NLRB: Misclassifying Workers as Independent Contractors Constitutes An Unfair Labor Practice

nlrb-blogMSEC members have long heard us caution against misclassifying workers as independent contractors. These misclassifications can expose employers to significant liability as well as time-consuming and costly investigations by a host of state and federal agencies. 

A new twist to the misclassification pitfall was recently introduced by the National Labor Relation Board’s (NLRB or Board) General Counsel. The General Counsel is independent from the NLRB and investigates and prosecutes unfair labor practice cases. Like other trial attorneys, the General Counsel also develops new legal theories to be tested before the NLRB and courts and advises the regional offices throughout the country on novel legal theories and new fact patterns.

Pacific 9 Transportation, Inc. (Pacific 9 or company) has a fleet of roughly 160 trucks and 180 drivers who transport containers to and from ports, customer warehouses, and rail facilities in the Los Angeles area. The company hires drivers as independent contractors and requires them to execute an agreement to that effect. These agreements incorporate the factors that would support a finding of independent contractor status. Thus, the agreement states, among other things, that drivers are free to accept or decline any shipment, choose their hours of work, and work for other companies.

In 2012, the International Brotherhood of Teamsters began an organizing drive of Pacific 9’s drivers. This was no ordinary union organizing drive, however. Instead of rushing to the NLRB, the Teamsters filed 60 wage-and-hour complaints with the California State Labor Commissioner over about a one-year period, alleging that Pacific 9 had unlawfully classified its drivers as independent contractors. The California Labor Commissioner has already found that Pacific 9’s drivers were employees, not independent contractors, in six cases.

In November 2013, the Teamsters filed its first unfair labor practice charge, alleging that Pacific 9 had unlawfully threatened its drivers if they unionized. The Board determined that Pacific 9’s drivers were employees and not independent contractors. It based its decision on the overwhelming evidence that Pacific 9 exerted extensive control over the drivers, including dictating their work schedules and hours of work. The company also penalized drivers who refused loads and made them comply with the company’s employee handbook. 

Pacific 9 entered into a settlement with the NLRB agreeing that it would not discriminate against its drivers because of their union activities and posting a notice indicating the same. Despite this settlement, Pacific 9 continued to tell its drivers that they were independent contractors and therefore ineligible to join a union.

In response, the Teamsters filed another unfair labor practice charge, this time alleging that misclassifying drivers was, by itself, a violation of the National Labor Relations Act.

The Board’s General Counsel agreed, reasoning that because Pacific 9’s drivers were employees and not independent contractors, the company interfered with drivers’ right to engage in protected concerted activity, such as seeking union representation. The General Counsel reasoned that, “Although the Board has never held that an employer’s misclassification of statutory employees as independent contractors in itself violates [the NLRA], there are several lines of cases that support such a finding.”

The General Counsel’s new legal argument in this case should be a warning to all employers. Misclassification of employees can cause liability not only under state and federal wage-and-hour laws, but may now be a union organizing weapon and a new theory of liability under the NLRA. MSEC will continue to keep employers apprised as this new theory of liability develops at the Board and in the courts.  In the meantime, MSEC continues to urge employers to exercise extreme caution when classifying workers as independent contractors.