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Employee Misclassification: A Violation of the NLRA?

Employee MisclassificationCurrently, employers who misclassify employees as independent contractors may be liable for violations of the tax code, California Labor Code, and the Federal Labor Standards Act, among others. But there may be an unexpected new addition to the employment plaintiffs’ toolkit for litigating these claims: the National Labor Relations Act (“NLRA”).

The National Labor Relations Board (“NLRB”) has increasingly focused on misclassification issues.  On August 26, 2016, it released an Advice Memorandum (interestingly, it was originally issued nearly a year ago in December 2015, but has only recently been made public). Issued by the NLRB’s Division of Advice in the matter of Pacific 9 Transportation, Inc., NLRB Case No. 21-CA-150875, the Memorandum sets forth a fascinating and novel theory that an employer’s misclassification of employees is, in and of itself, a violation of Section 8(a)(1) of the NLRA (under the NLRA Section 7, employees have a right to engage in concerted activity to seek improvement of working conditions; Section 8(a)(1) makes it unlawful for employers to interfere with the exercise of Section 7 rights).

The employer in this matter, Pacific 9 Transportation, Inc., employed a fleet of drivers transporting containers to and from the ports of Los Angeles and Long Beach. All drivers were classified as independent contractors. In 2012, the International Brotherhood of Teamsters initiated a “non-traditional” campaign to organize Pacific 9’s drivers. A key strategy in their campaign was to file dozens of individual wage and hour claims with the CA Labor Commissioner, alleging Pacific 9 had misclassified its drivers as independent contractors. This tactic alone is an interesting development in labor organizing, suggesting unions may increasingly utilize employment laws intended to protect individual rights as part of a collective action strategy.

After almost a year, the Teamsters filed an unfair labor practice charge with NLRB Region 21 (21-CA-116403) in November of 2013, alleging Pacific had interfered with its employee’s right to organize by intimidating drivers and threatening to shutter the company if employees formed a union.  In response, Pacific 9 argued (unsuccessfully) that because its drivers were independent contractors and not statutory employees, the NLRB had no jurisdiction to hear the charge. The Region disagreed, finding that the drivers were indeed statutory employees, and that the Company’s attempts to thwart organizing activity had violated the NLRA.

Emboldened, in April 2015 the Teamsters filed another unfair labor practices charge against Pacific (21-CA-150875).  This time, the Teamsters advanced a more novel argument: that the very act of misclassifying the drivers, on its own, was a violation of Section 8(a)(1). The Region then submitted the charge to the Board for advice on this determination.  Barry J. Kearney, Associate General Counsel of the NLRB’s Division of Advice issued the December 18, 2015 Memorandum, advising the Region issue a Section 8(a)(1) complaint against the company “alleging that the Employer’s misclassification of its employees as independent contractors interfered with and restrained employees in the exercise of their Section 7 rights.”

The Memorandum relied on previous Board rulings in Lafayette Park Hotel, 326 NLRB 824, 825 (1998), enforced mem., 203 F.3d 52 (1999), finding that “maintenance of rules that would reasonably tend to chill employees in the exercise of their Section 7 rights violates Section 8(a)(1),” and Parexel International, LLC, 356 NLRB No. 82, slip op. at 3–4 and n.9 (Jan. 28, 2011), which deemed a “preemptive strike” intended to prevent an employee from engaging in protected activity “violates Section 8(a)(1) because of its chilling effect on employees’ future exercise of their Section 7 rights.” Additionally, the Memorandum cited prior decisions in M.D. Miller Trucking & Topsoil, Inc., 361 NLRB No. 141 (2014) and North Star Steel Co., 347 NLRB 1364, 1365 (2006) which established that an employer’s misstatements of law can constitute an unlawful interference with employees’ Section 7 rights.

The Advice Memorandum concluded by recommending the Region seek an order requiring Pacific to cease and desist from classifying its drivers as independent contractors, rescind portions of their employment contracts, and post notice. By ordering such action, the Board appears to have taken a rather unprecedented step towards bringing misclassification issues into its domain.

The lasting impact of this Memorandum is uncertain.  It will most certainly be challenged in federal court. And although courts give broad deference to the NLRB’s interpretations of the NLRA, such an expansion of the Board’s authority may be preempted by the Fair Labor Standards Act, the federal statute which governs wage and hour laws.

Additionally, the Board’s decision rested on the unique facts of the case. It is unclear whether the NLRB would consider misclassification to be a standalone violation of Section 8(a)(1) absent an active organizing campaign. However, the door is now open to broader arguments that misclassifying employees deprives them of the right to engage in all forms of collective action. Even where there has not been a documented, specific attempt to engage in concerted activity, arguably employers who intentionally misclassify employees as independent contractors have restricted their employee’s rights by leading them to believe they are not entitled to the full slew of rights statutory employees enjoy.

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