Independent Contractor Status

Democrats in Congress and on the NLRB are attempting to limit Americans’ ability to work independently.

On February 28, 2023, Congressional Democrats reintroduced the Protecting the Right to Organize (PRO) Act (H.R. 20S. 567). Included among the myriad drastic labor policies within the bill is a provision making it significantly more difficult for a worker to operate as an independent contractor. The bill does this by imposing the “ABC test,” used to determine if a worker is an employee or independent contractor, into the National Labor Relations Act (NLRA), applying it nationwide.

If the ABC test becomes part of the NLRA, many workers will lose their status as independent contractors and the freedom and flexibility that comes with such status, such as the ability to determine their own hours, what work they choose to do, and how they perform that work. This is at odds with what independent contractors actually want; many of them choose independent work because of the flexibility and autonomy it offers, especially workers in the gig economy.

The NLRB has also changed its employee classification standard. On June 13, 2023, the Board issued its decision in The Atlanta Opera, narrowing the standard to make it extremely difficult for a worker to qualify as an independent contractor. The decision overturns the Trump-era SuperShuttle decision (described below) and reverts back to the Obama-era standard established in FedEx Home Delivery (2014), which severely undervalued the significance of a worker’s entrepreneurial opportunity for economic gain when considering classification. CDW filed an amicus brief in the case in February 2022. Importantly, the FedEx Home Delivery standard has been explicitly rejected by the DC Circuit twice.

The Department of Labor (DOL) is also changing its employee classification standard. In January 2024, the DOL issued its final rule broadening the scope of the “economic realities test” used to classify workers under the Fair Labor Standards Act (FLSA). Broadening the test’s scope will assert economic dependency between workers and their employers more frequently, thus favoring classification of workers as employees. This would impact independent contractors in the same way that the PRO Act would.

Even state legislatures and localities are threatening independent contractor status. In April 2018, the California Supreme Court issued its Dynamex decision applying the ABC test statewide, but the test has been so difficult to implement that the legislature and governor were forced to enact new laws exempting over 100 occupations as well as the construction industry generally. California’s failed efforts to impose the ABC test should serve as a warning to legislators against the PRO Act. In 2015, the city of Seattle enacted an ordinance that would allow for-hire drivers classified as independent contractors – like those driving for rideshare companies – to unionize and collectively bargain. The Chamber of Commerce filed suit, arguing the ordinance was preempted by federal labor law. They also contended that Congress did not give independent contractors the right to organize or collectively bargain under the NLRA, and permitting drivers to collectively bargain over pay would allow them to collude on prices, violating antitrust law. CDW filed a brief in support of the Chamber in November 2017. In May 2018, the Ninth Circuit Court of Appeals unanimously sided with the Chamber, ruling that the ordinance was unlawful and violated antitrust laws.

During the Trump administration, efforts were made to revert back to the traditional standard for determining independent contractor status. In 2017, then-NLRB General Counsel Peter Robb rescinded an August 2016 Advice Memorandum issued by his predecessor, Richard Griffin, in which Griffin took an overly expansive view of who is an employee under the NLRA, calling into question the legitimacy of many longstanding independent contractor relationships. Robb also issued a new memo, Memorandum GC 18-02, instructing Regional Offices to submit for review to the NLRB’s Division of Advice all cases involving “significant legal issues,” specifically including cases that claimed the misclassification of employees as independent contractors is a violation of the NLRA. Additionally, the Board issued two decisions outlining an appropriate independent contractor standard. In 2019, the NLRB issued its decision in SuperShuttle DFW, Inc (2019), in which the Board found the franchisees in question maintained “significant entrepreneurial opportunity for economic gain,” making them independent contractors. In August 2019, the Board issued its decision in Velox Express, which made it clear that misclassification of employees does not alone violate the NLRA and employers only violate the NLRA when they intentionally misclassify workers in order to subvert employees’ rights. CDW filed a brief in the case in April 2018. The Biden-era NLRB has unfortunately worked to undo these efforts.

DOL under President Trump also weighed in and issued a Final Rule on independent contractor status under federal wage and hour law, providing employers with much needed clarity on the issue. The Biden administration tried to rescind the Final Rule, but in March 2022, a District Court in Texas ruled the Biden administration’s move violated federal law and was “arbitrary and capricious.” The court, therefore, vacated the Withdrawal Rule, reinstating the Trump-era Final Rule.

The employer community must remain vigilant on the issue as states and the Biden administration work to undermine independent contractor status. CDW will continue to fight against unwarranted attacks on independent contractor status and the workers who rely on it.

Independent Contractor Status Fact Sheet

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