NLRB Holds Misclassifying of Employees Is Not a ViolationSeptember 13, 2019 – Alerts
Misclassification of employees as independent contractors "does not violate the [National Labor Relations] Act,” the NLRB held last month. The decision is precedential as no other Board case has specifically dealt with whether this type of employer action – by itself – is a Section 8 (a)(1) violation (although Obama-era General Counsel Richard Griffin had endorsed a legal theory that found companies violated the Act for misinforming their workers about their employment status).
The Board's August 29, 2019 decision in Velox Express, Inc. eliminates a significant risk as it prevents an employer’s decision to classify its workers as independent contractors, in and of itself, from being subject to unfair labor practice charges and the possibility of protracted – and costly – litigation. Otherwise, to avoid this risk, employers may decide to forgo entering into or continuing independent-contractor relationships. The Board, in partially overruling an administrative law judge’s decision, correctly rejected this notion and found that an employer’s stand-alone misclassification is not unlawful.
Unlike employees, independent contractors are excluded from coverage under the Act and, therefore, do not enjoy the rights and protections of federal labor law. The ALJ, and other interested parties filing amicus briefs in support, found that by misclassifying employees as independent contractors, an employer, regardless of its motive or intent, inherently interferes with employees’ rights because it effectively conveys to them that they do not have any rights or protections under the Act when, in fact, they do. However, for an employer to violate Section 8(a)(1) of the Act, it must actually “interfere with, restrain, or coerce employees.” This is the critical point of this decision, as the Board clarified for the first time that an employer’s misclassification, standing alone, does not meet this standard and is not a per se violation.
In doing so, the Board reasoned that Velox, by telling its drivers that they were independent contractors, was merely expressing a legal opinion and not threatening or coercing its employees. "An employer's mere communication to its workers that they are classified as independent contractors does not expressly invoke the Act … [nor] prohibit the workers from engaging in Section 7 activity … [or] threaten them with adverse consequences for doing so, or promise them benefits if they refrain from doing so.” Put simply, the Board was unpersuaded that the misinforming of a legal theory (independent contractors versus statutory employees), with no unlawful intent or motive, was coercive. “[I]t is a bridge too far for us to conclude that an employer coerces its workers in violation of Section 8(a)(1) whenever it informs them of its position that they are independent contractors if the Board ultimately determines that the employer is mistaken.”
The Board distinguished this case with others where misclassification was clearly weaponized by employers to 1) expressly prohibit employees from engaging in Section 7 activity or 2) to indicate that engaging in union or other protected activities would be futile. To this point, the Board held that misclassification, standing alone, does not inherently threaten or effectively convey this message to employees. “In and of itself, an employer’s communication of its position that its workers are independent contractors simply does not carry either implication.”
However, to be clear, this case turned on the fact that Velox only told its workers they were independent contractors and nothing more. There was no union organizing or other protected activities present, and Velox did not expressly invoke the Act or mention union or other protected activities in misinforming its employees. If it had, this case may very well have had a different outcome. And, as the Board made clear, if an employer’s misclassification was purposeful and intended to interfere with Section 7 rights, most notably the right of employees to organize, an 8(a)(1) violation can still be found.
However, to be clear, this case turned on the fact that Velox only told its workers they were independent contractors and nothing more. There was no union organizing or other protected activities present, and Velox did not expressly invoke the Act or mention union or other protected activities in misinforming its employees. If it had, this case may very well have had a different outcome. And, as the Board made clear, if an employer’s misclassification was purposeful and intended to interfere with Section 7 rights, most notably the right of employees to organize, an 8(a)(1) violation can still be found. It is also notable to mention that Velox violated Section 8(a)(1) by discharging an employee for raising group complaints – i.e., engaging in protected concerted activity (PCA) – by questioning/challenging the employees’ job classifications. Velox’s mistaken belief that this complaining individual was an independent contractor (and not, as she actually was, an employee with rights under the Act) did not insulate it from, and was no defense to, its unlawful conduct in terminating her.
Lastly, in many, if not most cases, intentional misclassification is designed to interfere with rights under other federal and state statutes involving an employer’s tax, social security, and overtime obligations to employees, and not the Act. Thus, without more, an employer’s misclassification does warrant finding a Section 8(a)(1) violation.