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. 

February 2016 Was Largely Unkind to the NLRB in Minnesota and Nearby States

Like Punxsutawney Phil, the National Labor Relations Board (NLRB) emerged from the comfort of that agency’s “den,” in February 2016, only to see some of its decisions “overshadowed” by the U.S. Court of Appeals for the 8^th Circuit when the court refused to enforce them on appeal.  In one case the appellate court reversed a Board decision that had found an employer unlawfully disciplined an employee for soliciting union support from co-workers while they were working.  In another case involving an employer in the construction industry, the court determined that the NLRB had issued an “unlawful order” when it tried to enforce an operating engineers (IUOE Local 150) collective bargaining agreement for employees already covered by an agreement with the Laborer’s Union (LIUNA).  These were big victories for those involved as well as employers everywhere, yet it remains to be seen whether they signal an extended season of cold shoulder treatment for the NLRB in 2016.  If nothing else these recent court rulings signal that our federal appellate court in the 8^th Circuit will not rubber-stamp the Board’s growing list of aggressive decisions, many of which employers see as favoring unions and employees over employers.

Employers unlucky enough to land in the NLRB’s world often find it necessary to pursue their cases on to the federal courts of appeals in order to feel that they have a reasonable shot of prevailing.  A prime example that has gained national attention, is the Board’s ruling in its D.R. Horton case involving a non-union employer.  In that case the NLRB ruled that the employer unlawfully interfered with its employees’ protected right to engage in “concerted activities” by enforcing an arbitration agreement whereby employees waived their right to pursue class action claims in court.  The 5^th Circuit Court of Appeals, in Louisiana, refused to enforce the D.R. Horton decision, criticizing the Board’s attempt to equate lawsuits with strikes and other employee group activities that have long been protected by federal labor laws.  Undeterred, the NLRB has continued to make similar findings against employers outside the 5^th Circuit.  In fact, just as the 8^th Circuit Court of Appeals was rescuing two employers from unfavorable NLRB decisions the agency issued yet another “Horton-like” decision against a Minnesota Applebee’s restaurant franchisee.  As in the D.R. Horton case, the NLRB’s February 2016 Applebee’s ruling found that the employer’s handbook “Dispute Resolution Program” violated federal labor law by including a waiver provision on class-action lawsuits.  

There is no reason to think that the Applebee’s franchisee will not appeal the Board’s decision; after all, the NLRB lost on appeal in D.R. Horton and since then at least two other U.S. Courts of Appeals have criticized the Board’s rationale for declaring class-action lawsuits as a protected form of concerted employee activity under federal labor law.  If February 2016 is any indication the 8^th Circuit will be no less friendly to the NLRB in this appeal.  It is unfortunate, however, that employers must fight to within one step of the Supreme Court in order to win these cases.

Questions? Contact Minnesota attorney James Sherman at (952) 746-1700 or by email at jasherman@wesselssherman.com

Five Essential New Year Resolutions Every Employer Should Have for 2016 - 1

1.  Avoiding “joint employer” status and liability under newly adopted federal agency standards –

Last year, the National Labor Relations Board (NLRB) overhauled the test to determine whether two (or more) employers are “joint employers” for purposes of labor law, with its Browning-Ferris Industries decision.  The new test makes it much easier to establish joint employer status and is now being used to pursue claims against McDonald’s Corp. for the actions of its franchisees.  The NLRB’s test is being used to hold multiple employers liable for unfair labor practices committed by one, as in the case of McDonald’s Corp. as a joint employer with its franchisees.  Joint employer status may also be used to impose collective bargaining and union contract obligations, as well as determining whom can be subjected to picketing and other strike activity or economic pressure, from unions. 

The Department of Labor (DOL) recently issued its own definition of “joint employers,” amid allegations from some United States Congressmen of collusion between the two agencies.  Although some of the factors in the two tests are similar (the DOL definition is actually broader than that of the NLRB), the consequences of finding a joint employer relationship by the different agencies differ significantly.  The DOL’s guidance is relevant for the Fair Labor Standards Act (FLSA) and the Migrant and Seasonal Agricultural Worker Protection Act (MSPA).  Under these laws, the hours worked for joint employers will be aggregated for purposes of determining if an employee has worked overtime during a workweek.  In either case, both joint employers will be jointly liable for any violations under these laws.  

Because of the severe ramifications at stake and the current heightened focus on the issue, we highly recommend that employers make the New Year’s resolution of auditing any potential joint employment relationships with the help of someone knowledgeable in these areas.   

Minnesota Federal Court Decision Sheds Light on Importance of Union Authorization Cards

May 2015

By: James B. Sherman, Esq.

