United States: When Is An Individual An Independent Contractor And Not An Employee--Roadway Pac

For most business enterprises, the ability to use independent contractors is necessary to create flexibility in the workplace and to remain competitive in a global economy. From the perspective of organized labor, however, such arrangements pose threats to a fully employed, unionized workplace. With the recent dramatic growth in independent contractor relationships, unions have seen their potential market shrink dramatically. Near the top of the AFL-CIO's wish list is finding ways to unionize the contract workforce or, alternatively, to create obstacles to the use of independent contractors by employers.

The National Labor Relations Act ("NLRA" or "Act") expressly excludes independent contractors from the definition of "employee" under the Act. The National Labor Relations Board ("NLRB" or "Board") and courts interpreting the NLRA have historically used a multi-factor test derived from the common law of agency to determine whether an individual is an employee or an independent contractor.

On August 27, 1998, in Roadway Package System, Inc., 326 N.L.R.B. No. 72, 1998 WL 574959 (1998), and Dial-A-Mattress Operating Corp., 326 N.L.R.B. No. 75, 1998 WL 574957 (1998), the Board handed down two decisions clarifying the law on independent contractor status. Both of these cases came before the Board as a result of the International Brotherhood of Teamsters' efforts to organize owner-operators of trucks and vans. As more fully discussed below, the Board's decisions in Roadway and Dial-A-Mattress do not reflect a dramatic change in the law. Instead, the Board held fast to the traditional multi-factor common-law test in determining whether an individual is an employee or an independent contractor.

On the same day that it handed down the Roadway and Dial-A-Mattress decisions, the Board remanded AmeriHealth Inc./AmeriHealth HMO, 326 N.L.R.B. No. 55, 1998 WL 574960 (1998) back to the Regional Director of Region 4 and ordered a full evidentiary hearing. The case, which the Board labeled one of "first impression," seeks to resolve the question of whether certain New Jersey physicians who are providers in the AmeriHealth health maintenance organization ("HMO") are employees within the meaning of the NLRA. The fact that this case involves doctors demonstrates the wide-ranging nature of the debate between unions and employers over employee status.

Before describing these three cases in detail, it is useful to understand the legal history of employee classification under the NLRA. At common-law, courts have long had to determine whether or not workers were the servants of a master or the agents of a principal. Issues such as respondeat superior liability hung in the balance of that determination. The courts developed various tests to determine whether workers were servants or independent contractors. In 1933 the American Law Institute completed its Restatement on the Law of Agency, which, among other things, provided the following principles for determining servant or independent contractor status:

(a) the extent of control which, by the agreement, the master may exercise over the details of the work;

(b) whether or not the one employed is engaged in a distinct occupation or business;

(c)the kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the employer or by a specialist without supervision;

(d) the skill required in the particular occupation;

(e) whether the employer or the worker supplies the instrumentalities, tools, and the place of work for the person doing the work;

(f) the length of time for which the person is employed;

(g) the method of payment, whether by the time or by the job;

(h)whether or not the work is a part of the regular business of the employer; and

(i) whether or not the parties believe they are creating the relation of master and servant.

See Restatement (First) of Agency § 220(2).1/

When the Wagner Act was enacted in 1935, it failed to provide any helpful definition of employee, stating simply that "the term 'employee' shall include any employee . . . ." See National Labor Relations (Wagner) Act §2(3), 29 U.S.C. § 152(3) (amended 1947). Agricultural workers and domestic servants were the only workers specifically excluded from this category; the Act made no mention of independent contractors. Nonetheless, early Board decisions relied on a mix of common-law factors as well as the policies underlying the NLRA to determine whether independent contractors were beyond the scope of the NLRA. See Seattle Post Intelligencer, 9 N.L.R.B. 1262, 1274-75 (1938) (relying on traditional common-law factors as well as the public interest in the administration of the Act); Hearst Publications, Inc., 25 N.L.R.B. 621 (1940) (same).

In NLRB v. Hearst Publications, Inc., 322 U.S. 111 (1944), the Supreme Court had its first opportunity to define the parameters of employee status under the NLRA. In that case, the Court sought to determine whether newsboys were employees. In order to determine the meaning of "employee" under the NLRA, the Court held that one must begin by looking at the "the history, terms and purposes of the legislation." Id. at 124. Since the Act sought to promote industrial peace on a national level, the court believed that the common-law standard, with its local variations, would import a "mass of technicality" into the NLRA, leaving many workers unable to avail themselves of collective bargaining. Id. at 125-26. The Court ruled that "Congress had in mind a wider field than the narrow technical legal relation . . . [of] the common law. . . , and at the same time a narrower one than the entire area of rendering services to others." Id. at 124. To find this middle ground, the Court ruled that employee status should be determined by "underlying economic facts rather than technically and exclusively by previously established legal classifications." Id. at 129.

Under this standard, the Court upheld the Board's finding that the newsboys were employees:

In this case the Board found that the designated newsboys work continuously and regularly, rely upon their earnings for the support of themselves and their families, and have their total wages influenced in large measure by the publishers who dictate their buying and selling prices, fix their markets and control their supply of papers. Their hours of work and their efforts on the job are supervised and to some extent prescribed by the publishers or their agents. Much of their sales equipment and advertising materials is furnished by the publishers with the intention that it be used for the publisher's benefit. Stating that "the primary consideration in the determination of the applicability of the statutory definition is whether effectuation of the declared policy and purposes of the Act comprehend securing to the individual the rights guaranteed and protection afforded by the Act," the Board concluded that the newsboys are employees. The record sustains the Board's findings and there is ample basis in the law for its conclusion.Id. at 131-32.

