NLRB Ruling: Simply Misclassifying Workers is Not an Unfair Labor Practice

The National Labor Relations Board (NLRB) continues to retreat from its previously expansive approach to what might be considered interference with Section 7 rights under the National Labor Relations Act (the "Act"). Followers of Hinshaw's blog submissions will recall the NLRB gave a very broad interpretation during the Obama era to the scope of Section 8(a)(1) of the Act. An August 29, 2019 ruling from the NLRB in Velox Express, Inc. vs. Jeannie Edge further highlights how this is certainly not true of the Trump-era Board.

In Velox, the NLRB ruled that an employer does not violate Section 8(a)(1) merely by misclassifying its workers as independent contractors. Section 8(a)(1) makes it an unfair labor practice for an employer to "interfere with, restrain or coerce employees in the exercise of their rights guaranteed in Section 7" of the Act. An employer may violate Section 8(a)(1) without having a specific unlawful intent. This concept is demonstrated by the NLRB's decisions over the past ten years on how otherwise common employment policies such as civility and confidentiality guidelines, might chill the exercise of Section 7 rights of employees. Even though such policies may not have been drafted or implemented with the intent to interfere with employee rights, the NLRB found overly broad or ambiguous policies to have that chilling effect.

The ruling regarding misclassification of employees is one of three decisions the NLRB made in Velox. The NLRB also ruled that the employer did violate Section 8(a)(1) by discharging one of its employees for engaging in protected Section 7 activity—complaining about her classification—and by maintaining a "non-disparagement" provision in its contracts with its drivers. This latter ruling is a good practical example—right from the decision—of how intent is not always a necessary element of proof in an 8(a)(1) case.

The only win for the employer in the case was on the novel theory that an employer interferes with Section 7 rights merely by misclassifying its workers as independent contractors, and for this reason alone, the decision is noteworthy. As most employers recognize, the determination of employee versus independent contractor status is often a difficult decision, tinged more in gray than black and white. Under federal labor law, determining whether a worker is an employee or independent contractor requires the application of the common law agency test with a multi-factored analysis. The employee in Velox and her amici, including the AFLCIO, asserted that misclassification "preemptively prevents the misclassified employees from engaging in Section 7 activity." The General Counsel of the NLRB, on the other hand, argued that an employer's misclassification decision, standing alone, does not violate the Act. The General Counsel also argued that an employer merely expresses a legal opinion when it informs its workers they are independent contractors, and that legal opinion is protected by Section 8(c) of the Act. Further, the General Counsel argued that by finding a standalone misclassification, the Board would impermissibly shift the burden of proof from the General Counsel to the employer to prove that its classification did not violate the Act.

Ultimately, the NLRB agreed with the General Counsel, finding that there is no violation of the Act by misclassifying its employees as independent contractors. An employer only violates Section 8(a)(1) when the employer actively uses the misclassification of its employees as independent contractors to interfere with protected activity under Section 7. For example, if a trucking employer classifies or reclassifies its drivers as independent contractors when confronted with union activity, in order to prevent the employees from selecting a bargaining representative (i.e. exercising Section 7 rights as employees),that would constitute a Section 8(a)(1) violation.

The NLRB was unwilling to accept an underlying premise of the charging party and her amici that misclassifying employees as independent contractors is inherently coercive. In fact, such a determination is a legal determination which an employer has to make when assessing whether a worker is an independent contractor or employee. These determinations are far from self-evident, according to the NLRB, because an employer must consider all ten of the common law factors found in the Restatement (Second) of Agency. The NLRB also found that once a classification determination is made, it has to be communicated to its workers so that other relevant aspects of the employment relationship can be implemented. It cannot be a violation to disclose a required status determination, according to the NLRB.

With respect to the burden of proof in unfair labor practice proceedings, the General Counsel bears the burden of proving a Section 8(a)(1) violation. Employers, on the other hand, typically bear the burden of proof of establishing independent contractor status. The NLRB reasoned, therefore, that merely misclassifying employees as independent contractors would have the practical consequence of shifting the burden of proof from the General Counsel to the employer for Section 8(a)(1) violations.

Section 7 is being used with increasing frequency by the plaintiff's bar and this is a good example of another tactic to use the Act to attack problems better solved through other statutes such as the Fair Labor Standards Act. It also is a good example of the approach the NLRB is currently taking with respect to its interpretation of the scope of a Section 8(a)(1) violation.