Treating Employees as Contractors May Violate NLRA

A new Advice Memorandum from the National Labor Relations Board (NLRB) tells us that misclassifying employees as independent contractors may be treated as an unfair labor practice under the National Labor Relations Act.

Although this Advice Memorandum is not legally binding and is not yet embraced by the courts, it does reflect the interpretation of the NLRB’s General Counsel (who authored the Memorandum) and signals the likelihood of enhanced enforcement of this interpretation of the law.

The Union Organizing Drive

The Advice Memorandum addressed a company that entered into independent contractor agreements with their truck drivers.  These agreements contained a number of typical indicators of an independent relationship, including recognition that the drivers could decline work, permission to use their own trucks, compensation by the load instead of at an hourly rate and the requirement that the drivers secure their own insurance for their vehicles.

After the union began a campaign to organize the drivers, unfair labor practice charges were filed with the NLRB alleging that the company illegally threatened to close its facility if the drivers supported the union.  The charges also asserted that the company illegally interrogated one of the drivers about the extent of union support among his colleagues.

Not surprisingly, the company contested the allegations on the grounds that the drivers were not employees and therefore, the NLRB had no jurisdiction over them.

An NLRB Regional Office ruled against the company, finding that the drivers really were employees and that the threats and interrogation violated their rights under the National Labor Relations Act (NLRA).  The company settled the charges but soon thereafter issued a memorandum announcing that the company had no actual employee drivers and that the settlement did not apply to independent contractors.

The company’s actions prompted withdrawal of the settlement, another round of unfair labor practice charges and additional legal wrangling over the employment status of the drivers.  The dispute eventually landed at the doorstep of the NLRB General Counsel.

NLRB Unloads on the Company

The General Counsel agreed that the level of control and the ongoing nature of the relationship reflected that the drivers were employees, not contractors.  The company set non-negotiable compensation rates and controlled the drivers’ schedule and work hours to such a degree that the drivers could not work elsewhere.  Drivers received employee handbooks and other employment memos, they were provided with all necessary training, and were disciplined (or even terminated) for driving infractions.  What’s more, almost all of the drivers operated vehicles that were rented from, maintained by and insured through the company.

As employees then, the drivers were entitled to their rights under Section 7 of the NLRA, namely the right to join a labor union.  In that regard, the Advice Memorandum highlighted three critical legal principles at issue in this case:

1.   An employee’s right to engage in union activity is violated when an employer’s actions chill or curtail that person’s future Section 7 activity;

2.  An employer violates the NLRA when telling employees that their exercise of Section 7 rights would be futile (e.g. “Even if the union wins, we will never accept it”); and

3.  Misstatements of law amount to an unlawful interference with Section 7 rights if the statement reasonably implies adverse consequences for engaging in protected activity.

Based on these principles, the General Counsel concluded that the company unlawfully interfered with the drivers’ Section 7 rights.  Notwithstanding the terms of the independent contractor agreements, it should have been clear that the drivers were employees.  Continuing to treat them as contractors, especially after the NLRB found otherwise, was “without any legitimate business purpose other than to deny the drivers the protections that inure to them as statutory employees, and operates to chill its drivers’ exercise of their Section 7 rights.”

Moreover, the continued insistence that the drivers were not employees when the NLRB had ruled otherwise was “akin to a misstatement of the law that reasonably insinuates adverse consequences” for engaging in protected activity. Since independent contractors can be let go for union organizing activity, the company’s persistence in claiming that the drivers were not employees was deemed “tantamount to the Employer telling its employees that they engage in Section 7 activity at the risk of losing their jobs.”

Bottom Line

Misclassifying employees as independent contractors already posed a huge burden on an employer, and this new development just keeps piling it on.

Look for labor unions to get much more active in pursuing this new opportunity to enforce employee rights and to demonstrate their value to work forces they are trying to organize.