NLRB Regional Director Says Misclassifying Employees As Independent Contractors Violates Federal Labor Law

May 2016
James B. Sherman, Esq.

Treating workers as non-employee, “independent contractors” can land employers in trouble with a wide variety of federal and state government agencies if the workers are determined to be employees under any number of laws, each with its own definition of who is an “employee.” Misclassifying employees as independent contractors typically means that no employment taxes are withheld, no unemployment taxes are remitted worker’s compensation and group health insurance is not provided, among other liabilities.  Consequently, when federal or state agencies such as the IRS or Minnesota Department of Employment and Economic Development challenge employers using independent contractors through an audit or in response to a worker’s complaint, the liability can be massive.

To make matters worse, thanks to a recent unfair labor practice, or ULP complaint issued by one of its Regional Directors in Los Angeles, CA, the National Labor Relations Board (NLRB) can be added to the list of agencies that may challenge an employer’s use of independent contractors and/or other contingency workers. The complaint is unique in that it alleges the employer, Intermodal Bridge Transport, misclassified its drivers as independent contractors and, in doing so, interfered with the protections employees are to enjoy under federal labor law.  This complaint follows a directive from the NLRB’s General Counsel in Washington, D.C., Richard Griffin, for the Board’s Regional Directors to explore issues involving “the employment status of workers in the on-demand economy.”  It also is consistent with the NLRB’s ongoing efforts to expand the agency’s reach into non-union workplaces.

The rationale used by the NLRB’s Regional Director, is that treating workers as independent contractors or other non-employee contingency workers necessarily inhibits rights specifically granted to employees under the National Labor Relations Act, as they are enforced by the NLRB.  Among other things these protected rights include the right to engage in forming or joining a union, as well as other “concerted activities” for their mutual aid and protection.  Workers not identified as employees would not be inclined to understand that they have these rights, according to the Board’s presumed theory.

Independent contractors and other non-employee contingent workers are widely used by American businesses and can form a very beneficial relationship for both parties. However, now more than ever it is essential that businesses take great care to ensure that these relationships are truly independent and do not cross the sometimes nebulous “line” into an employer/employee relationship. It is a fine line that shifts, depending on which federal or state agency is defining it.  Businesses must now add the NLRB to this list of agencies that may question the status of workers.

Given the stakes, where a ruling that workers have been misclassified can threaten a business’ very existence, employers are well-advised to seek advice from an expert in this area of the law before engaging independent contractors. Obviously an audit or complaint should be taken very seriously. 

Questions? Contact Attorney James B. Sherman at (952) 746-1700 or email jasherman@wesselssherman.com.