In the Taft-Hartley Act, Congress responded to the Supreme Court's expansive definition of "employee" by amending the definition of the word "employee" in Section 2(3) of the NLRA. See 29 U.S.C. § 152(3). The new definition explicitly excluded "any individual having the status of an independent contractor" from the Act's coverage. Id.

The legislative history reveals that Congress did not intend to allow the Board to detour from the common-law standard in defining "independent contractor" under the Act. As Senator Taft, a key sponsor of the Taft-Hartley amendments, explained in 1947:

The legal effect of the amendment therefore is merely to make it clear that the question whether or not a person is an employee is always a question of law, since the term is not meant to embrace persons outside that category under the general principles of the law of agency. 93 Cong. Rec. 6599 (June 5, 1947), reprinted in 2 Legislative History of the Labor Management Relations Act, 1947, at 1537 (1948). Moreover, the House Report accompanying the amendment is explicit in instructing the Board that it does not have the authority to create its own standards or definitions for determining which individuals are independent contractors and which individuals are employees:

An "employee", according to all standard dictionaries, according to the law as the courts have stated it, and according to the understanding of almost everyone, with the exception of members of the National Labor Relations Board, means someone who works for another for hire. But in the case of National Labor Relations Board v. Hearst Publications, Inc., 322 U.S. 111 (1943), the Board expanded the definition of the term "employee" beyond anything that it ever had included before, and the Supreme Court, relying on the theoretic 'expertness' of the Board, upheld the Board. . . . It is inconceivable that Congress, when it passed the act, authorized the Board to give to every word in the Act whatever meaning it wished. On the contrary, Congress intended then, and it intends now, that the Board give to words not far-fetched meanings but ordinary meanings. To correct what the Board has done, and what the Supreme Court, putting misplaced reliance upon the Board's expertness, has approved, the bill excludes "independent contractors" from the definition of "employee."

H.R. Rep. No. 80-245, at 18 (1947), reprinted in 1 Legislative History of the Labor Management Relations Act, 1947, at 309 (1948) (emphasis added).

The independent contractor exclusion represented an affirmative step by Congress to restrict the Act's coverage only to those individuals who can be classified as employees under the test of the common law of agency. Thus while in many areas under its jurisdiction the Board has discretion to make determinations to "effectuate the policies of the Act," the legislative history of the 1947 amendment makes it apparent that the Board does not enjoy such latitude in determining the status of individuals as employees or independent contractors. "The specificity of this statute, and its legislative history, deprives the Board of the same leeway to change as exists in some other areas of its jurisdiction." Local 777, Democratic Union Org. Comm., Seafarers Int'l Union of N. Am. v. NLRB, 603 F.2d 862, 870 n.22 (D.C. Cir. 1978). Indeed, by amending the definition of "employee," Congress rejected the notion that policy considerations should dictate who is considered an "employee" under the Act. As explained by the Supreme Court:

Initially this Court held in NLRB v. Hearst Publications, 322 U.S. 111, that "Whether . . . the term 'employee' includes [particular] workers . . . must be answered primarily from the history, terms and purposes of the legislation." 322 U.S., at 124. Thus the standard was one of economic and policy considerations within the labor field. Congressional reaction to this construction of the Act was adverse and Congress passed [the] amendment.

NLRB v. United Ins. Co., 390 U.S. 254, 256 (1968). In the Supreme Court's view, the Board is now obliged to apply general agency principles -- the so-called "right-of-control" test -- in determing whether an individual is an independent contractor. See Nationwide Mut. Ins. Co. v. Darden, 503 U.S. 318, 325 (1992) (alteration in original) ("Congressional reaction to [Hearst] was adverse and Congress passed an amendment . . . the obvious purpose of [which] was to have the . . . courts apply general agency principles in distinguishing between employees and independent contractors under the Act." (quoting United Ins., 390 U.S. at 256)).

Under the right-of-control test, an independent contractor relationship exists where the company retains control only over the ends or results to be achieved by the contractor. Singer Mfg. Co. v. Rahn, 132 U.S. 518, 523 (1889) (common-law case); C.C. Eastern, Inc. v. NLRB, 60 F.3d 855, 858 (D.C. Cir. 1995); NLRB v. Amber Delivery Serv., Inc., 651 F.2d 57, 61 (1st Cir. 1981); Taylor v. Local No. 7, Int'l Union of Journeymen, 353 F.2d 593, 596 (4th Cir. 1965), cert. denied, 384 U.S. 969 (1966). In contrast, an employer-employee relationship exists where the company controls both the results to be achieved and the means and manner of achieving those results. Id.

In applying the right-of-control test, the following factors have been consistently cited by the Board:

• whether the individuals perform functions that are an essential part of the company's normal operation or operate an independent business;
• whether they have a permanent working arrangement with the company which will ordinarily continue as long as performance is satisfactory;
• whether they do business in the company's name with assistance and guidance from the company's personnel and ordinarily sell only the company's products;
• whether the agreement which contains the terms and conditions under which they operate is promulgated and changed unilaterally by the company;
• whether they account to the company for the funds they collect under a regular reporting procedure prescribed by the company;
• whether particular skills are required for the operations subject to the contract;
• whether they have a proprietary interest in the work in which they are engaged; and
• whether they have the opportunity to make decisions which involve risks taken by independent businessmen which may result in profit or loss.

Adderley Indus., 322 N.L.R.B. at 1022 (citing Standard Oil Co., 230 N.L.R.B. at 968); Prime Time Shuttle Int'l, Inc., 314 N.L.R.B. 838 (1994); Metro Cars, Inc., 309 N.L.R.B. 513 (1992); Capital Parcel Delivery Co., 256 N.L.R.B. 302 (1981). These factors are used as an aid in determining whether the right of control exists in a particular case. Conasauga River Lumber Co. v. Wade, 221 F.2d 312, 315 (6th Cir. 1955), cert. denied, 350 U.S. 949 (1956). "These are guideposts which may point the way to the right of control." Id.

