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NLRB Reverses Worker-Friendly Test to Determine Independent Contractor Status in the Franchise Context

Published by and on March 18, 2019

The National Labor Relations Board (NLRB) returns to using the traditional common-law agency analysis in determining whether franchisees are employees or independent contractors.

Previously, the NLRB held in FedEx Home Delivery that FedEx drivers were independent contractors and not employees for purposes of the National Labor Relations Act (NLRA). The Board’s decision was ultimately reversed on appeal by the U.S. Court of Appeals for the District of Columbia. On January 25, 2019, however, the NLRB overruled the FedEx decision, holding that it impermissibly altered the common-law agency test and limited the significance of entrepreneurial opportunity by creating a new factor—the rendering of services as part of an independent business. The Board further held that entrepreneurial opportunity was merely one aspect of this factor, rather than using it as a guide to help evaluate the overall significant of the agency factors.

In SuperShuttle DFW, Inc., the Board returned to the common-law agency test in determining whether franchisees who operated shared-ride vans for SuperShuttle were employees. This test analyzes several factors of the relationship to make this determination, including the extent of control which the alleged employer may exercise over the details of the work; the required skill; the length of service; whether the work is part of the alleged employer’s regular business, etc. Common-law factors that support a worker’s entrepreneurial opportunity indicate independent contractor status, whereas factors that support employer control indicate employee status.

The Board, in reaching its decision, focused on three particular factors that they held weighed in favor of finding that the franchisees were independent contractors:

  1. Franchisees’ ownership (or lease) and control of their vans;
  2. The almost complete control franchisees exercised over their daily work schedules and working conditions; and
  3. The method of payment, where franchisees pay a monthly fee and keep all fares they collect, all weigh strongly in favor of independent-contractor status.

In analyzing the control element, the NLRB took note of the indemnification clause in the franchise agreement requiring franchisees to indemnify SuperShuttle for liability arising out of the franchisee’s actions. This indemnification lessened SuperShuttle’s motivation to control a franchisee’s actions since it cannot be held liable for the franchisee’s wrongful acts. Essentially, the Board held these and other factors provided franchisees with “significant entrepreneurial opportunity and control.” Therefore, the franchisees were not employees of SuperShuttle.

Welter Insight

The Board’s decision, while not binding on a court, should be a welcome relief to franchisors. The NLRB refocused its attention on the control the franchisor has over franchisees, as well as the franchisee’s entrepreneurial opportunities. Companies should continue to pay attention to the development of the standard to determine independent contractor status in their particular jurisdiction, as these tests can often vary by state or the context of the claim alleged.

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