Who Is an Employee? California, NLRB Administrative Law Judge Further Complicate Answer Re Independent Contractors

May 04, 2018

In a case with major implications for the gig economy and employers generally, the California Supreme Court embraced a broad standard that presumes workers are employees instead of independent contractors, as HR Policy weighed in on the issue in a case pending before the National Labor Relations Board.

The California Supreme Court moved away from a more flexible test that had been in use in the state since 1989, instead adopting a definition of employment that gives “employee” status to anyone a business “engage[s], suffer[s] or permit[s]” to work.  Massachusetts and New Jersey have already adopted similar standards.

NLRB case: The Board is considering the appeal of an administrative law judge (ALJ) decision in Velox Express that creates a per se violation of the labor law if an employer misclassifies workers as independent contractors.  The ALJ held that adjudicators should “err on the side” of finding employee status in classification cases. 
  • Why the NLRB case is significant: Upholding the ALJ's decision would mark the first time the Board has held an employer liable per se for a misclassification error, instead of it being a component of a separate violation of an employee’s protected rights under the NLRA. 
  • HR Policy amicus brief:  We asked the Board to overturn the ALJ decision as it would drastically reduce the important role of independent contractors in the economy.  We noted the decision also goes against established Board and Supreme Court precedent as well as the intent of Congress. 
And in New Jersey: Democratic Governor Phil Murphy (D) signed an executive order this week establishing a task force to examine existing enforcement efforts regarding misclassification of independent contractors, develop best practices and recommendations for compliance, educate employers and the public about such practices, and review existing laws.  “The exploitation of workers is not only unethical—it is illegal,” said Murphy.
 
What's ahead for companies: Courts and the states will continue to embrace varying standards and interpretations of the various statutes under which employee status is an issue.  The challenge for companies, especially those in the gig economy, is retaining the flexibility that independent contractor status ensures for both companies and workers, while also making sure the arrangement adequately meets both of their needs.  Unfortunately, the direction the law is taking at both the state and federal level is a government-imposed employment relationship regardless of the wishes of the parties.