In addition, in cases prior to Roadway and Dial-A-Mattress that involved the transportation of goods or services, the Board has also considered the following factors:

• whether the driver purchased or leases his vehicle and/or equipment, or whether his vehicle and/or equipment are company-provided, see Prime Time, 314 N.L.R.B. at 840; Glens Falls Newspapers, Inc., 303 N.L.R.B. 614, 616 (1991); Central Transport, Inc., 299 N.L.R.B. 5, 13 (1990); Siracusa Moving & Storage Service, 291 N.L.R.B. 143, 146 (1988); Air Transit, Inc., 271 N.L.R.B. 1108, 1110 (1984); Bellacicco & Sons, Inc., 249 N.L.R.B. 877, 877 (1980); Penn Versatile Van, 215 N.L.R.B. 843, 845 (1974);
• whether the company controls the day-to-day activities of the driver, see Prime Time, 314 N.L.R.B. at 840; Glens Falls, 303 N.L.R.B. at 616; General Teamsters Union Local 483 (Ida Cal Freight Lines, Inc.), 289 N.L.R.B. 924, 929 (1988); Atlantic Interstate Messengers, Inc., 274 N.L.R.B. 1144, 1148 (1985); Capital Parcel, 256 N.L.R.B. at 304;
• whether the company controls the driver's hours of work, see Yellow Cab of Quincy, Inc., 312 N.L.R.B. 142, 144 (1993); Metro Cars, 309 N.L.R.B. at 515; Central Transport, 299 N.L.R.B. at 13; Atlantic Interstate, 274 N.L.R.B. at 1148; Bellacicco & Sons, 249 N.L.R.B. at 875;
• whether the drivers have the right to control their routes; see Prime Time, N.L.R.B. at 840; Glens Falls, 303 N.L.R.B. at 616; Ida Cal Freight Lines, 289 N.L.R.B. at 929; Capital Parcel, 256 N.L.R.B. at 303; Bellacicco, 249 N.L.R.B. at 877; Exhibitors Film Delivery & Serv., 247 N.L.R.B. 495, 496 (1980);
• whether the individual may employ helpers or other employees, see Glens Falls, 303 N.L.R.B. at 616; Central Transport, 299 N.L.R.B. at 13, 14; Exhibitors Film Delivery, 247 N.L.R.B. at 496;
• whether the individual is assisted in performing his job by employees of the company; see Atlantic Interstate, 274 N.L.R.B. at 1148;
• whether the driver is responsible for the costs and expenses of his vehicles; see Prime Time, 314 N.L.R.B. at 841; Central Transport, 299 N.L.R.B. at 304; Siracusa Moving, 291 N.L.R.B. at 146; Ida Cal Freight Lines, 289 N.L.R.B. at 929; Bellacicco & Sons, 249 N.L.R.B. at 877;
• whether the company deducts taxes from the driver's compensation; see Glens Falls, 303 N.L.R.B. at 616; Central Transport, 299 N.L.R.B. at 13; Bellacicco & Sons, 249 N.L.R.B. at 878;
• whether the company provides employee benefits for the driver; see Glens Falls, 303 N.L.R.B. at 616; Central Transport, 299 N.L.R.B. at 13; Ida Cal Freight Lines, 289 N.L.R.B. at 929; Atlantic Interstate, 274 N.L.R.B. at 1148; Capital Parcel, 256 N.L.R.B. at 304; Bellacicco & Sons, 249 N.L.R.B. at 878;
• whether an agreement between the driver and the company says that the parties have an independent contractor relationship, rather than an employer-employee relationship; see Glens Falls, 303 N.L.R.B. at 616; Central Transport, 299 N.L.R.B. at 13; Capital Parcel, 256 N.L.R.B. at 303;
• whether the company requires the individual to have company colors or insignia on his vehicle; see Glens Falls, 303 N.L.R.B. at 616; Atlantic Interstate, 274 N.L.R.B. at 1148; Capital Parcel, 256 N.L.R.B. at 303; Bellacicco & Sons, 249 N.L.R.B. at 878;
• whether the company requires the individual to wear a uniform; see Prime Time, 314 N.L.R.B. at 840; Metro Cars, 309 N.L.R.B. at 516; Glens Falls, 303 N.L.R.B. at 616; Central Transport, 299 N.L.R.B. at 13; Atlantic Interstate, 274 N.L.R.B. at 1148; Capital Parcel, 256 N.L.R.B. at 303; Bellacicco & Sons, 249 N.L.R.B. at 878;
• whether the company disciplines the individual; see Prime Time, 314 N.L.R.B. at 840; Metro Cars, 309 N.L.R.B. at 516; Central Transport, 299 N.L.R.B. at 13; Atlantic Interstate, 274 N.L.R.B. at 1148; Bellacicco & Sons, 249 N.L.R.B. at 878;
• whether the company or the individual picks substitutes in the driver's absences; see Bellacicco & Sons, 249 N.L.R.B. at 878;
• whether the company has work rules that apply to the individual; see Prime Time, 314 N.L.R.B. at 840; Metro Cars, 309 N.L.R.B. at 516; Glens Falls, 303 N.L.R.B. at 616; Bellacicco & Sons, 249 N.L.R.B. at 878;
• the manner in which the driver receives work from the company; see Yellow Cab, 312 N.L.R.B. at 144-45;
• whether the individual is free to refuse work; see Central Transport, 299 N.L.R.B. at 13; Ida Cal Freight Lines, 289 N.L.R.B. at 929; Capital Parcel, 256 N.L.R.B. at 303;
• the manner of payment to the individual; see Prime Time, 314 N.L.R.B. at 840; Metro Cars, 309 N.L.R.B. at 516; Ida Cal Freight Lines, 289 N.L.R.B. at 929; Air Transit, 271 N.L.R.B. at 1110;
• whether the driver has any control in setting customer prices, rates, or fares; see Prime Time, 314 N.L.R.B. at 840; Capital Parcel, 256 N.L.R.B. at 303; Bellacicco & Sons, 249 N.L.R.B. at 878;
• whether the driver has significant entrepreneurial control in order to realize profit or suffer loss; see Yellow Cab, 312 N.L.R.B. at 144; Glens Falls, 303 N.L.R.B. at 616; Central Transport, 299 N.L.R.B. at 13; Atlantic Interstate, 274 N.L.R.B. at 1148; Capital Parcel, 256 N.L.R.B. at 304; Bellacicco & Sons, 249 N.L.R.B. at 879; Penn Versatile Van, 215 N.L.R.B. at 845; Exhibitors Film Delivery, 247 N.L.R.B. at 496;
• whether the drivers can work for competitors or otherwise engage in unrelated business during the workday; see Glens Falls, 303 N.L.R.B. at 616; Central Transport, 299 N.L.R.B. at 13; Bellacicco & Sons, 249 N.L.R.B. at 879; and
• whether the company provides any training to the drivers; see Central Transport, 299 N.L.R.B. at 13; Atlantic Interstate, 274 N.L.R.B. at 1148; Capital Parcel, 256 N.L.R.B. at 304.

