June 13, 2023

Are You My Employer? NLRB Redefines Test (Again) for Classifying Independent Contractors

On June 13th, the National Labor Relations Board issued a decision redefining how employers should determine whether a worker is an employee or independent contractor.

The NLRB writes that making this determination, “requires more than a quantitative analysis based on adding up the factors on each side; it requires the difficult task of assessing the relative significance of each factor, and ultimately each set of factors, in light of the impact of each factor on the overall relationship between the parties.”

So how do we do that? The Board lays out the following 10 common-law factors:

  1. the extent of control which, by the agreement, the master (would-be employer) may exercise over the details of the work;
  2. whether or not the one employed is engaged in a distinct occupation or business;
  3. the kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the employer or by a specialist without supervision;
  4. the skill required in the particular occupation;
  5. whether the employer or the workman supplies the instrumentalities, tools, and the place of work for the person doing the work;
  6. the length of time for which the person is employed;
  7. the method of payment, whether by the time or by the job;
  8. whether or not the work is a part of the regular business of the employer;
  9. whether or not the parties believe they are creating the relation of master and servant; and
  10. whether the principal is or is not in business.

The Board then added an 11th factor “to consider evidence of entrepreneurial opportunity” such as, “whether the worker has a realistic ability to work for other companies; has proprietary or ownership interest in their work; and has control over important business decisions.”

Practical Application? If you are going to engage the services of a worker whom you want to classify as an independent contractor rather than an employee, consider the above.  And don’t stop there! The IRS, U.S. DOL, and state agencies and courts use different definitions!

In 2007, I had the honor of testifying (p. 48 of 90) before a joint U.S. Congressional subcommittee hearing on the topic of worker misclassification. Part of my testimony addressed the challenges employers face navigating myriad rules that keep changing. Fast forward 15 years, and in March Congress reintroduced the PRO Act, which proposes to “close loopholes that allow employers to misclassify their employees as supervisors and independent contractors,” among other things.

Did you know the NLRB has modified this independent contractor classification test three times in the last nine years: in 2014, 2019, and 2023. Is it a coincidence that each decision was under a different political administration than the immediately preceding? Hmmmm.