NLRB Issues Unfair Labor Practice Complaint Alleging Misclassification of Independent Contractors Is a Stand-Alone Unfair Labor Practice

Late last week, the National Labor Relations Board last week issued a Complaint and Notice of Hearing that could, if successful, make the act of misclassifying workers as independent contractors a violation of the National Labor Relations Act.  The complaint was issued despite a time-honored statutory defense available to companies that likely will prevent the NLRB from succeeding in its efforts to support organizing efforts by the Teamsters seeking to represent drivers in the intermodal, drayage, cargo, last mile, and logistics industries.

The complaint was issued by the Regional Director of the Los Angeles Region of the NLRA on the authority of the General Counsel of the NLRB, a Democratic appointee. The complaint was issued against Deco Logistics, Inc. d/b/a Container Connection and other affiliates of Deco including Universal Intermodal.  It alleges that Deco, Universal and their affiliates violated Section 8(a)(1) of the National Labor Relations Board by misclassifying drivers as independent contractors and engaging in other activities in violation of the workers Section 7 rights to organize, such as interrogating a driver about his union activities and retaliating against drivers because they assisted the Teamsters Union in seeking to organize drivers. The relief sought includes an Order that Deco and Universal “Reclassify independent contractors as employees and make them whole including direct and foreseeable consequential harm they incurred as a result of the Respondents’ misclassification and other unlawful conduct.”   Deco Logistics, Inc. d/b/a Container Connection, Case 21-CA-272323 (Mar. 17, 2022).

As more fully discussed below, it is unlikely the NLRB will succeed in its claim that the mere act of classifying workers as independent contractors will constitute a violation of the NLRA because of the “free speech” provisions of Section 8(c) of the Act.

Deco Logistics seeks to overturn the majority opinion in Velox Express

By issuing the complaint in Deco Logistics, the new General Counsel of the NLRB, Jennifer Abruzzo, who was appointed by President Biden and began serving in that capacity in July 2021, effectively seeks to overturn the NLRB’s 2019 decision in Velox Express, Inc., 368 NLRB No. 61 (2019).  That NLRB decision, issued by a Republican-appointed majority over the dissent of the current NLRB Chair, Lauren McFerran, held that a courier company’s act of misclassifying couriers as ICs was not, standing alone, a violation of the NLRA.  The Board majority in Velox also rejected the argument that it should issue an order mandating that the courier company reclassify its drivers as employees and notify them that they are not ICs under the NLRA.

The NLRB’s decision in Velox Express is somewhat of an anomaly.  That 2019 decision concluded that the company (a) actually misclassified the workers in question under the Board’s test for independent contractor status and (b) committed an unfair labor practice by terminating a worker for engaging in protected activity – yet concluded that the company did not violate the law by its stand-alone act of misclassifying the workers and advising the workers that they are independent contractors.  A close review of the majority’s opinion demonstrates that the Board’s decision in Velox Express on the “stand-alone” issue was mandated by the “free-speech” provisions of the NLRA as well as public policy considerations.

Before reaching the issue in Velox of whether the act of misclassifying employees as ICs violated the NLRA, the Board majority first determined whether the company had actually misclassified the drivers who provided services to Velox and its customers.  Applying the Board’s test for IC status as earlier set forth in its January 25, 2019 decision in SuperShuttle DFW, which was the subject of our blog post that day, the majority of the NLRB concluded that the Velox couriers were employees and not ICs under the SuperShuttle test for IC status.

In concluding that the Velox Express couriers were misclassified, the Board majority found the following factors supported employee status:  Velox’s drivers must personally service pre-established routes in which they had no proprietary interest and must service those routes during certain specific time periods on designated days with no discretion to determine when and how long they work;  they received flat fees over which they had no input or control; they had to request time off from Velox when they did not wish to work a scheduled day; and they had to follow detailed procedures and respond to all Velox communications or be subject to disciplinary fines.

Notably, the complaint issued last week by the NLRB’s Regional Director for the Board’s Los Angeles Region does not allege any factors as to why the drivers should be classified as employees instead of independent contractors.  That glaring omission alone may well be asserted by Deco Logistics as a ground for dismissal of the complaint.

After finding in Velox Express that the couriers were statutory employees under the NLRA and hence misclassified, the Board majority addressed the “stand-alone” question:  “Under what circumstances, if any, should the Board deem an employer’s act of misclassifying employees as independent contractors a violation of Section 8(a)(1) of the Act?”