The National Labor Relations Board’s (NLRB) Minneapolis Regional Office recently sued an employer in federal district court in Minnesota, seeking to force an employer to recognize and bargain with a union that had lost an election among its employees.  The court denied the NLRB’s request for injunctive relief, but the case holds important lessons for employers.  The first lesson is that employers can be saddled with a union in certain circumstances even where no election has taken place, or where the union has actually lost an election.  Another lesson is that a more aggressive NLRB (and regional office #18 in Minnesota) will not hesitate to sue in court if it determines an election was tainted by “unfair labor practices.”  A more subtle but perhaps more important lesson is that employee “authorization cards” solicited by unions are legally significant and binding in the eyes of the NLRB, as the facts of this particular case clearly demonstrate. 

Usually the only way that an employer becomes obligated to recognize and bargain with a union is if a majority of the employees elect that union as their exclusive bargaining representative in an election conducted by the NLRB.  While the NLRB’s procedures changed drastically as of April 14, 2015 with the implementation of its highly controversial new so-called “Ambush Election Rules,” the process continues to begin with union organizers or supporters soliciting support from employees in the form of a signed authorization card.  These cards vary somewhat depending on the union, but they generally state in writing that the signing employee hereby “authorizes,” “selects,” or otherwise “designates” a particular union to act as her or his “exclusive bargaining representative with respect to wages, hours and other terms and conditions of employment.” 

Despite what clearly is very legal and binding language, employees are often told to sign union authorization cards purely to allow an election to take place; in other words, union advocates frequently tell employees the cards are meaningless and serve only to allow the NLRB to conduct an election, where employees are then free to vote as they choose.  While a pitch for “Democracy” may sound appealing, in truth (and not surprisingly) the NLRB interprets signed authorization cards to mean what they say – that the person who signed the card actually designates the union to act as her or his exclusive bargaining representative, for all terms and conditions of employment!

The case, Osthus v. A.S.V., Inc., involved an election which the employer won by a majority vote of 26-15.  However, the union alleged that the vote was tainted by a number of allegedly very egregious labor law violations.  Based on these allegations, coupled with the fact that a majority of employees had signed union authorization cards well prior to the election, the NLRB’s Regional Director in Minneapolis sued in federal court to order the employer to recognize the union.

In the week leading up to the election, several members of management allegedly made comments suggesting that if the employees chose to unionize, production would shift from their location to a different, non-unionized location.  Prior to these statements, a majority of the bargaining unit signed authorization cards.  However, after the comments were allegedly made, the employees voted down the union by a 26-15 vote.  The NLRB used this as evidence of a sharp decline in support for the union after the employer allegedly made unlawful comments.  However, authorization cards do not necessarily show support for a union.  When soliciting authorization cards, unions will frequently tell employees that the cards will only be used to get an election, and at that time, the employees will vote whether or not they want the union.  However, this case highlights how the cards can be used in other ways—in this case the NLRB used the cards as evidence that at one time, the union had the support of the majority of the bargaining unit employees, and tried to force the employer to bargain with the union on this basis.

Many employers are unprepared when faced with a union organizing drive, and find themselves in trouble after saying something that is construed as an improper threat, promise, or interrogation.  Employers should have a plan in place so they are trained in what they can and cannot say or do to oppose union organizing. 

For help in responding to a current union organizing campaign, or to be proactive in case of any future organizing, contact Jim Sherman at (952) 746-1700 or by email at jasherman@wesselssherman.com. 

Public Hearings on Proposed "Ambush Election" Rules

This morning the NLRB announced that public hearings on the proposed “Ambush Election” rules will be held at the NLRB offices in Washington on April 10 and April 11, 2014. You can access this announcement at http://content.govdelivery.com/accounts/USNLRB/bulletins/a7afaa?reqfrom=share.

Ambush Elections and Supervisory Training

In my recent commentary (yesterday) about the announcement by the NLRB last week that they are proposing dramatically shortened time frames for union organizing elections, I mentioned the importance of having an emergency game plan ready to go because of the short time to react to the filing of an organizing petition. I commented that training of supervisors is an excellent idea and that we regularly provide that training. We have already had several questions on exactly what the format is for supervisory training.

Typically, this training on the union organizing issue is done in a group meeting with the client’s front-line supervisors. The following points are covered:

1. Overview of NLRB union organizing procedures.
2.  Dos and Don’ts about what a supervisor can say and can’t say during a union organizing effort.
3. Role-playing on answering typical employee questions.
4. After the role-playing exercise, we like to show a short DVD (13-½ minutes long) showing a supervisor doing a terrific job of answering employee questions.
5.  At the conclusion we make some group decisions on plans going forward. Normally this turns out to be staying alert, “nipping in the bud” any wrong ideas that employees might have about what unions can do for them and, most importantly, an understanding on the part of the supervisors that they should immediately notify top management of any signs of serious union organizing activity. If top management doesn’t know, they can’t react!

All this can be done in a one-hour time frame and Dick Wessels regularly handles this for clients. This is relatively cost-effective at Dick’s hourly rate of $325 an hour, and that is the total bill. There is no charge for preparation time, travel time nor travel expenses. As we indicated in our last e-alert, if you have questions or you want to set up a supervisory training session, contact Dick at 630-377-1554 or via e-mail at riwessels@wesselssherman.com.

