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Another reason not to misclassify workers as independent contractors

As I have previously pointed out, the U.S. Department of Labor (DOL) and the U.S. Treasury Department have been pursuing cases of misclassification of workers—that is, the practice of classifying a worker as an independent contractor instead of an employee. Employers typically resort to this approach as a means of reducing the employer’s share of withholding taxes—and several other “benefits.” See this previous discussion.

NLRB joins the pursuit

Now the National Labor Relations Board (NLRB) has joined this pursuit. On March 22, 2016, the general counsel of the NLRB issued General Counsel Memorandum 16-01. The memorandum lists the types of cases that the NLRB is particularly interested in and lists cases involving the question of whether the misclassification of employees as independent contractors violates Section 8(a)(1) of the National Labor Relations Act (NLRA).

Section 8(a)(1) prohibits employers from interfering with employee rights provided by Section 7. Among other things, Section 7 allows employees to engage in protected concerted activities, such as talking about working conditions or attempting to organize a union. To provide a simplified example of what this means, let’s suppose there’s a problem with the bathroom plumbing at a workplace. The workers circulate a petition to get the plumbing fixed. Section 8(a)(1) means the employer can’t fire the employees for “stirring up trouble” by circulating the petition. Circulating the petition is a protected concerted activity protected by the NLRA. See this post by my colleague Lauren Smith.

But let’s suppose that workers have been classified as independent contractors; that means the workers aren’t employees and therefore not covered by Section 8(a)(1). So potentially, the employer could “fire” workers for stirring up trouble because, after all, they are contractors, not employees. (The firing would be executed by simply not renewing their contracts.)

This, then, is the NLRB's position: When the NLRB hears about a case where a business is “firing” workers classified as independent contractors because the workers have been complaining about working conditions, the NLRB is going to consider the classification an unfair labor practice in violation of Section 8(a)(1).

And such a case has made its appearance.

Complaint filed

On April 20, 2016, the regional director of the NLRB in Los Angeles filed a complaint against Intermodal Bridge Transport (IBT). The complaint asserts that IBT has misclassified its employee-drivers as independent contractors and thereby inhibited them from engaging in Section 7 activity.

Recent related decision

On April 19, 2016, the U.S. Circuit Court of Appeals for the District of Columbia decided a case that bolsters the NLRB position on this issue. The Lancaster Symphony Orchestra (Lancaster, Pennsylvania) paid its players as independent contractors. The players tried to form a union; and the orchestra challenged their petition to form a union, saying that the NLRA doesn’t apply to independent contractors. In fact, the U.S. Supreme Court has ruled exactly that: The NLRA doesn’t apply to independent contractors. NLRB v. United Insurance Co. of America, 390 U.S. 254 (1968). Also see 29 U.S.C. § 152(3), which says, “The term ‘employee’ . . . shall not include . . . any individual having the status of an independent contractor.”

The NLRB found that the players were employees and could form their union. The D.C. Circuit Court affirmed the board’s decision. See Lancaster Symphony Orchestra v. NLRB. The basis for the affirmation was primarily because of the degree of control the conductor exerted over the way the players did their jobs.

What does this mean for employers?

Classifying workers as independent contractors is a risky approach to reducing employment costs. In addition to having to pay penalties, back taxes, and back pay, misclassification can also jeopardize employee benefit programs. Now that the NRLB has decided to jump on the misclassification bandwagon with the DOL and the Treasury Department, employers have one more reason to be very careful when classifying a worker as an independent contractor.

Classification of a worker as an independent contractor should be carefully reviewed with counsel or a certified public accountant.

Stay tuned to the Third-Shift Employment Law Blog for more developments in the ITB case and its implications for employers.

Items on this web page are general in nature. They cannot—and should not—replace consultation with a competent legal professional. Nothing on this web page should be considered rendering legal advice.

© 2016

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