Micro-units, the application of the ABC test to your independent contractors and a relaxed definition of “joint employer” are most certainly on the way. It’s best to prepare now.
The pro-union majority of the National Labor Relations Board appears to be moving to fulfill President Joe Biden’s campaign promises to make it easier for unions to organize employees and increasing the number of employees who can be represented by a union. The NLRB’s positions on micro-units, the definitions of “independent contractor” and “joint employment” are under review and almost certain to change… again.
A micro-unit is a small subset of a larger group that shares a community of interest. Micro-units may be as small as a single classification or employees who share the same job title. Generally, unions find it easier to organize a micro-unit than a larger group of employees, even though the larger group shares the same community of interest. The issue of whether the Board should permit micro-units has been a pendulum.
In 2011, the Obama-era Board overturned decades of precedent in Specialty Healthcare and not only said it would permit micro-units but also broadened its application to all industries, not just healthcare. In 2017, the Trump-era Board reversed Specialty in PCC Structurals and The Boeing Company. The permissibility of micro-units was returned to the law as it was prior to Specialty. The current Board on December 7, 2021, signaled that it would again take up the issue and has asked for briefs from interested parties by January 21, 2022. Based on public statements, it is likely that the Board will approve micro-units for bargaining, going back to Specialty or some variation of it.
The standard under Specialty was that if a petitioned-for unit was made up of employees who, as a group, were readily identifiable and shared an internal community of interest, it was presumptively appropriate for union representation. Whether the larger unit shared a community of interest with the employees in the petitioned-for unit was not to be considered unless the employer could show that the larger unit had an overwhelming community of interest with the employees in the petitioned-for unit―an almost impossible burden of proof for an employer to meet. It is likely that this standard or something similar will once again become Board law.
Micro-units could make managing a workforce extremely difficult because employers may be forced to deal with multiple unions, each representing a separate job classification. Employers who may be subject to this kind of union organizing need to plan and implement measures that will make the fracturing of their workforces difficult, if not impossible.
Classifying Independent Contractors
Whether a worker is an independent contractor or an employee is an issue of great significance to employers, government agencies, plaintiffs’ lawyers and unions. Independent contractors are not entitled to the benefits and protection of numerous laws, such as unemployment compensation, workers compensation, anti-discrimination, wage-and-hour, and representation by a union. Independent contractors are also required to pay the entire Social Security tax. Expanding the definition of “employee” by narrowing the test of who is an independent contractor will have a substantial, adverse impact on employers who use independent contractors. For that reason, employers have a significant stake in the criteria used by government agencies and courts when deciding whether a worker is classified as an employee or independent contractor.
Although there are variations in each, three tests are currently being used by decision-makers: the common law test, the economic reality test and the ABC test. Which test the Board uses has changed, depending on which party occupies the White House. For decades prior to 2014, the Board used the common law test. That test had 10 factors that needed to be evaluated, with no single factor being determinative. However, by 2014, the factor of significant entrepreneurial opportunity had become vital to the determination of status. In 2014, the Obama-era Board rejected the significance of the entrepreneurial factor and held that it would only give “weight to actual, not merely theoretical, entrepreneurial opportunity.” The Board leaned heavily on the degree to which an employer restrained the workers in the exercise of their entrepreneurial opportunity. Also, the Board added a new factor to the common law analysis by saying that the individual had to be doing work as part of an independent business.
Predictably, in 2019 the Trump-era Board, in SuperShuttle DFW, rejected the 2014 decision and held that the Board would use the common law test as seen through the prism of the economic reality of entrepreneurial opportunity. Now, the Biden-era Board is reconsidering SuperShuttle and we again can expect a change. From all appearances, the Board will likely adopt the ABC test. In one form or another, over 30 states have adopted the ABC test and the current House of Representatives has passed a bill that would require the Board to use it. Since the future of the House bill is in doubt, the Board has taken the initiative and is using the reconsideration of SuperShuttle to make the legislative-driven change unnecessary.
The ABC test has three conditions that an employer must satisfy to give the worker independent contractor status:
- The worker must be free from the employer’s control with regard to the performance of the work, both theoretically and in fact;
- The worker must perform work that is outside of the usual course of the employer’s business; and
- The worker must be engaged in a recognized trade, occupation or business of the same kind as the work that the worker is performing for the employer.
Employers who use independent contractors and have concerns about liability for misclassifying them and the fact that the worker, as an employee, will be covered by the National Labor Relations Act are on notice that the ABC test may not only be used by the Board, but also may become the test used by all federal agencies.
Many employers use workers supplied by another employer (e.g., a staffing company) to supplement their regular employees during busy times or as a temp to hire. Often these workers do the same things, have the same supervisors, have the same working conditions and, although paid by the staffing company, have wages significantly affected by the employer’s financial arrangement with the staffing company. Under all or some of these facts, are the workers jointly employed by the host employer and the staffing company? If the host employer is a joint employer with a staffing company, both the host and the supplier will be equally responsible for compliance with laws pertaining to the employees, such as anti-discrimination, wage-and-hour, immigration, safety and the right to be represented by a union.
The test used to determine whether a host employer is a joint employer also has been subject to the vagaries of the composition of the Board, which, in turn, is determined by the politics of the occupant of the White House.
Prior to 2015, the host employer had to have direct and immediate control over the terms and conditions of employment of the worker in more than a limited and routine manner to be a joint employer with the staffing company. In 2015, the Obama-era Board changed the rule in Browning Ferris Industries. In that case, the Board held that a host employer that only had the authority to control significant aspects of the employment of a worker would be a joint employer with the supplier of the worker, regardless of whether the host employer ever exercised that authority.
On February 26, 2020, the Trump-era Board exercised its rule-making authority and issued a rule that essentially returned Board law to what it was prior to Browning Ferris. The new rule, which is current Board law, requires the host employer to have and exercise “substantial direct and immediate control” over one or more of the essential terms and conditions of employment of another employer’s employees such that the host employer “meaningfully affects matters relating to the employment of those employees.”
Then, on December 10, 2021, the current Board announced that it is preparing to adopt a rule that would reverse the Trump-era Board. To date, that rule has not been published. Odds are that Board law will return to the rule in Browning Ferris.
What This Means for Employers
Micro-units, the application of the ABC test to your independent contractors and a relaxed definition of “joint employer” are most certainly on the way. It’s best to prepare now. Integrate the employees you want to be in a larger appropriate unit so that any small subset of the larger group does not have an identity of its own. Analyze your documents and the relationship you have with your independent contractors, making adjustments to fit within all three elements of the ABC test, if necessary. Examine your arrangement with your staffing company and the extent of your retained authority and actual exercise of control over the staffing company workers to ensure that you have not retained the power to affect and do not determine a significant aspect of the workers' employment.
We will keep you posted in future Alerts on developments in these areas. Stay tuned.
For More Information
If you have any questions about this Alert, please contact James R. Redeker, Elizabeth Mincer, any of the attorneys in our Employment, Labor, Benefits and Immigration Practice Group or the attorney in the firm with whom you are regularly in contact.
Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.