The Supreme Court and the Board have been clear that all of the common-law agency factors and incidents of the relationship must be considered, and no one factor should be decisive in determining whether individuals are employees or independent contractors. United Ins., 390 U.S. at 258; Amber Delivery, 651 F.2d at 64; Yellow Cab, 312 N.L.R.B. at 144 (1993); Air Transit, 271 N.L.R.B. at 1110 (1984); News Syndicate Co., 164 N.L.R.B. 422, 423-24 (1967). As stated by the Supreme Court, "What is important is that the total factual context is assessed in light of the pertinent common-law agency principles." United Insurance Co. at 258. The test involves a balancing of factors and, therefore, depending on the mix of factors, a factor that may be controlling in one case may be unpersuasive in another case. Austin Tuppler Trucking, 261 N.L.R.B. 183, 184 (1982).

Despite the fact that this common-law test has been the law since 1947, advocates of unionization have felt the test to be too limiting. Organized labor believes that companies "have proven quite adept at exploiting the common-law definition of 'employee' to create large new classes of 'independent contractors.'" Jonathan P. Hiatt & Lee W. Jackson, "Union Survival Strategies for the Twenty-First Century," 12 The Labor Lawyer 177 (1996). To remedy this asserted harm to workers resulting from the growth of the use of independent contractors, organized labor is seeking to define "employee" by using an economic realities approach. This approach dictates that "economic realities should be determinative of the extent of labor law protection and . . . workers who are economically dependent on the entity for whom they perform services generally should be treated as employees." Id. (quoting the Dunlop Commission Report). Even recently departed NLRB Chairman William B. Gould expressed his concern about the under-inclusiveness of the common-law test. In 1994, he stated that the "policies we have employed in the past have effectively denied this growing work force's collective bargaining rights." No. 174 Daily Labor Report (BNA) A-4 (Sept. 12, 1994).

Roadway Package System ("Roadway") is engaged in the business of small package delivery and pickup. Roadway contracted with drivers and trained them to provide pickup and delivery services for areas specified by Roadway. Dial-A-Mattress, the other company involved in the independent contractor cases, is in the business of mattress sales. Customers order mattresses through Dial-A-Mattress' telemarketing system and designate the date and time of delivery. Dial-A-Mattress contracted with the truck drivers ("owner-operators") at issue in this case to deliver the mattresses according to customer demands.

The Teamsters sought to organize drivers at a Long Island City, N.Y. facility of Dial-A-Mattress Operating Corp and the drivers at two California terminals of Roadway Package System Inc. See "Independent Contractors: Labor and Management Revisit NLRB Test for Independent Contractor," No. 233 Daily Labor Report (BNA) A-8 (Dec. 4, 1996). In 1995, the Regional Director determined that Roadway's "Temp A" drivers and "contractor employees" at the company's Ontario, California terminal were employees under the NLRA, and directed an election including these individuals in the bargaining unit. Roadway filed a request for review of the Regional Director's decision, which was granted by the Board. In addition, employees at Roadway' Pomona, California terminal filed an election petition seeking a unit of all pickup and delivery drivers. The Board consolidated the two cases.

In 1995, the Teamsters filed a petition seeking to represent the Dial-A-Mattress owner-operators, and their drivers and helpers. The company sought to exclude the owner-operators (and drivers and helpers) on the grounds that they were independent contractors excluded from coverage under the Act. The Regional Director found that the owner-operators were employees and not independent contractors.1/ Dial-A-Mattress filed a request for review of the Regional Director's decision, which was granted by the Board.

In a Notice of Oral Argument, the Board asked the parties in both cases and various amici curiae to comment on the following:

(1)the Board's authority to change or modify the common-law right-of-control test;

(2)the relative importance of the common-law factors indicative of employee or independent contractor status;

(3)the applicability of three particular cases raising similar independent contractor issues;

(4)with regard to the record in Roadway, whether the drivers had made financial gains or suffered financial losses as a result of their proprietary interest in their service areas; and

(5)if the answer to question #4 is "none" or "minimal," whether it is sufficient for independent contractor status that the driver have the opportunity to make financial gain or the risk of suffering financial loss.

