NLRB’s Atlanta Opera Ruling Imposes Stricter Independent Contractor Test on Employers

On June 13, 2023, the National Labor Relations Board (“NLRB”) ruled in the closely watched The Atlanta Opera, Inc. case, restoring the multifactor common-law framework the NLRB established in 2014 for worker classification. The ruling is significant because:

1. It establishes the test for classifying workers as either employees or independent contractors under the National Labor Relations Act (“NLRA”);
2. The test—a return to pre-2019 standards—makes it harder to classify workers as independent contractors;
3. Independent contractors are excluded from the NLRA’s protections for labor organizing activities.

As a result, all employers, and particularly those who utilize independent contractors, should anticipate challenges to their classification of workers as independent contractors, and prepare for the possibility of more labor organizing activities.

The Atlanta Opera, Inc. Decision

The Atlanta Opera decision provides that determining whether a worker is properly classified as an employee or independent contractor should be based on traditional common-law worker classification factors set forth in the Restatement (Second) of Agency. Those factors, set forth below, are not exclusive—other factors may be considered. The NLRB also noted that relevant factors “must be assessed and weighed with no one factor being decisive.”

The factors to be assessed and weighed in the Restatement (Second) of Agency include:

• the extent of control which, by the agreement, the master may exercise over the details of the work;
• whether or not the one employed is engaged in a distinct occupation or business;
• the kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the employer or by a specialist without supervision;
• the skill required in the particular occupation;
• whether the employer or the workman supplies the instrumentalities, tools, and the place of work for the person doing the work;
• the length of time for which the person is employed;
• the method of payment, whether by the time or by the job;
• whether or not the work is a part of the regular business of the employer;
• whether or not the parties believe they are creating the relation of master and servant; and
• whether the principal is or is not in business.

In addition to these and other common-law factors, the NLRB will also consider:

• “[E]vidence of entrepreneurial opportunity when assessing whether a putative contractor is, in fact, rendering services as part of an independent business.”
• “[W]hether the putative contractor has a significant entrepreneurial opportunity, but also whether the putative contractor: (a) has a realistic ability to work for other companies; (b) has proprietary or ownership interest in their work; and (c) has control over important business decisions, such as the scheduling of performance; the hiring, selection, and assignment of employees; the purchase and use of equipment; and the commitment of capital.”

The NLRB explained that it will distinguish between “actual opportunities, which allow for the exercise of genuine entrepreneurial autonomy, and those that are circumscribed or effectively blocked by the employer.”

The Atlanta Opera decision marks a return to the standards set forth in its 2014 FedEx Home Delivery decision. In 2019, the NLRB, in its SuperShuttle DFW, Inc. decision, overruled FedEx Home Delivery, and held that the more employer-friendly entrepreneurial opportunity standard should be “a principle by which to evaluate the overall effect of the common-law factors on a putative contractor’s independence to pursue economic gain.” Specifically, SuperShuttle held that the NLRB would “evaluate the common-law factors through the prism of entrepreneurial opportunity[.]”

Worker Classification Under Other Federal Rules and Regulations

The NLRB’s decision to focus on common-law factors when evaluating worker classification is consistent with standards set forth by other federal agencies. For example, the U.S. Department of Labor’s proposed regulations set forth a multifactor, totality-of-the-circumstances analysis of the “economic reality” test to determine whether a worker is an employee or an independent contractor under the Fair Labor Standards Act.

In addition, the Internal Revenue Service uses a three-pronged common law test for worker classification. The three factors are:

• Behavioral Control: the type and level of control an employer has over how workers accomplish their tasks.
• Financial Control: the extent to which an employer controls the economic aspects of a worker’s job.
• Relationship of the Parties: The type of relationship between a worker and an employer, which is to be evaluated by certain factors such as the existence of a written contract, employee benefits, permanency of the relationship, and the types of services provided.

Implications for Employers

In light of the NLRB’s decision, employers should work with legal counsel to evaluate and analyze their workforce through the common-law test’s lens to determine which workers, who are currently treated as independent contractors, may now be found covered under the NLRA. Employers should also be prepared for the possibility of more unionization drives among workers who are currently classified as independent contractors, as well as more aggressive enforcement efforts by the NLRB.

If you have questions or require assistance, please contact David Houston.