NLRB Reverses Stance on the Effect of Entrepreneurial Opportunity in Independent Contractor Analysis

On June 13, 2023, in The Atlanta Opera, Inc. and Make-Up Artists and Hair Stylists Union, Local 798, the National Labor Relations Board (“NLRB” or “the Board”) reversed its 2019 decision in SuperShuttle DFW, Inc. and reinstated the previously applicable test for determining whether workers are independent contractors set forth in its 2014 FedEx Home Delivery (“FedEx II”) decision.  Under this newly reinstated test, the NLRB considers a worker’s opportunity for entrepreneurial gain or loss as just one of many factors in the independent contractor analysis, rather than as a “superfactor” by which to analyze all other factors.

Background Cases

Under the previous (and now, current) FedEx II standard, the Board considered “all incidents of the relationship,” guided by the non-exhaustive factors enumerated in the common-law agency test, with no one factor being determinative.  These factors include:

• the extent of control which the putative employer may, by agreement, exercise;
• whether the individual 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 without supervision;
• the skill required;
• who supplies the instrumentalities, tools, and place of work;
• duration of the performance;
• method of payment;
• whether or not the work is part of the regular business of the employer;
• the beliefs of the parties, and
• whether the principal is or is not in business.

The Board also considered whether putative contractors have a “significant entrepreneurial opportunity for gain or loss,” and, relatedly, whether purported contractors had the ability to work for other companies, could hire their own employees, and had a proprietary interest in their work.  

By way of further background, FedEx II was in direct response to an earlier D.C. Circuit opinion, FedEx Home Delivery v. NLRB, 563 F.3d 492 (D.C. Cir. 2009) (“FedEx I”), in which the court declared “entrepreneurial opportunity” to be “an important animating principle” by which to evaluate the other factors of the independent contractor test.  Specifically, the D.C. Circuit stated that the Board had moved toward the use of entrepreneurial opportunity as “a more accurate proxy” for the “unwieldy control inquiry.”  In FedEx II, the Board expressly declined to adopt the holding of FedEx I, noting that an approach giving priority to entrepreneurial opportunity was not mandated by the Act or existing precedent and that adopting it would lead to broader exclusion from statutory coverage than Congress intended. 

Five years after FedEx II, however, a then newly-constituted Board abandoned this standard in SuperShuttle, holding that the putative contractor’s opportunity for entrepreneurial gain or loss was “at the core” of the test, and thus giving elevated weight to that consideration. 

The Atlanta Opera

In The Atlanta Opera, the Board once again reversed course, finding that SuperShuttle cannot be reconciled with common law agency principles, Supreme Court precedent, or Board precedent, and retroactively applied the FedEx II approach (outlined above) to the case before it.  Using this legal framework, the Board found stylists working for The Atlanta Opera (the “Opera”) to be statutory employees covered under Section 2(3). 

The Board explained the role of entrepreneurial opportunity in its analysis, clarifying that evidence of entrepreneurial opportunity, among other considerations, is relevant to whether a putative contractor rendered services as part of an independent business. Thus, rather than treating entrepreneurial opportunity as a “superfactor,” or as a prism by which to assess all other factors, the Board merely considered it as one of many elements of the non-exhaustive common law test.  The Board also emphasized the distinction between “actual opportunities,” which allow for “the exercise of genuine entrepreneurial autonomy,” and “those that are circumscribed or effectively blocked by the employer.”  Where the day-to-day work of most individuals in a bargaining unit does not have an entrepreneurial dimension, the Board noted that the mere fact that their contract may permit entrepreneurial activity is not sufficient to render such individuals independent contractors.

In assessing the classification of the stylists in Atlanta Opera, the Board found a few factors weighing in favor of contractor status, including (i) that the stylists were engaged in a distinct occupation or business, (ii) the skill required in the occupation, and (iii) the duration of the relationship.  In contrast, other factors weighed in favor of an employment relationship: (i) the control exercised over the day-to-day work, (ii) the supervision by the Opera, (iii) the provision of equipment, supplies and place of work, (iv) the method of payment, and (v) the relationship of the stylists’ work to the regular business of the Opera.  An assessment of the parties’ expectations as to an employment or contracting relationship was inconclusive. 

Finally, looking to whether the stylists rendered services as an independent business, the Board found that the stylists were “fundamentally constrained” in their entrepreneurial decisions, given the manner in which the Opera dictated their schedules and all business decisions, and the fact that stylists were paid a fixed hourly wage and had no ownership over their positions or work.  While the Board recognized that stylists have the opportunity to work for other entities and do in fact regularly pursue such opportunities when they are not working for the Opera, the Board concluded that this opportunity was largely based on the seasonal and intermittent nature of their work for the Opera. 

Ultimately, the Board concluded that the stylists do not render services as part of their own, independent business.  Considering these factors, and the relative significance of each, the Board found the stylists to be statutory employees.

Action Items

Businesses utilizing independent contractors should assess both the terms and the practicalities of relationships with contractors.  This contractual and practical assessment should take place with the understanding that, now, the mere fact that independent contractors are permitted to pursue other entrepreneurial opportunities does not insulate them from the possibility of employment status under the NLRA.  And, the Board’s treatment of other factors related to supervision and scheduling control should be given particular attention.  Employers should consider consulting an attorney with any classification concerns.

Crowell & Moring attorneys will continue to follow developments in this area.