The tenor of these questions raised considerable concern on the part of the employers throughout the country. Moreover, oral argument itself is often a signal that the Board is considering changing a settled area of the law. In particular, the employer community was alarmed that the Board would re-vamp the definition of an independent contractor and make that status virtually impossible to achieve.

On the surface, the Teamsters and the AFL-CIO recognized that the Board did not have the authority to modify or change the common-law test and that all factors should be considered under the test, with no particular factor being dispositive. See Petitioner Unions' Pre-Argument Brief ("Unions Br.") at 5 ("The Board must apply general agency principles"). A careful review of the unions' arguments revealed that they were, in fact, advocating a change in the common-law test in favor of an "economic realities" analysis. They argued that Board must not "overlook basic NLRA policy," relying on Allied Chem. & Alkali Workers v. Pittsburgh Plate Glass Co., 404 U.S. 157, 168 (1971), which stated that "'Hearst Publications was not totally discredited' and that 'in doubtful cases resort must still be had to economic and policy considerations to infuse §2(3) with meaning." Id. at 12 (underlining in the original). Moreover, the unions argued that the Regional Director "correctly recognized, as a 'particular significant factor', the 'degree. . . of proprietary interest a driver may have, and whether he is exposed to the risks and opportunities typically associated with entrepreneurial enterprises." Id. at 15 (quoting the Regional Director's Decision at 22); see also Teamsters' Post-Argument Brief at 15 ("Regardless of the legal test applied, the Board and the federal courts do not find independent contractors status when, as here, there is a complete absence of any evidence of entrepreneurship."). The unions also argued that the Board should find that any directions that an employer issues to drivers pursuant to government regulations are indicative of an employer-employee relationship. Unions' Br. at 34-39; Teamsters' Post-Argument Br. at 28.

The employers argued that the Board was bound to apply the common-law principles of agency when determining employee status. See Roadway's Pre-Argument Br. at 13-14 (citing decisions from all twelve federal circuit courts of appeals stating that the Board is bound by the common-law rules of agency); Dial-A-Mattress' ("Dial") Pre-Argument Br. at 18-20, 22-25. While Roadway argued that no one factor is controlling or dispositive, they did argue that the right to control the manner and means of work is the most important factor. See Roadway Br. at 15-18. Roadway stressed that the drivers had control over their work schedules and hours. Id. at 19. Moreover, any controls Roadway placed upon drivers were, Roadway argued, merely in order to satisfy customer demands or government regulations, and thus not indicative of employee status. Id. at 20, 22, 25. For example, a driver could choose not to work, but would otherwise need to provide a replacement driver. Id. at 21. Meetings were voluntary, unless dictated by OSHA or DOT. Id. at 22. Furthermore, Roadway claimed that uniforms were necessary for business, and that reconfiguration of service areas was necessary in order to meet customers needs. Id. at 22, 23-24.

Dial-A-Mattress, on the other hand, asserted that factors which show actual control over the means and manner of the worker's performance are controlling, if not dispositive, in determining independent contractor status. Dial Br. at 26. Relying heavily on the D.C. Circuit's decision in C.C. Eastern, Inc. v. N.L.R.B., 60 F.3d 855 (D.C. Cir. 1995), vacating 313 N.L.R.B. 632 (1994), Dial-A-Mattress argued that the drivers were independent contractors under this approach. Dial-A-Mattress also asserted any controls that existed were merely to ensure the satisfaction of customer requirements. Id. at 30.

Roadway and Dial-A-Mattress both argued that the mere opportunity to realize gains and losses was sufficient to demonstrate independent contractor status, regardless of whether or not the drivers actually realized gains or suffered losses. Roadway Br. at 46; Dial Br. at 36. For example, Roadway pointed out that the drivers did not receive a salary, but were paid for their performance. Roadway Br. at 28. Thus they argued that drivers could increase profits by increasing the number of their vehicles, hiring helpers, or purchasing service areas. Id. at 29.

The Chamber of Commerce of the United States of America, the America Trucking Association, the Council on Labor Law Equality, which represents members of the business community, Associated Builders and Contractors, Inc., and the Messenger Courier Association of the Americas all weighed in as amici to argue that any changes the Board might make to the common-law agency test could have significant changes to the industries they represent. All of these briefs stressed that the Board had no power to change the common-law test and that the "right to control" was the most important factor. See American Trucking Br. at 7-8; Chamber Br. at 6-7, 14 (stating that the right-of-control test "merely . . . restate[s] . . . the common-law test"); Messenger Br. at 7, 12, 16; Council Br. at 2, 4; Builders Br. at 6, 7.

The following information outlines the relevant facts the Board found in Roadway:

• The drivers were entitled to select their own routes for servicing customers, although Roadway employees would occasionally accompany the drivers on their routes in order to offer suggestions for improving customer service.
• The drivers could not refuse to accept merchandise for pick-up or delivery in their primary service areas.
• Drivers were free to set their own schedules, breaks, and order of deliveries and pickups, provided that the drivers were acting consistently with customer demands.
• The record revealed, however, that most of the drivers had to report to work at a certain time if they wished to have Roadway's package handlers load their vehicles for their daily deliveries. The drivers averaged 9 to 9 1/2 hours of work per day, Monday through Friday.
• The drivers were required to wear Roadway uniforms and to have a Roadway logo on their vans.

