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. 

College Football Players Union

This union organizing effort is a publicity stunt and the NLRB petition must be dismissed because scholarship athletes are not employees....MAYBE, MAYBE NOT.

Members of the football team at Northwestern University (85 scholarship athletes) are seeking to become the first labor union specific to college athletes, in an attempt to gain greater legal and financial rights. In an effort to gain these rights, the newly-created College Athletes Players Association, backed by the United Steelworkers, filed an election petition with Region 13 of the National Labor Relations Board (NLRB) in Chicago. The Chicago Regional Office is scheduled to hold a hearing beginning February 7 to determine whether the student-athletes are "employees" under the National Labor Relations Act (NLRA), and thus eligible to form a union. Wessels Sherman received this petition in response to our Freedom of Information Act request [click here to view the petition]. Regardless of whether college athletes are treated fairly under the current system, the NLRA only governs the employment relationship, so unionization may not be the proper avenue to seek improvements of the college athlete experience.

Other Related Cases

While this is the first time the NLRB will have to determine whether student-athletes are employees, other somewhat related cases concerning workers who do not fit into the traditional definition of "employees" may shed some light on how the NLRB will approach the issue.

The NLRB has gone back and forth regarding whether graduate student assistants are "employees," most recently determining in 2004 that they are primarily students, and therefore not statutory employees. In reaching this decision, the NLRB noted that "there is a significant risk, and indeed a strong likelihood, that the collective-bargaining process will be detrimental to the educational process." Although the NLRB announced in 2012 that it would reconsider the issue, the case was settled before the NLRB ruled on the issue.

The NLRB has also determined that unpaid volunteers are not employees within the meaning of the NLRA. The NLRB stated that "the relationship between the Employer and unpaid staff is not that of employer and employees contemplated by the Act. Unpaid staff do not depend upon the Employer, even in part for their livelihood or for the improvement of their economic standards. They do not work for hire and thus the Act's concern with balancing the bargaining power between employer and employees does not extend to them."

The NLRB determines on a case-by-case basis whether disabled workers in a sheltered workshop are employees. The relevant inquiry is whether the primary purpose of the workshop is rehabilitation-in which case the workers are not employees-or industrial-in which the workers are employees.

Finally, although not in the context of the NLRA, at least one court has determined that a football player from TCU who suffered a paralyzing injury was not an employee eligible for workers' compensation under Texas law, despite the fact that his room, board, and tuition were paid, in addition to a small allowance for incidentals. The court noted that both parties intended the player to attend the university as a student, not as an employee.

Predictions

Because we do not believe that student-athletes can reasonably be found to be employees under the NLRA, we believe that Region 13 of the NLRB in Chicago will dismiss this petition. However, this decision would likely be reviewed by the NLRB in Washington, D.C., and with its current makeup, what it is likely to do is more difficult to predict. We anticipate a lengthy hearing at Region 13 with Northwestern presenting testimony from the A.D., university administrators, coaches, and NCAA officials. Mountains of evidence will be presented showing no employment contract, no pay check, no withholding, no tax returns filed, no direction and control over student activities and the same direction and control in football activities over both scholarship and non-scholarship players.

The current, extremely labor-friendly, NLRB has had no qualms extending its reach in unprecedented ways. For example, in the controversial D.R. Horton decision, the NLRB declared that arbitration agreements that prevent employees from bringing class action lawsuits, violate the NLRA. The NLRB has also begun carefully scrutinizing non-union employers' social media policies and other handbook provisions to determine whether these provisions interfere with employees' rights under the NLRA. Finally, the recent Specialty Healthcare case has opened the door to "micro units." Although those cases did not concern the definition of employees, they illustrate other ways that the NLRB has recently asserted its authority in new ways.

Other Considerations

The football players in question attend Northwestern University, which is a private school. However, the majority of the universities with a strong emphasis on college sports are public, and thus outside of the reach of the NLRB; each state has its own distinct labor laws governing state employees. This could present a huge problem for the unionization of student-athletes on a larger scale.

Written by: Richard H. Wessels, Esq