, it significantly narrowed the importance of a key factor that suggests an independent contractor relationship: the importance of the entrepreneurial opportunity for gain or loss.

In confronting virtually the same fact pattern, the court found that the FedEx drivers had the potential to deliver for other businesses, hire subordinate drivers, and sell their routes, among other things. Thus, those drivers had the opportunity to make (or lose) money beyond their immediate relationship with FedEx. The court relied heavily upon that factor in the particular facts.

Rejecting Appeals Court ruling

The NLRB rejected the court’s approach.

  • First, the employer must show that there was more than a potential for entrepreneurial gain or loss, but that employees in the proposed bargaining unit actually realized that potential.
  • Second, the entrepreneurial opportunity for gain or loss is merely “one aspect” of another factor in the analysis: whether the individual was rendering services as part of an independent business. Entrepreneurial opportunity is not, according to the NLRB, its own independent factor to weigh in the balancing test.

NLRB Board Member Harry I. Johnson III, a Republican, dissented, making three primary points.

  1. First, he believed that the majority’s approach resurrected a 1940’s era Supreme Court decision that Congress had overruled when it amended the NLRA in 1947.
  2. Second, he believed that the majority gave the entrepreneurial opportunity factor “short shrift.” When properly read, which he accused the majority of failing to do, Member Johnson believed the court of appeals case set forth the standard the NLRB should apply.
  3. Finally, he argued that the majority did not ask the right questions or look at the right evidence about the entrepreneurial opportunity for gain or loss.

A must-read case

For those companies that rely upon independent contractors to accomplish core business functions, the FedEx case is a must read. By limiting the significance of the entrepreneurial opportunity for gain or loss, the NLRB necessarily limits one of the primary facts that sets apart employees from contractors.

Many of the aspects of “control” that the NLRB relied upon to find the delivery drivers to employees are items that any company would seek to regulate with respect to workers who interact with the employer’s customers.

Competent labor law advice should be sought by any employer in this situation.

This was originally published on the Vorys on Labor blog

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