• The drivers owned or leased vans that had to meet Roadway's required specifications, which included a certain model, make, shelving, and rear doors. Only the chassis and payload differed among the vans used by Roadway drivers.
• To ensure both that its specifications were met and that its drivers were able to acquire vans, Roadway purchased vans from the manufacturer, Navistar, and then sold them to Bush Leasing. Bush Leasing, in turn, leased the vans to the drivers. The Board found that almost all drivers either leased new vehicles through Bush Leasing or acquired used vehicles from former Roadway drivers.
• It was the owner-operator's ultimate responsibility to obtain another van when his or her van was out of service to ensure that packages in his or her service area were picked up or delivered. To ensure that drivers could rent replacement vehicles at good rates when their own vehicles were temporarily out of service, Roadway negotiated nationwide contracts with national commercial rental companies. Roadway also maintained roughly 200 replacement vehicles around the country for the same purpose.
• The drivers could hire helpers or drivers and use more than one vehicle, and the record showed that roughly seven percent of drivers had a second vehicle.
• Moreover, drivers could use their vans for any personal or commercial use when they were not being used for Roadway deliveries and pickups, as long as all logos and insignia identifying Roadway were removed prior to such use. The Board found, however, that most drivers left their vehicles overnight at Roadway terminals in order to be loaded by Roadway package handlers in the morning.
• Some drivers purchased other equipment, such as dollies and pagers, to increase their efficiency.

In return for a daily $8 fee, the Roadway provided drivers with a clean uniform each day, a required scanner and computer to track packages, an annual Department of Transportation inspection, and a vehicle washing service.

Although Roadway drivers were compensated through eight distinct compensation mechanisms,1/ the Board found that the largest proportion of the drivers' income came from three sources:

(1)a piece rate based on the number of pickups and deliveries that they made,

(2)the "van availability settlement," which provided each driver with $40 for each day a driver provides service, and

(3)the "temporary core zone density settlement." This zone density settlement supplemented the piece rates until such time as the package and stop density of a driver's area was within the "normal" range for a particular area. Roadway designated the minimum and maximum number of stops within a given area.

The drivers purchased their service areas and could sell, subcontract, or exchange their ownership interests in these areas. As his or her primary service area grew, a driver could sell off geographic areas, thereby increasing the driver's income and reducing expenses as the service area became geographically smaller and more manageable.

Roadway maintained the right to reconfigure a driver's service area, on five days notice, in order to take account of customer service requirements. Therefore, if a driver could not service an entire area, and could not sell a portion of it to another driver, Roadway could reconfigure a driver's service area at its sole discretion. Upon reconfiguration, Roadway provided minimum compensation for the loss of customer accounts. The record demonstrated that some drivers had sold off some of their areas upon notice of reconfiguration. Although drivers could also hire helpers and drivers in order to avoid reconfiguration, the Board noted that no drivers had done so, for supplemental vehicles were too costly.

In reaching its decisions, the Board held that it had "no authority to change" the common-law agency test set forth by the Supreme Court in NLRB v. United Insurance Co. of America, 390 U.S. 254 (1968). Roadway, at *11. The Board reiterated that no single factor weighs more heavily than any other in its determination, specifically rejecting the argument that the "right to control" the manner and the means of the work was more significant than any other element in the common-law test. Id. at *12. Therefore, although the common-law agency test has often been referred to as the "right-to-control" test, the Board held that such a label did not accurately reflect the common law of agency test as stated in the Restatement. Still recognizing the importance of the "control" concept, the Board stated, "While we recognize that the common-law agency test described by the Restatement ultimately assesses the amount or degree of control exercised by an employing entity over an individual, we find insufficient basis for the proposition that those factors which do not include the concept of control are insignificant when compared to those that do." Id. The Board listed the ten Restatement factors, cited above, as the guide to determine employee status. See Id. at *19, n. 32 (citing Restatement (Second) of Agency § 220). In sum, the Board in Roadway explicitly rejected the idea that any of the relevant factors in determining employee status was most important, but seemed to recognize that many of the factors concern the amount of control that the employer has over the work at issue.

Although it clarified the law, the Board did not compare the facts of the cases with each factor in the Restatement test, making it difficult to determine the extent to which any particular factor was determinative in the outcome of the cases. In finding that the drivers were Roadway employees, the Board did note that the drivers wore Roadway uniforms, drove uniformly marked vehicles, and rarely operated as incorporated businesses. Moreover, the Board pointed out that drivers had to make their vans available for delivery each business day, and could not refuse an assignment to deliver a particular package. On the other hand, the Board noted that there was no evidence of any discipline system, a sign of independent contractor status. Roadway at 17. Much of the reasoning focused on the entrepreneurial opportunities of the drivers, as well as the reality of the relationship between the drivers and Roadway. In summarizing its reasoning, the Board stated:

The drivers here do not operate independent businesses, but perform functions that are an essential part of one company's normal operations; they need not have any prior training or experience, but receive training from the company; they do business in the company's name with assistance and guidance from it; they do not ordinarily engage in outside business; they constitute an integral part of the company's business under its substantial control; they have no substantial proprietary interest beyond their investment in their trucks; and they have no significant entrepreneurial opportunity for gain or loss.

Id. at *13. As a result of this emphasis, the Board affirmed the Regional Director's decision and directed an election at both the Ontario and Pomona terminals.

