Just because you say that an employee is an independent contractor doesn’t make it so. Many companies have found that out the hard way when the U.S. Department of Labor comes knocking for a wage and hour audit.
But, could this misclassification also be an unfair labor practice under the National Labor Relations Act?
Why might it be an unfair labor practice?
Yesterday, the National Labor Relations Board considered under what circumstances, if any, should the Board deem an employer’s act of misclassifying statutory employees as independent contractors a violation of Section 8(a)(1) of the Act?
Section 8(a)(1) makes it an unfair labor practice for an employer “to interfere with, restrain, or coerce employees in the exercise of the rights” such as discussions about unionization or working conditions (i.e., what we call “Section 7 activity”).
Now, you may be thinking? What does telling employees that they are independent contractors have to do with that? Well, the theory is that, by misclassifying employees as independent contractors, an employer effectively conveys that the misclassified employees do not have any rights or protections under the Act when, in fact, they do.
The counter-argument is that an employer should not be penalized for merely expressing a legal opinion, albeit mistaken. Plus, employers also shouldn’t be penalized under federal labor law for mistakenly misclassifying employees as independent contractors because the independent contractor test is pretty complicated to begin with.
In this Board Decision, the Board sided with the employer. There were several reasons, but here’s the long and short of it:
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. Employees may well disagree with their employer, take the position that they are employees, and engage in union or other 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.
So, there you have it. If you mistakenly misclassify employees as independent contractors, it’s not an automatic violation of federal labor law. Of course, if these independent contractors are actually employees, that could give rise to other issues under the Act; i.e., they may be able to form a union.
Plus, the DOL (or a smart plaintiff’s lawyer) may be waiting in the wings with a Fair Labor Standards Act claim.