Sept. 18, 2019 – Amidst the evolving “gig economy,” a recent decision from the National Labor Relations Board (Board) says misclassifying employees as independent contractors, without more, does not violate the National Labor Relations Act (Act).

Jeanie Edge, a driver for Velox Express Inc., was fired for raising group complaints about the conditions of employment. Velox drivers, who were required to sign independent contractor agreements, were couriers who collected medical specimens throughout Arkansas and Tennessee for delivery to a laboratory in Tennessee.

The agreements stated that drivers were independent contractors, but Edge began discussing work-related issues with other drivers, and voiced concerns that policies directed by Velox seemed inconsistent with their classification as independent contractors, which are not subject to the Act’s protections for “employees.”

The Act

Under the Act, Section 8(a)(1),¹ employers cannot interfere with, restrain, or coerce employees in the exercise of their rights under Section 7 of the Act, including the right to join labor unions or engage in “concerted activities for the purpose of collective bargaining or other mutual aid or protection.”²

Edge, in a subsequent complaint, argued that Velox drivers were “employees” covered by the Act. Velox argued they were independent contractors and thus not protected.

In Velox Express, Inc. & Jeannie Edge,³ the Board agreed that, under a common law agency test, the Velox drivers were “employees” and Velox violated the Act when it fired Edge for raising group complaints about the job.

“[A]fter evaluating all of the common-law factors in the particular factual context of this case, we find that the many factors supporting employee status significantly outweigh the two factors supporting independent-contractor status, and the drivers have little entrepreneurial opportunity for economic gain,” the four-member board concluded.

Because Velox fired Edge for her concerted activity, Velox violated the Act and the employer was required offer reinstatement, reimburse her for loss of earnings and benefits, provide back pay with interest, and compensate her work search expenses.

But what if Edge was never fired? Does it violate the Act if employers simply misclassify employees as independent contractors? A 3-1 majority of the Board ruled that it doesn’t.

Board (3-1) Rejects Stand-alone Misclassification Violation

Edge and union groups (amici) argued that misclassifying workers as independent contractors is a standalone violation of Section 8(a)(1) – which prohibits interference with concerted activity, that is, it’s a “standalone misclassification violation.”

“They argue that by misclassifying employees as independent contractors, an employer, regardless of its motive or intent, inherently interferes with, restrains and coerces those employees in the exercise of their section 7 rights because the employer effectively conveys that the misclassified employees do not have any rights or protections under the Act, when in fact they do,” the Board’s decision notes.

However, the board’s independent general counsel – who investigates and prosecutes unfair labor practice cases – asserted that a standalone misclassification is not a violation because the employer is stating a legal opinion protected by Section 8(c).⁴

Section 8(c) says: “the expressing of any views, argument, or opinion, or the dissemination thereof, whether in written, printed, graphic, or visual form, shall not constitute or be evidence of an unfair labor practice under any of the provisions of this subchapter, if such expression contains no threat of reprisal or force or promise of benefit.” Thus, the majority said misclassifications alone are not violations without additional words or actions that chill workers’ right to engage in concerted activity.

“After reviewing the briefs of the parties and amici, with agree with the General Counsel, the Respondent, and like-minded amici that an employer does not violate the Act by misclassifying its employees as independent contractors,” a 3-1 majority concluded.

Not all misclassifications are coercive, the majority noted:

“An employer’s mere communication to its workers that they are classified as independent contractors does not expressly invoke the Act. It does not prohibit the workers from engaging in Section 7 activity. It does not threaten them with adverse consequences for doing so, or promise them benefits if they refrain from doing so.”

The majority said employees who disagree with the classification can still take the position that they are “employees” and engage in protected concerted activities.

“If the employer responds with threats, promises, interrogations, and so forth, then it will have violated Section 8(a)(1), but not before,” the majority wrote.

The majority said it was “a bridge too far” to conclude that an employer’s mistaken classification rises to the level of Section 8(a)(1) prohibited coercion in every case.

But that is precisely what a dissenting board member concluded.

“[T]he majority fails to recognize that misclassification itself chills the exercise of statutory rights,” wrote Board Member Lauren McFerran, noting misclassifications have a chilling effect because “employees reasonably would believe that exercising their rights would be futile or would lead to adverse employer action.”

She noted that Velox drivers signed the independent contractor agreements. “[E]mployees reasonably would believe that they risk being fired if they act inconsistently with the agreement – such as by asserting statutory rights that belong only to protected employees (and not to independent contractors),” McFerran wrote.

How Does Velox Impact Employers and Employees in Wisconsin?

Caitlin Madden, an employment attorney at Hawks Quindel in Madison, said the most important takeaway from the Velox case is that an individual misclassified as an independent contractor is still entitled to the protections of the NLRA, such as the right to discuss compensation with coworkers or present common concerns, without reprisal.

“The Wisconsin Fair Employment Act prohibits discrimination against Wisconsin employees in retaliation for any attempt to enforce their rights under state law to be paid proper wages,” said Madden, noting Wis. Stat. section 111.322(2m).

“Of course, the trick in either situation is whether the worker has been misclassified as an independent contractor, and is in fact a covered employee.”

Madden, who largely represents employees, agreed with the dissent’s view that telling workers that they aren’t employees could have a chilling effect on their ability to exercise rights under the NLRA (or FLSA, or state law).

“It’s important that workers know they still have those rights if they’ve been misclassified,” Madden said. “Under the Wisconsin Fair Employment Act, a covered employee is protected from retaliatory behavior if an employer either knows that the worker has filed a claim for wage payment, or believes the employee will file a claim.”

“I would advise workers who believe they have been misclassified and denied rights related to this – for minimum wages, overtime wages, or to take collective action – that bringing a formal complaint to a state or federal agency offers the strongest legal protection,” said Madden, who works on wage and hour and discrimination cases.

“An attorney who represents workers can help the worker assess whether they may have been misclassified, what protections they have, and the best route to take in seeking re-classification,” Madden said.

What about employers? “Avoiding policies like prohibiting workers from discussing wages or other conditions of employment, which would be an NLRA violation if a worker is deemed to be an employee, is one way to avoid potential NLRA liability, even if the employer thinks they’ve classified their workers properly,” Madden said.

Endnotes

¹ See 29 U.S.C. § 158(a)(1).

² See 29 U.S.C. § 157.

³ 368 NLRB No. 61 (Aug. 29, 2019).

⁴ See 29 U.S.C. § 158(c).