The Board did not believe that the drivers were truly entrepreneurs because the reality of their work for Roadway meant that few drivers were working independently. They held that Roadway "simply shifted certain capital costs to the drivers without providing them the independence to engage in entrepreneurial opportunities." Id. at *14. The Board pointed out that drivers were prohibited under agreement from conducting outside business for other companies throughout the day. According to the Board, virtually no drivers used trucks for outside business activity during off-work hours because of practical problems. They had to first mask Roadway markings and the vehicles were not easily susceptible to moderations or adaptations. Moreover, most drivers chose to leave their vehicles at Roadway terminals at the end of the day to take advantage of loading by Roadway package handlers rather than conduct outside business at night. The Board found that "these constraints on the drivers' use of their vehicles during their off-work hours 'provide minimal play for entrepreneurial initiative and minimize the extent to which ownership of a truck gives its driver entrepreneurial independence.'" Id. at *14 (quoting NLRB v. Amber Delivery Serv., 651 F.2d 57, 61 (1st Cir. 1981)).The Board downplayed the drivers' ownership of their vans, and instead claimed that Roadway maintained 'indirect control" over these vehicles. The Board stated:

Although it does not directly participate in these van transfers, Roadway's involvement in these deals undoubtedly facilitates and ensures that a fleet of vehicles, built and maintained according to its specifications, is always readily available and recyclable among the drivers. Roadway also encourages the sale of used vehicles from former to new drivers. In this way, Roadway eases the new driver's responsibility for obtaining a qualified vehicle. It further decreases the former driver's risk of repossession by Bush Leasing and increases the likelihood that there will be a qualified buyer for a costly specialty van no longer needed by the former driver. There is simply no ready market for these vehicles. Every feature, detail, and internal configuration has been dictated by Roadway's specifications. In short, Roadway has created a system which makes the necessary, custom vehicles readily available to prospective drivers, and enables drivers who want to end their relationship with it to easily transfer their vehicles to incoming drivers. By the same token, the specialized vehicles required by Roadway are of no further use to former drivers who naturally sell the vehicles to incoming Roadway drivers when their relationship with Roadway is over.Id. at *14-15.

The Board also argued that the availability of replacement vehicles, either through Roadway-arranged rentals or through Roadway's spare vehicles, demonstrated Roadway's control over the vehicles. Finally, the Board pointed to the "business supports package,'' which provided a service to ensure properly maintained vehicles, as evidence of Roadway's control.

The compensation of the drivers was also determined to reflect employee status. The Board found that "Roadway establishes, regulates, and controls the rate of compensation and financial assistance as well as the rates charged to customers." Id. at *15. The Board found that the drivers had insufficient risk of loss. They pointed to the "temporary core zone settlement," which supplemented the income of drivers who did not have a "normal" number of pickups and deliveries. Id. at *16. Entrepreneurial profit in general was limited by maximum and minimum number of packages for a given service area. Although income from each pickup and delivery could vary among drivers, that variance did not depend on entrepreneurial efforts, but from different customer bases. The Board found that "although Roadway states that drivers can, and have, secured new customers, there is no evidence that such additional customers have significantly affected the earnings of any driver." Id. at *16. Thus the Board focused on the bottom line: the record did not demonstrate that the drivers' income varied according to their own business acumen.

The Board likewise found that the drivers' proprietary interest in service areas did not, in reality, have a substantial impact on drivers' savings account. The Board held that Roadway had considerable control over whether the driver may sell, to whom, and under what circumstances. Id. They pointed out that Roadway had forced sales and reconfiguration of service areas. Id. Although drivers had the option of getting a second van and hiring a helper or another driver, the Board pointed out that there was "no evidence that any driver confronting the possibility of reconfiguration by Roadway has made use of these alternatives . . . . It is unclear whether any driver has gained or profited materially from the sale of his service area . . . . Without this kind of detail, there is no way for us to determine whether the drivers realized any gain or profit from the sale of their service areas." Id. at *17.

Outgoing Chairman Gould wrote a separate concurring opinion. He did so to highlight his dissent in Dial-A-Mattress and to set forth his argument that employer controls mandated by government regulations "should be considered probative" in determining employee status.

The following information outlines the relevant facts the Board found in Dial-A-Mattress:

• Owner-operators had their own companies and hired their own helpers and drivers. One owner-operator owned ten trucks, and two others owned six trucks.
• The owner-operators maintained their own business checking accounts, had their own company uniforms, filed their own corporate tax returns, and maintained workers' compensation insurance.
• The Contracts between Owner-Operators and Dial-A-Mattress:
• The following were the terms of the contract, which, according to the Board, were complied with by both parties:
• The contracts specified that the owner-operators were independent contractors, who could hire helpers or drivers at terms and conditions of employment established by the owner-operators.
• The owner-operators were entitled to make their deliveries in any sequence that they choose, and they could even decline to perform deliveries.
• Owner-operators were paid by the delivery and were responsible for losses arising out of damage to mattresses and customer property.
• To ensure that customer demands were satisfied, the owner-operators were required to call Dial-A-Mattress after every delivery or if customer problems arose.
• The company provided no training to owner-operators.

• The owner-operators owned their own trucks and paid their own expenses related to the trucks.
• Dial-A-Mattress imposed no requirements on the make, size, condition, or color of the trucks.
• Owner-operators were not required to place a Dial-A-Mattress logo on their trucks or wear Dial-A-Mattress uniforms.

Owner-operators were not required to make their trucks available every day, could refuse to deliver certain loads, and could deviate from suggested route schedules.

There was conflicting testimony regarding whether any owner-operators were disciplined for failing to provide their trucks for delivery, for refusing certain loads, or for deviating from the suggested route schedules.

• Dial-A-Mattress' human resources department had no responsibility for owner-operators or their drivers and helpers.
• Owner-operators were only expected to comply with drug, alcohol, and gambling policies, as well as policies relating to the damage to merchandise.
• The Board found conflicting testimony regarding whether owner-operators were ever disciplined for failing to call in after delivery stops.
• Owner-operators bear the risk of loss if they accept a form of payment without Dial-A-Mattress prior approval.
• Dial-A-Mattress had no progressive disciplinary system.

• Compensation was paid to the owner-operator's company, not to the owner-operator.
• The owner-operators were provided no fringe benefits, and indeed had to pay a monthly fee to use a restroom and lounge at the warehouse.
• The company did not withhold any taxes from the owner-operators' compensation.

