Independent Contractor Status Still Under Attack

Jan. 6, 2018
Help has arrived at the national level, but states and localities continue targeting misclassification.

What a difference a year makes. The wholesale assault on independent contractor status at the federal level seems to have abated, which should relieve those companies that use them. But don’t get too relaxed—state and local politicians and labor unions continue to wage war on the practice seemingly without pause.

What is clear is that employers need no longer fear the heavy-handed broad-front assault on the “gig” economy that was mounted by federal agencies during the Obama Administration, where a high Labor Department official once declared that there were no such things as independent contractors, just misclassified employees.

Last June, the Trump Labor Department announced it was rescinding the Obama Era policies regarding independent contractors and joint employer status. In addition, the new National Labor Relations Board (NLRB) Republican-majority board last month reversed the earlier decision by the pro-union board to extend joint employer status to cover independent contractors and employees at franchisees.

The Republican Congress also has gotten into the act, proposing legislation to turn back policies that were adopted during the Obama Era. Late last year, the House had passed a bill reversing the NLRB joint employer holding. It awaited approval in the Senate, where Democrat union allies were expected to try to kill it.

One of the provisions in Trump’s new tax law promises to lighten the tax burden on small businesses, including independent contractors. Critics say the changes could result in a situation where salaried employees pay more taxes than contractors working side by side with them.

States continue to cast a hungry eye towards overturning independent contractor status in a quest for new tax revenues they can reap from employers. It’s not just union-friendly Blue states who have gotten in on the act. Last year North Carolina created and funded a special unit in its Industrial Commission to pursue misclassification cases.

In 2017, courts softened some of the generalized assaults on independent contractor status that originated at the state legislative level. Even where unions triumphed in getting courts to reclassify America’s workers in the gig economy, the stubborn independent streak that spurs individuals to choose this kind of profession to begin with ended up leading them to reject unionization.

When was the last time you knew someone who chose to work as an independent contractor, whether as a driver or in any other vocation, who bought into the idea that they should turn over their ability to manage their career over to a union? That may be the case for some, but most independent contractors want to remain independent—unless they feel they are being systematically abused in terms of their earnings or working conditions.

Teamsters Ups and Downs

The Teamsters union, aided by helpful state legislators and bureaucrats, has chalked up some real successes among southern California port drayage drivers following three decades of strenuous efforts at the ports, in the courts and in the state capital—a campaign the union seeks to expand to eastern ports.

At the California ports the Teamsters have been heavily dependent on the decades-long, strong support obtained from state officials, including the Los Angeles City Council, port authority officials, the California state legislators, governor and state labor commissioner. What finally seems to have done the trick were the labor commissioner’s threats of heavy fines if companies didn’t perform surveys of their operations and reclassify independent drivers by Dec. 31, 2017.

In a separate development, after winning a string of court victories that allowed the union to organize drivers at FedEx Freight, in 2016 the Teamsters chose to back off its campaign when owner-operators at only a handful of the company’s terminals agreed to join the union. At other terminals the union sought to organize, drivers rejected the opportunity to become Teamsters. After that, the union decided to pause its active organizing attempts.

This fall the Teamsters lost further ground when drivers at three of the four FedEx Freight terminals it had organized voted to decertify union representation at their locations in Monmouth Junction, N.J., Croydon, Pa., and Charlotte, N.C. At the Monmouth terminal the vote took place after the union announced that it no longer wanted to be the drivers’ bargaining agent. This appears to be a sign that the Teamsters are finally throwing in the towel in their attempts to organize FedEx Freight after years of effort.

Commenting on the votes, Michael Duck, FedEx Freight’s president, said, “Our thriving and open work environment provides a flexible, team-oriented and customer-focused work model, and our people-service-profit philosophy remains at the core of our success.”

Add to this the contract logistics workers at XPO Logistics’ North Haven, Conn., location, who also petitioned to decertify the Teamsters. The union has seen more success at organizing the drayage drivers at some of XPO’s California port subsidiaries, but XPO keeps fighting tooth-and-nail to prevent unionization wherever it can in its system.

The Teamsters aren’t the only union that found no joy in attempting to organize strongly independent owner-operators involved in trucking. Late last year an NLRB administrative law judge upheld the independent contractor status of the delivery drivers for the home improvement retailer Menards, which the Office & Professional Employees International Union had been attempting to organize for years.

Menards uses hauling contractors—both owner-operators and some small fleets—who are hired to deliver home improvement merchandise from more than 300 stores. The company said that its role with the drivers is confined largely to arranging the delivery and handling payments from customers for the drivers.

“The ruling in this decision is a win for the independent contractor model which has been continuously under fire by unions, and state and federal agencies attempting to undermine the long established business model,” noted attorneys for the law firm of Benesch Friedlander Coplan & Aronoff. “The analysis by the NLRB administrative judge provides a roadmap for others to compare against their independent contractor agreements and more importantly, their operational actions.”

Battling Over Uber Drivers

One of the biggest—if not the biggest—campaigns against the independent contractor model involve ridesharing services. This campaign could spill over into the logistics industry through the legal precedents being set and its potential impact on the “Uberization” of freight, if Uber Freight Corp. ever manages to gain more than a toehold in the supply chain.

With Uber and Lyft the Teamsters have enjoyed progress in a few large metropolitan areas where they have encouraged class action lawsuits and negotiated the creation of worker centers to help the drivers who cannot join the union engage in collective bargaining because they are independent contractors.

In other areas both Uber and Lyft have negotiated settlements where the drivers who sued received money and some changes in how they are managed in exchange for maintaining their independent contractor status.

The Teamsters’ achievements in this seem destined to be tenuous given the changing regulatory environment, a growing economy and the independent nature of contractor drivers for Uber and Lyft, who have deliberately chosen to pursue a livelihood where most choose their own hours and only drive part-time.

The biggest victory achieved by the union over Uber and Lyft also could turn out to be its Achilles’ heel. In 2015 the Seattle City Council became the first governmental body in history to order that a private company must become unionized. The council passed the law over the veto of the mayor, and it was widely assumed that it would not survive the scrutiny of a court challenge.

But then it did. The law was upheld by a federal district judge, whose decision was appealed to the 9th Circuit Court of Appeals. That court continued an injunction blocking implementation of the law while the appeal continued. In November the Trump Administration’s U.S. Department of Justice and the Federal Trade Commission, both which are responsible for enforcing federal antitrust laws, filed a brief in court opposing the law.

Oral arguments have been heard and it is believed that the appeals court will issue a decision sometime early this year. It is waiting for the U.S. Supreme Court to hand down its ruling on related issues that involve arbitration requirements banning further class actions to be included in the Uber drivers’ contracts following their agreement to the settlements. These settlements crafted by Uber to end class action lawsuits against it were blocked by the Obama-era NLRB over the class action waivers.

Because the future legal picture for independent contractor status remains murky and is ever changing, it is vitally important for employers to keep up with changes taking place, particularly in your state. Different states and localities vary widely in how they define legal contractor status, making it impossible to adhere to any kind of general advice.

To make sure your company is protected, you should ask an attorney experienced in these matters to review your contractor agreements on a regular basis—and adhere to the resulting recommended practices religiously. To do otherwise is to invite getting tangled up in an expensive legal controversy that you probably cannot afford.

About the Author

David Sparkman | founding editor

David Sparkman is founding editor of ACWI Advance, the newsletter of the American Chain of Warehouses Inc., as well as a member of the Editorial Advisory Board of Material Handling & Logistics, a sister publication to IndustryWeek.

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