Liability for Employee Misclassification is on the NLRB’s Chopping Block

The National Labor Relations Board (NLRB) has recently taken one step forward, two steps back in terms of providing certainty to employers that use independent contractors.

On February 16, the NLRB invited briefing on the issue of under “what circumstances, if any, should the Board deem an employer’s act of misclassifying statutory employees as independent contractors a violation” of federal labor law?  As we have discussed, in December 2017, the NLRB formally withdrew an advice memorandum (among many others) issued during the Obama administration which found that misclassification, even without any other underlying unfair labor practice, is unlawful.  This development sets in motion a likely ruling that is expected to limit the NLRB’s authority to go after misclassification as a stand-alone violation.

This course of events is unsurprising, given the fact that the Republican-controlled NLRB has aggressively moved in an employer-friendly direction, following the Obama NLRB’s reversal of longstanding precedent and its expansion of employee rights.

As the U.S. Chamber of Commerce argued in an amicus brief on this issue, if the misclassification of employees is itself an unfair labor practice, such a rule drastically expands the NLRB’s authority to investigate and prosecute employers.  The Chamber of Commerce expressed concern that with such a rule, every employer’s classification decisions for independent contractors and supervisors would be potential violations, regardless of the employer’s union or non-union status.  Potential labor violations would be on top of deterrence that already exists for employee misclassification under other laws, including potential liability for unpaid wages and taxes.

At the same time, a major case that provided employers greater certainty in using independent contractors is now in doubt. A February 9 memorandum from the NLRB’s Inspector General, which was released last week, called the NLRB’s pro-employer ruling in Hy-Brand Industrial Contractors from December 2017 into question. (Hy-Brand overturned the previous “joint employer” standard under Browning-Ferris Industries of California, Inc. and made employers more likely to be held jointly liable for labor law violations committed by other “joint” employers, including contractors.)

Specifically, the Inspector General concluded that William Emmanuel, one of the Board’s Members who decided Hy-Brand, should have recused himself because his former law firm represented the employer in Browning-Ferris.  The Inspector General determined that Hy-Brand was “merely the vehicle to continue the deliberations” in Browning-Ferris, which presented a conflict of interest for Member Emmanuel, and further emphasized that his failure to recuse “calls into question the validity of that decision and the confidence that the Board is performing its statutory duties.”  It is unclear at this point what steps the Board will take to address those concerns.

Employers should not wait until this all plays out to ensure that their employees and independent contractors are appropriately classified as such to avoid potential liability for misclassification.