• The owner-operators had no proprietary interest in their routes. However, some had negotiated reduced delivery rates in return for certain geographical zones of delivery.
• Owner-operators could also use trucks to cultivate business, and even could conduct other types of business throughout the day, provided that they were able to make their deliveries within the customer-specified times. They were not expected to cultivate business for Dial-A-Mattress.

The Board relied on its re-affirmation of the common-law agency test as set forth in Roadway in arriving at its decision in Dial-A-Mattress.1/ In contrast to Roadway, however, the Board determined that the factors here weighed in favor of independent contractor status for the drivers. Specifically, the Board relied on both lack of significant control that Dial-A-Mattress exerted over the owner-operators as well the "significant entrepreneurial opportunity for gain or loss" that it found the owner-operators to possess. Id. at *12. The Board held, "Dial has structured its relationship with the owner-operators to allow them (with very little external controls) to make an entrepreneurial profit beyond a return on their labor and capital investments." Id. at *12.

The Board pointed out that the relationship between Dial-A-Mattress and the drivers signified independent contractor status. The owner-operators had a separate identity and formed their own trucking companies, many in a corporate form. They paid their own corporate taxes, and had their own uniforms, which displayed the logos of their own trucking companies. The Board thus found that Dial-A-Mattress treated the owner-operators as independent operators in its dealing with the public. The record showed that Dial-A-Mattress did not even know the identity of many of the owner-operators' employees. The owner-operators made their deliveries unsupervised and were not instructed in traffic routes. Moreover, they could refuse loads, and were not required to return to the warehouse upon completing their deliveries. The owner-operators were even charged a fee to use restroom and lounge facilities at the warehouse. Id. at *12-14.

The control that Dial-A-Mattress was found to exert was minimal. The owner-operators "clean attire" requirement was minimal and not at odds with independent contractor status, according to the Board. Moreover, the rules against drugs and alcohol were necessary to reduce liability on Dial-A-Mattress property. Although a few owner-operators were given one-day suspensions for breaking these rules, suggesting employee status, the Board found these elements of control were outweighed by other factors. Id. at *14-15.

The owner-operators were solely responsible for their vehicles. Dial-A-Mattress had no part in selection, acquisition, ownership, financing, inspection, and maintenance of vehicles. The owner-operators were not even required to have the Dial-A-Mattress name on their truck, although most did so in return for a $500 annual fee. Id. at *13.

Most significantly, the Board found that the owner-operators had real entrepreneurial opportunity. Although they had no proprietary interest in their routes, some drivers had negotiated reduced delivery rates in return for certain geographical zones of delivery. The owner-operators were paid only for deliveries made or attempted, for there was no guaranteed minimum income. Moreover, the owner-operators hired, trained, and controlled their own employees. The owner-operators followed no uniform pay rate or fringe benefit program for these employees. They were allowed to cultivate business while working for Dial-A-Mattress, although several owner-operators testified that their time commitment to Dial prevented them from servicing other customers or cultivating business interests with their trucks. The owner-operators were also allowed to perform separate duties for the customer in return for a separate payment from the customer to the owner-operator. Id. at *13-14,16.

The Board specifically distinguished the case from Roadway. Unlike Dial-A-Mattress, "the elements of Roadway's compensation plan, in effect, result[ed] in both minimum guarantees and effective ceilings for its drivers." Id. at *16. The owner-operators in Dial-A-Mattress had multiple trucks and employees unlike the drivers in Roadway. Dial-A-Mattress was indifferent about the trucks, whereas Roadway helped drivers acquire custom designed specialty vans by providing loans for acquisition and maintenance of vehicles. Roadway drivers were required to deliver and pick up packages everyday, whereas as the owner-operators in Dial-A-Mattress could refuse a particular delivery. Roadway also required its drivers to wear uniforms. Id. at *16.

Chairman Gould wrote a strong dissenting opinion in which he said he was "baffled" by his colleagues' decision. He accused his fellow Board members of failing "to take into account the 'powerful incentives' that some employers have not to characterize individuals as employees in order to evade the strictures of employment laws like the National Labor Relations Act." Id. at *18. He warned that the Board must "be ever mindful to avoid the exaltation of the form of what appears to be an independent contractor relationship over the substance of employer-employee reality." Id. In his view, the facts in Dial-A-Mattress presented an even stronger case of "employee" status than those presented by the Roadway matter. Id. First, he found that the company controlled the owner-operators by assigning routes of delivery and requiring that trucks be ready for their scheduled loading or risk receiving no work or discipline. Id. at *19. He concluded that the owner-operators had "little opportunity to engage in entrepreneurial activities which could increase their opportunity for profit." Id. at *19. He pointed out that the owner-operators had no input on the price of the products, could not bid on customer deliveries, and had no choice of customers at all. Id. He also noted that, despite owning their own trucks, the owner-operators use their trucks almost solely to service Dial-A-Mattress. Id. He also argued that Dial-A-Mattress was the impetus behind the owner-operators forming their own companies. Id. at *20.

Although the Board adhered to the Restatement factors, it is important to note that the Board did not disavow the use of the broader set of factors upon which it had relied in the past that are derived from the common-law test. In Adderley, the Board stated that the common law of agency was the appropriate reference and then cited a list of "factors to consider" in determining whether an employment relationship existed. See, supra p. 5. The Board in Roadway did not seem to discredit Adderley and other Board opinions which had derived their own set of factors based on the Restatement agency factors, and they cited a set of "derivative" factors that were listed in United Ins., 390 U.S. at 259-60.1/ Thus, it does not seem that the Board in Roadway was holding that the exact factors of the Restatement of Agency test have to be applied, and that later versions of the test necessarily are invalid, but just that within the factors the "right of control" is not determinative.

This article is published to inform clients and friends of Morgan Lewis and should not be construed as providing advice on any specific matter.