The Board majority in Velox held that an employer’s classification of workers as ICs and its “mere communication to its workers that they are classified as independent contractors” do not violate the NLRA.  In reaching this holding, the Board majority in Velox Express first addressed Section 8(c) of the Act, the so-called “free speech” section.  That section, which was added to the NLRA over 60 years ago in 1959, states as follows:  “The expressing of any views, argument, or opinion, or the dissemination thereof, whether in written, printed, graphic, or visual form, shall not constitute or be evidence of an unfair labor practice . . . , if such expression contains no threat of reprisal or force or promise of benefit.”  The Board majority in Velox Express concluded that when an employer decides to classify its workers as independent contractors, it forms a legal opinion regarding the status of those workers and “its communication of that legal opinion to its workers is privileged by Section 8(c) of the Act…”

Notably, the NLRB majority in Velox Express concluded that even if a company is wrong in its view that certain workers are ICs and is later found to have misclassified the workers, “erroneously communicating to workers that they are independent contractors does not, in and of itself, contain any ‘threat of reprisal or force or promise of benefit.”

Next, the Board majority in Velox Express considered a public policy basis for its holding, noting that “[i]ndependent-contractor determinations are difficult and complicated enough when only considering the Act, but the Act is not the only relevant law.”  It added: “An employer must consider numerous Federal, State, and local laws and regulations that apply a number of different standards for determining independent-contractor status. Unsurprisingly, employers struggle to navigate this legal maze. Further, in classifying its workers as independent contractors, an employer may be correct under certain other laws but wrong under the Act—which is all the more reason why it would be unfair to hold that merely communicating that classification is unlawful.  As a purely legal issue, this public policy basis for the holding in Velox Express may not have the same force and effect as does the free speech defense, which is based on a specific section of the NLRA.

The final issue addressed by the Board majority in Velox Express was the appropriate remedy for the unfair labor practice it found that Velox had committed.  The majority opinion, in a lengthy footnote, declined to order Velox to reclassify the workers as employees, finding that such a remedy only should be considered where the posting of a notice – the standard NLRB remedy – is insufficient, and there was no reason to believe that a notice would not dissipate the unlawful discharge of the driver.

The Dissent in Velox Express

In her dissent, then-Member (and now Chair) McFerran focused on what she referred to as the “chilling effect” of misclassification, arguing that the IC agreement that declared each driver to be an IC “implied that drivers had no rights under the Act,” which she regarded as unlawful.  She also viewed Section 8(c)’s free speech provisions as inapplicable because, in her view, the communication of IC status to the drivers was not a “legal opinion” and itself restrained, coerced, and interfered with the drivers’ rights under the NLRA.  Finally, Member McFerran asserted that because Velox committed an unfair labor practice by terminating a driver for engaging in protected activities, it is necessary for Velox to inform the other drivers that they are not ICs but rather employees entitled to rights protected by the NLRA.

Analysis and Takeaways

The issue of whether the mere act of misclassifying workers as ICs is itself an unfair labor practice is likely to be contested not only at the NLRB but also in the courts.  If the current Democratic-appointed Board majority overrules Velox Express and finds that Section 8(c) does not serve as a statutory defense, that decision will be contested before a federal appellate court with possible review by the U.S. Supreme Court.

But if past decisions are a guide, the NLRB would not likely receive a favorable result by a federal appellate court.  As we have written recently in a blog post on a related topic, we do not expect the courts will likely accept a new NLRB independent contractor test to replace the current standard under SuperShuttle because the U.S. Court of Appeals has twice reversed the Board when it changed the test for IC status. The courts generally do not favor the NLRB constantly changing its views and playing ping-pong in its decisions, and a similar effort by the Board in Deco Logistics may well lead to the courts reversing the NLRB yet again.

The current effort by the NLRB to create a standalone violation of the NLRA for misclassifying workers as independent contractors should send a firm message to businesses using an IC model or engaging a considerable number of ICs to supplement their workforce.  First, companies should document their good faith belief as to why they believe the workers classified as ICs have been properly classified. Prior to doing so, businesses should consider evaluating their current IC relationships to determine if they can enhance their level of compliance by restructuring, re-documenting, and/or re-implementing such relationships in a customized and sustainable manner, as is done in a process such as IC Diagnostics (TM).

Other ways such businesses can protect themselves is not to engage in the types of conduct that Velox Express was found to have engaged in – terminating or otherwise retaliating against workers classified as ICs where such workers have supported a union’s effort to organize them and others performing similar services.  Such action may be deemed to be independent unfair labor practices, as the NLRB found in Velox Express. Other types of actions that may constitute an unfair labor practice (and may cause a company to lose the protections of Section 8(c) of the NLRA) include threats of reprisal, promise of benefits, interrogating workers about their efforts to unionize, and similar conduct.

Essentially, companies with a good faith belief in their classification of workers as ICs would be wise to simply classify workers as ICs and say or do nothing else. If asked by a worker to explain why they classify workers in that fashion, such companies may wish to do nothing more than briefly provide their legal position, if they choose to respond at all. If a worker or group of workers disagree, a company may simply “beg to differ” without arguing the point.

Written by Richard Reibstein

The post NLRB Issues Unfair Labor Practice Complaint Alleging Misclassification of Independent Contractors Is a Stand-Alone Unfair Labor Practice appeared first on Independent Contractor Compliance.