Labor Board Decision Will Make It Harder to Classify Independent Contractors

Here is what employers need to know about classifying employees.

June 15, 2023

ALEXANDRIA, Va.—A recent ruling by the National Labor Relations Board (NLRB) will make it significantly harder for companies to classify their workers as independent contractors.

The case of the Atlanta Opera swings the independent contractor pendulum back to the Obama-era standard as the board ruled 3-1 to overturn the Trump-era board’s decision during the SuperShuttle case, which emphasized a worker’s “entrepreneurial opportunity” over other factors when classifying them as employees or contractors.

The Atlanta Opera is a professional opera company based in Atlanta, Georgia which hires hairstylists for performances. These workers do not sign contracts, but they do agree to an hourly pay rate and fill out timesheets accordingly. They are not on the opera’s payroll, and they do not need to sign a w-9. These stylists are largely free from immediate or direct supervision by the Opera.

One stylist wanted to join a particular union that was seeking to organize the independent contractors, but the Opera argued the stylist was not entitled to representation because they were independent contractors rather than employees. The union called for SuperShuttle to be overruled and argued that emphasis should be placed on the entrepreneurial opportunity analysis.

According to labor and employment law firm Fisher Phillips, the NLRB struck down the SuperShuttle independent contractor test in two parts.

First, the board narrowed the scope of the entrepreneurial opportunity, effectively making it difficult for employers to establish. The board noted it will “give weight only to actual (not merely theoretical) entrepreneurial opportunity” and “evaluate the constraints imposed by a company on the individual’s ability to pursue this opportunity.”

Under this new standard, the board will also consider whether the worker:

  1. has a realistic ability to work for other companies;
  2. has proprietary or ownership interest in their work; and
  3. has control over important business decisions, such as the scheduling of performances, the hiring selection and assignment of employees, the purchase and use of equipment and the commitment of capital.

The second part was that the board returned to the Obama-era independent contractor test supporting its pro-employee roots. Under this standard, the board had little trouble concluding that the stylists were the Opera’s employees who could join in union organizing efforts.

Fisher Philips explains there are seven key takeaways from this development:

  • The Atlanta Opera case has made it significantly easier to classify workers as employees, which will lead to more opportunities to organize workers who are currently excluded from union organizing.
  • Now, workers at any number of gig companies–or any other business that deploys independent contractors as part of its workforce–may claim they are employees with union rights.
  • Online businesses and others that utilize individuals’ services on a temporary basis are also [open to] union organizing efforts.
  • Employers will need to operate under the assumption that workers who are currently independent contractors may soon be deemed employees by the current board, absent strict compliance with the board’s current assessment of the independent contractor and entrepreneur opportunity tests.
  • Implications are significant for employers on both sides of the staffing equation regarding the risk of third-party representation and eventually a duty to bargain over conditions of staffed workers.
  • It is imperative that employers review staffing contracts for extraneous language reserving the right to direct and/or indirect control.
  • Additionally, employers will want to ensure that staffing providers have sound employee-engagement programs.

The Department of Labor issued a proposal back in September in an effort to make it easier to classify gig workers as formal employees under the Fair Labor Standards Act. In December, NACS filed comments with the DOL on its proposal to replace the existing regulations surrounding the classification of certain workers as independent contractors.