In July, the National Labor Relations Board announced its long-anticipated decision in The Atlanta Opera Inc., which deals with how workers are classified. The decision is the latest in a long string of worker classification dramas playing out across the United States. Each has the potential to shake up dramatically how an employee is defined, with potentially profound consequences for millions of American workers who serve as independent contractors.
At issue in the Atlanta Opera case was whether stylists — hair styles, make-up artists and wig artists — should be considered opera employees or independent contractors. The NLRB determined that these stylists should be regarded as employees of the opera, making them eligible for certain employee protections, such as the right to unionize. The opera had previously considered these workers to be independent contractors.
In reaching its decision, the NLRB modified the independent contractor standard under the National Labor Relations Act. Until the Atlanta Opera decision, the NLRB operated under the earlier, more business-friendly, independent contractor standard established in SuperShuttle DFW Inc. in 2019.
That standard had generally classified people who operated their businesses as independent contractors, granting them significantly more freedom to pursue their own working arrangements. Specifically, the standard held that entrepreneurial opportunity should be the “principle by which to evaluate the overall effect of the common-law factors on a putative contractor’s independence to pursue economic gain.” In other words, the freedom of an entrepreneur to establish a successful business should take precedence over other considerations.
The Atlanta Opera framework rejects this reasoning and embraces a much older independent contracting standard articulated in the 2014 FedEx Home Delivery (FedEx II) decision. That standard significantly narrowed the definition of an “independent contractor” under the NLRA. It argued that entrepreneurial opportunity was one among many factors that must be considered when determining worker status. The Atlanta Opera standard reinstates this multi-factor, common law agency test, with the practical effect being that more workers will be classified as employees.
Fortunately, the case is likely far from over. While the Atlanta Opera cannot immediately appeal the decision, the case will likely go to the D.C. Court of Appeals, which has previously rejected the NLRB’s FedEx II standard on two occasions.
A perhaps more significant concern is the Department of Labor’s plan to finalize a proposed rule that would dramatically narrow the circumstances under which workers qualify as independent contractors under federal wage-and-hour laws.
The Labor Department published a Notice of Proposed Rulemaking on the subject last year, but a final rule isn’t expected until October. Legal experts rightly criticized the proposed rule as an “ABC test in sheep’s clothing.” By this, they mean the rule seeks to mimic a 2018 California Supreme Court test known as the ABC Test, which made it more difficult for companies to hire workers as independent contractors. While it is impossible to know what Labor’s final rule will look like, final rules don’t typically differ significantly from proposed rules, making the prospect of an impartial final rule unlikely.
This is terrible news for millions of American independent contractors who overwhelmingly like and support their working arrangements. For instance, a 2020 Morning Consult survey of independent contractors found that 71 percent believed “the freedom of being an independent contractor outweighs the benefits of being an employee.” A more recent 2022 study by MBO Partners found that 76 percent of independent contractors were “very satisfied with independent workers.” In addition, 84 percent said they were “happier” working independently, with 80 percent reporting that independent contracting was better for their health. These views are consistent with Bureau of Labor Statistics datashowing that “79 percent of independent contractors preferred their arrangement over a traditional job.”
There are good reasons this work is popular. While not entitled to all the same benefits, such as tax withholdings and paid time off, as traditional employees, independent contractors enjoy many advantages over employees. For instance, independent contractors have the freedom to set their own schedules. This working arrangement is particularly advantageous to people who are in school, want part-time work, desire a second job, or have caregiving responsibilities. These workers become their own bosses and more easily balance their work schedules around their personal lives. In some cases, independent contractors have also been found to earn more than traditional employees.
For these reasons, independent contracting represents an increasingly attractive option to many American workers who desire more control over their lives. Perhaps that is why their numbers continue to grow. A 2021 Upwork study found that 36 percent of Americans, or 59 million people, now work as freelancers. Together, they contribute $1.3 trillion in annual earnings to the economy, with that amount only likely to grow. A 2019 International Revenue Service report concluded that the rise of independent contracting may “represent a structural shift in the labor market,” which has been underway since the early 2000s.
Despite these many advantages, the debate over how best to classify workers will not go away anytime soon. Government leaders at the NLRB and Labor Department have made it abundantly clear they distrust the independent contracting business model and are intent on putting politics ahead of solid policy. That is unfortunate because the record is clear that independent contracting is beneficial not only to workers and businesses but also to consumers who enjoy the types of services that independent contracting makes possible.
Government leaders would do well to listen to worker voices before redefining what it means to be an employee.
