In a General Counsel Advice Memorandum released in late August 2016, the NLRB Division of Advice found that employers who misclassify employees as independent contractors violate Section 8(a)(1) of the NLRA by restraining the employees’ section 7 rights to engage in concerted, protected activity.  The Memorandum, which is dated December 18, 2015, but was only recently made public, concerned drayage company Pacific 9 Transportation, which operates a fleet of approximately 160 trucks and 180 drivers to transport shipping containers in and around the ports of Los Angeles and Long Beach.

Like many employers who wish to utilize an independent contractor model, Pacific 9 required each driver to sign an agreement that the driver was an independent contractor and that the driver, among other things, could accept or decline any shipment offered, was not required to lease or purchase a truck from Pacific 9, and would acquire his or her own insurance.

In the course of a prolonged corporate campaign to organize the drivers, the Union filed a Charge with the NLRB Regional Office alleging, among other things, that Pacific 9 threatened to close its facility if drivers supported the Union.  Pacific 9 argued that the drivers were not statutory employees and, therefore, the Board lacked jurisdiction.  The Region found that the drivers were statutory employees, and the parties settled the charge. Pacific 9 then distributed a memo to drivers doubling down on its classification position. The memo stated, among other things, that Pacific 9 had no employee drivers, only owner operators and independent contractors, and that only employees have the right to form a union. This resulted in revocation of the settlement and subsequent enforcement proceedings.

But the Union also filed a new Charge alleging that Pacific 9’s misclassification of drivers as independent contractors in itself violated Section 8(a)(1), and the Region submitted the case for advice. 

First, the Division of Advice agreed with the Region’s finding that Pacific 9 drivers were statutory employees.  Applying the familiar multi-factor test from the Restatement (Second) of Agency § 220, the Division noted that in reality drivers were not free to decline any shipments, rented trucks from Pacific 9, were covered by Pacific 9’s insurance, were subject to extensive control by Pacific 9, and lacked any significant entrepreneurial opportunity.

Next, after noting that the Board had never held that an employer’s misclassification of employees as independent contractors in itself violates Section 8(a)(1), the Division for the first time suggested exactly that.  The Division noted three lines of Board decisions in support of the new theory.  First, an employer violates Section 8(a)(1) when its actions operate to chill or curtail future section 7 activity (citing Parexel Int’l, LLC, 356 NLRB 516 (2011)).  Second, an employer violates Section 8(a)(1) by telling employees that engaging in Section 7 activity would be futile (citing M.D. Miller Trucking & Topsoil, Inc., 361 NLRB No. 141 (2015)).  Third, an employer’s misstatements of law may violate Section 8(a)(1) if the statement reasonably insinuates adverse consequences for engaging in Section 7 activity (citing BP Amoco Chemical-Chocolate Bayou, 351 NLRB 614, 617, 618, n.22 (2007)).

Applying these lines of decisions to Pacific 9’s conduct, the Division argued that Pacific 9 continued to insist that drivers were independent contractors, even after the Region determined they were employees.  The Memorandum asserted that this conduct was “without any legitimate purpose other than to deny the drivers the protections that inure to them as statutory employees” and that it chilled their future Section 7 activity.  Next, the Division argued that Pacific 9’s memo to employees conveyed that unionization would be futile.  Finally, it contended that Pacific 9’s continued insistence that drivers were independent contractors (despite the Region’s determination otherwise) was “akin to a misstatement of law that reasonably insinuates adverse consequences for employees’ continued Section 7 activity.”  In sum, the Division recommended the Region issue a Complaint on the basis that Pacific 9’s misclassification of drivers interfered with and restrained their protected, concerted activity, in violation of section 8(a)(1).

What does Pacific 9 portend for employers?  Employers may take small solace in the fact that the General Counsel found Pacific 9’s conduct, apart from the misclassification, particularly egregious.  Pacific 9 continued to tell its drivers they were independent contractors and therefore could not unionize, even after the Region determined otherwise and after arguably acting in immediate contravention of a settlement agreement. Moreover, the case has simply gone to complaint at this point, and the employer continues to defend its position in litigation before the Board, and will perhaps do so before the courts, if necessary.

More broadly, however, Pacific 9 continues the Board’s trend of focusing on broader issues of employment law – specifically including worker misclassification issues.  General Counsel Memorandum 16-01, issued March 22, 2016, identified misclassification of employment status as an issue “of particular interest” to the Board.  Shortly thereafter, on April 18, 2016, the Los Angeles Region issued a complaint against another transportation employer for alleged misclassification of drivers as independent contractors, “depriving them of the protections of the Act.”  Employers must now add “NLRB scrutiny” to the list of risks of employee misclassification (which already include tax liabilities, IRS audits, wage and hour claims and potential class actions).