Ambush Elections Are Back!

Ambush elections are back! The National Labor Relations Board announced last week in Washington that they are once again proposing dramatically shortened timeframes for union organizing elections. This is a reappearance of pro-union rules which were approved by the NLRB in 2011, but were successfully challenged on the basis that the NLRB did not have the required quorum. The new fast track election period will greatly favor unions. It will also include such things as forcing companies to provide organizers detailed information on employees, including home phone numbers, and a streamlined process undercutting a company's ability to challenge various election issues. But, the most important feature remains the requirement that you could be facing an election on a ten day fast track.

It is expected that public hearings will take place at the NLRB in Washington in April with an expected vote sometime after that. It is a near certainty that the three pro-union members on the NLRB will vote to approve the new rules and they will out vote the two Republican board members. So, it is likely that business will be looking at a strongly pro-union union organizing procedure which is, in our view, properly called "ambush elections."

The practical implications for employers are that they will need to be far more sophisticated in handling campaigns. At a minimum, they should have an emergency game plan ready to go because there will be precious little time to react. Training of supervisors on the issue is an excellent idea and you can contact us if you wish to do that. Another good idea is to have available a ready-made campaign using a video format, again, because you are going to have to act very quickly. The two top companies out there that have solid off-the-shelf material are Labor Relations Institute and Projections, Inc. You can take a look at their material on their websites which are LRI - www.lrionline.com or Projections Inc. - www.projectionsinc.com.

If you want to get ahead of the curve with supervisory training, contact Dick Wessels at 630-377-1554 or via e-mail at riwessels@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

Union’s Tacky/Stinky Strike Tactic Survives Federal Court Challenge

A federal court in Illinois recently dismissed a Chicago hotel’s complaint against UNITE HERE, Local 1.  The Congress Plaza Hotel and Convention Center claimed in its suit that the union engaged in unlawful “secondary boycotting” as part of its strike against the hotel.  The union was accused of trying to cause business groups not to hold their conventions at the struck hotel.  In what can only be characterized as a stinker of a strike tactic, the complaint alleged that UNITE HERE, Local 1 delivered a heart-shaped package, filled with cow manure, to a group of scientists who had scheduled their convention to take place at the struck hotel. 

Section 8(b)(4)(ii)(B) of the National Labor Relations Act prohibits unions from exerting pressure on secondary businesses with the objective of causing them not to do business with a “primary” employer (one with whom the union has a labor dispute).  The allegations of this case seemed to fit the bill for such a claim. After all, if the scientists “got the drift” of the message behind the union’s lovely “gift,” it certainly appeared the union was unhappy with their choice of the location for their convention.  Unfortunately, the court never decided whether the union’s creative but raunchy “cow pie” package crossed the line because it ruled the hotel failed to bring suit within the applicable statute of limitations. 

Labor unions generally have little clout during a labor dispute.  To be sure, employees may lawfully withhold their services in an attempt to get their way at the bargaining table; i.e. go on strike.  But employers willing to withstand a strike are within their legal rights to hire replacement workers and continue operating, as was the case in this particular matter.  Faced with this kind of dilemma unions sometimes resort to “creative” measures such as the secondary pressure aimed at customers as alleged in this case.  Other cases with which our attorneys have been involved in the past include a union using giant inflatable rat; public campaigns through social and other media; and, on occasion, acts of violence.  Knowing how and, as this case demonstrates, when to react to such union tactics is part of management’s careful strike preparation plan in anticipation of any potential labor dispute.

For knowledgeable advice and assistance with advance planning for possible labor disputes or dealing with union pressure tactics, seek the advice of an experienced labor lawyer.  Contact: James B. Sherman at (952) 746-1700, or email jasherman@wesselssherman.com.

Another Win for Employer Rights - The U.S. Court of Appeals for the District of Columbia Circuit Struck Down the NLRB's "11-by-17" Poster Requirements

In another win for Employer rights, an appeals court on May 7, 2013 struck down a federal rule that would have required millions of businesses to put up posters informing workers of their right to form a union.

The poster rule would have required businesses to display an 11-by-17-inch notice in a prominent location explaining the rights of workers to join a union and bargain collectively to improve wages and working conditions.

The U.S. Court of Appeals for the District of Columbia said the National Labor Relations Board (NLRB) violated employers' free speech rights in trying to force them to display the posters or face charges of committing an unfair labor practice.

This ruling is another victory for Employers. Earlier this year, the same appeals court threw into question hundreds of other NLRB decisions after finding that President Obama's recess appointments to the board were unconstitutional. The Obama administration is appealing that decision to the U.S. Supreme Court. We will need to wait and see if the Obama administration appeals this ruling as well.

NLRB Postpones its Mandatory Notice-Posting Until 1/31/2012