The National Labor Relations Board overturned an Obama-era standard for deciding whether workers are employees protected by federal labor law or independent contractors who are not, giving a boost to companies that prefer to use contract labor.

The legal test for employment status properly accounts for workers’ “entrepreneurial opportunity” for economic gain, which had been severely limited by a 2014 ruling involving FedEx Corp., the Trump-appointed NLRB members said in the board’s 3-1 ruling on Jan. 25.

Many companies use independent contractors in part to avoid the expense and legal liability that comes with employing workers. The ruling has implications for a range of businesses, including ride-hailing companies such as Uber Technologies Inc. and Lyft Inc., which rely on drivers who are independent contractors and not direct employees.

Some 10.6 million workers were independent contractors in 2017, accounting for nearly 7 percent of the American workforce, according to the U.S. Labor Department.

The NLRB changed its legal standard for employment status in a case involving shuttle-van-driver franchisees of SuperShuttle at Dallas-Fort Worth Airport. The board ruled that the franchisees aren’t employees under the National Labor Relations Act and therefore fall outside of that law’s coverage.

Only employees are covered by the NLRA, which provides them the right to unionize and engage in collective bargaining. Employees also have rights that are safeguarded by the law that don’t depend on unionization, such as protections for acting together to improve working conditions.

Common Law Plus ‘Entrepreneurial Opportunity’

In its decision, the NLRB set forth a legal framework that combines an analysis under the common law with an examination of entrepreneurial opportunity.

The NLRB’s ruling uses a common-law test drawn from the 1958 version of the Restatement of Agency, a legal treatise that names 10 non-exhaustive factors to determine whether a worker is an independent contractor or employee. Those factors include the level of control a business exerts over a worker, the method of payment, and the amount of supervision involved in the job.

The board can “evaluate the common-law factors through the prism of entrepreneurial opportunity when the specific factual circumstances of the case make such an evaluation appropriate,” according to the ruling.

Entrepreneurial opportunity has always been at the core of the common-law test for the agency, the NLRB said.

The Obama-era board impermissibly changed the traditional test for independent contractors by underplaying the importance of entrepreneurial opportunity and emphasizing workers’ economic dependency on companies, the board said.

The U.S. Court of Appeals for the District of Columbia Circuit also pointed to the importance of considering entrepreneurial opportunity in a 2017 decision that overruled the NLRB’s Obama-era holding and said that FedEx Home Delivery drivers were independent contractors.

‘Economic Unrealities’

Lauren McFerran, the NLRB’s sole Democratic member, dissented from the board’s ruling.

She said her Republican colleagues have no evidence to support their contention about entrepreneurial opportunity being at the center of the common-law test for agency.

In addition to departing from the common law, the NLRB’s standard fails to consider the realities of working relationships, McFerran said.

“The majority’s approach here,” she wrote, “might easily be called the ‘economic unrealities’ test.”

The case is SuperShuttle DFW, N.L.R.B., 16–RC–010963, Decision 1/25/19.