For a variety of reasons, employers may prefer to treat those who provide services to them as independent contractors rather than employees. However, when employers exercise a sufficient level of control over the ostensible independent contractors (as outlined in various “factor” tests), they may be considered employees under the law. If that happens, employers can face significant legal consequences. For example, the newly reclassified employees could sue for unpaid minimum and overtime wages, and the employer could face fines, penalties, and other liability under state workers’ compensation statutes. The IRS and state and local taxing authorities might seek income and employment tax withholdings that were not, but should have been, made.

Now, the General Counsel of the National Labor Relations Board has weighed in, giving employers one more reason to worry about employee misclassifications. On August 26, 2016, the General Counsel issued an advice memorandum directing the Regional Director for Region 9 of the NLRB to treat employee misclassifications as a violation of the National Labor Relations Act. The General Counsel explained that informing “employees” they are not employees, but rather independent contractors, has the effect of interfering with their rights under Section 7 of the NLRA to organize a union and engage in other concerted activities for mutual aid and protection. In other words, if they are not employees, they are not covered by the NLRA and, therefore, have no rights under that statute. If they are in fact employees, they are covered. Pacific 9 Transp., Inc., 21-CA-150875 (decided Dec. 18, 2015; issued Aug. 26, 2016).

The memorandum discussed a fairly typical case. A trucking company employed a number of drivers directly, but also engaged a number of independent contractors under contracts containing many typical provisions that might support a finding of an independent contract relationship. For example, the agreement recited that these drivers were free to accept or reject any loads, could use their own trucks or rent trucks from the employer, would be compensated by the load and not by the hour, and were required to maintain insurance on the trucks.

In reality, the employer apparently exerted more control than spelled out in the contract. If they were offered and rejected a load, the drivers were passed over for other loads. Because of the employer’s schedule and the loads offered, they practically were excluded from accepting loads from other carriers. Ninety percent of the drivers rented their trucks from the employer, and, despite what the contract said, the employer maintained the insurance on the trucks. When drivers first signed the agreement, they were given an employee handbook spelling out performance expectations and discipline that would be issued for traffic infractions. Thus, the General Counsel concluded, because of the actual day-to-day control exercised over the drivers, they were in fact statutory employees under the NLRA.

This new advice memorandum adds to the many good reasons for employers to consider carefully whether to classify individuals who perform services for them as independent contractors. The potential risks are substantial and the likelihood the individual will be found to be an actual independent contractor very low.

An agreement like the one discussed in the advice memorandum is critical, but should not be considered a panacea. No matter what words are used, it is more important to ensure that on a day-to-day basis, the individual performing services is truly an independent contractor. If it is necessary to exercise any significant control over the day-to-day work activities of individuals performing services, the prudent course often is to classify and treat these individuals as employees and avoid potentially substantial liability in the future.

 

 

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Photo of Howard M. Bloom Howard M. Bloom

Howard M. Bloom is a Principal in the Boston, Massachusetts, office of Jackson Lewis P.C. He has practiced labor and employment law representing exclusively employers for more than 36 years.

Mr. Bloom counsels clients in a variety of industries on labor law issues. He trains and advises executives, managers and supervisors on union awareness and positive employee relations, and assists employers in connection with union card-signing efforts, traditional union representation and corporate campaigns, and union decertification campaigns. He also represents clients at the National Labor Relations Board in connection with bargaining unit issues, objections and challenges, as well as unfair labor practice investigations and trials. Mr. Bloom also has been the spokesperson at countless first and successor contract collective bargaining negotiations, and regularly advises on collective bargaining agreement administration issues, including grievance/arbitration issues.

Mr. Bloom has appeared before the Massachusetts Supreme Judicial Court, the U.S. Court of Appeals for the District of Columbia, several U.S. District Courts, the National Labor Relations Board, the Massachusetts Labor Relations Commission, the Equal Employment Opportunity Commission and the Massachusetts Commission Against Discrimination.

Mr. Bloom speaks frequently to employer groups on a wide range of labor and employment law topics. He also has written extensively on labor and employment law for a variety of publications, including New England Business magazine, The Boston Globe and the Boston Business Journal. He also is editor of and a frequent contributor to the Jackson Lewis Labor & Collective Bargaining Blog.

While attending law school, he was the Executive Editor of The Advocate: the Suffolk University Law School Journal and President of the Student Bar Association.

Mr. Bloom is a diehard baseball fan. His first book, The Baseball Uncyclopedia: A Highly Opinionated Myth-Busting Guide to the Great American Game, was published in February 2006.

Photo of Philip B. Rosen Philip B. Rosen

Philip B. Rosen is a Principal in the New York City office of Jackson Lewis P.C. and a member of the Firm’s Management Committee. Mr. Rosen also leads the firm’s Labor Practice Group. He joined the Firm in 1979 and served as Managing Partner of the New York City office from 1989 to 2009.

Mr. Rosen lectures extensively, conducts management training, and advises clients with respect to legislative and regulatory initiatives, corporate strategies, business ethics, social media, reorganizations and reductions-in-force, purchase/sale transactions, sexual harassment and other workplace conduct rules, compliance with the Americans With Disabilities Act, wrongful discharge and other workplace litigation, corporate campaigns and union organizing matters, collective bargaining, arbitration and National Labor Relations Board proceedings. He has been quoted by the press on many labor matters, including the National Labor Relations Board’s recent initiatives on protected concerted activity and the proposed Notice Posting requirements.