Labor Board Says Misclassifying Employee as Independent Contractor Not Unlawful

  • Sep 4, 2019
  • NLRB
  • Dennis J. Merley

The National Labor Relations Board (NLRB) has just ruled that it is not an unfair labor practice to misclassify a worker as an independent contractor.

Jeannie Edge began driving for Velox, a company that picks up medical samples from doctor’s offices, clinics and hospitals and delivers them to a large diagnostic medical lab for analysis.

Contractor or Employee?

Within a couple of months, Edge began joining in with other drivers complaining about the issuance of restrictive new policies for the drivers.  Edge opined that she was being micromanaged and was being treated more like an employee than an independent contractor. She even emailed her manager to pass along that another employee had recently contacted the Internal Revenue Service about their classification as contractors.

Subsequently, the company issued the drivers a “Route Driver Agreement” with a number of new directives for carrying out their roles. During a discussion about the agreement, Edge’s manager advised her that she should “drop the employee crap.” A few days later, the manager demanded that Edge sign and return the agreement, to which Edge responded that she would as soon as her attorney approved the agreement.  Edge was terminated shortly thereafter.

Edge filed charges under the National Labor Relations Act (NLRA) alleging that the company interfered with her right to engage in protected concerted activities, first by misclassifying her as an independent contractor and then by terminating the working relationship.  She claimed that misclassification is inherently coercive because it conveys to workers that they have no rights under the Act when in fact they do. She then argued that had she been properly classified as an employee, her advocacy on behalf of the other drivers would have constituted protected concerted activity preventing her termination.

Misclassification Not Unlawful

The NLRB disagreed, explaining that the decision to classify a worker as an employee or independent contractor involves complex legal analysis often involving multiple legal standards.  A ruling that misclassification is inherently unlawful would punish employers for honest errors and discourage businesses from utilizing the services of legitimate independent contractors.

The NLRB concluded that merely telling workers that they are independent contractors is neutral in the sense that it does not tell employees that union activities are futile, nor does it threaten or imply reprisal for any such behavior.  Therefore, erroneously identifying workers as independent contractors should not be considered an unfair labor practice under the NLRA.

Naturally, employee advocacy groups decried the decision as one that hinders union organizing since workers will not realize they have a right to try to do so. They chastised the NLRB for focusing on the protection of employer rights instead of employee rights, which they contend was the basis for enacting the NLRA in the first place.

Business groups have expressed relief that misclassification, which already exposes employers to significant monetary liability, will not exact more punishment for what often is simply a mistake. Interestingly, though, one business group in the construction industry sided with the employee advocacy groups, claiming that imposing further penalties for misclassification would help alleviate the competitive advantage that some employers obtain from intentionally misclassifying their workers.

Notwithstanding the ruling on misclassification, Edge did not end up empty-handed.  The NLRB found that she was indeed misclassified and should have been considered an employee.  As such, her termination violated her right under the NLRA to engage in protected concerted activities.  The NLRB ordered that Edge be reinstated with full back pay.

Bottom Line

An employer that misclassifies an employee as an independent contractor faces exposure in a variety of arenas, including failure to withhold taxes, nonpayment of benefits, possible unpaid overtime and failure to provide workers compensation coverage.  Thankfully, absent appeal to the federal courts, such employers will not face the added burden of unfair labor practice awards.