Updated on Feb. 15

Postmates Inc. couriers who challenged the company's mandatory arbitration agreements should be classified as employees, not independent contractors, according to an internal memo the National Labor Relations Board disclosed on Tuesday.

The advice memo issued by the NLRB's general counsel's office to a regional director in September 2016 found merit to accusations that the San Francisco on-demand delivery service was misclassifying its workforce. The NLRB issued a complaint against Postmates, represented by Littler Mendelson, in October 2016. The case was dismissed in December 2017.

The memo, written by Barry Kearney, then an associate general counsel in the NLRB's advice division, had instructed the regional board to file a complaint. Kearney concluded the company violated the National Labor Relations Act by requiring the drivers to enter into the agreements as a term of employment, and waving their rights to pursue class or collective actions.

Postmates in February 2017 updated its employment agreements to let workers opt out of mandatory arbitration. The Chicago-based employee who lodged the labor complaint was not immediately reached for comment.

Vikrum Aiyer, vice president of global public policy and strategic communications at Postmates, said the “NLRB's dismissal of the claim” reinforced the company's position that its couriers are independent contractors. Aiyer said in a statement:

“The release of an outdated memo (citing legal standards which have been overturned) does not change that fact that the board decided to abandon the case, nor does it impact the fact that Postmates always ensures the autonomy exercised by every member of our fleet: each of whom decides if, when, where, and how they use the Postmates platform to provide on-demand deliveries that boost local merchant sales and powers commerce across the country.”

Kearney, now of counsel to Cozen O'Connor in the firm's Washington office, said the advice memos can be instructive for staff at the labor board, who have access to the internal documents.

The Division of Advice in the Office of the General Counsel weighs in on cases when there is either a novel issue or difficult fact situation. He said when the board makes the memos public, the analysis can be used by practitioners, as well. NLRB advice memos in many instances are published, at the discretion of the agency's general counsel, in closed disputes.

“What happened in Postmates was the general counsel had never before made a determination whether someone in the gig economy is an employee and has protection of the act,” Kearney said. “The value of the release of these memos once they are closed is to explain why he came to that conclusion. It can be used as a research tool.”

Kearney said the new general counsel's office is likely to take a different stance.

Indeed, new NLRB leaders—including Peter Robb, the general counsel—have disavowed many Obama-era policies and rules. Early on, Robb told regional directors that worker classification—employees versus independent contractors—was not a priority.

Postmates referred to its 25,000 couriers that walk, bike or drive to make deliveries as independent contractors. Couriers were required to submit to a background check and also sign a nondisclosure agreement. The NLRB's complaint found that Postmates violated protected rights by prohibiting employees from discussing the terms and condition of employment, including safety, with other drivers.

The question the Postmates case confronted is central to other gig economy companies, and the issue remains unresolved. Many on-demand companies, including Lyft and Uber, built their businesses around workers who have flexibility and the freedom to not answer to a boss, clock in at certain times and also work for other services simultaneously.

A San Francisco federal judge ruled in February that a driver for the online delivery service Grubhub was an independent contractor. The judge concluded Grubhub “exercised little control over the details of the driver's work.”

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In the NLRB advice memo, Kearney said that in determining a worker classification “there is no shorthand formula or magic phrase that can be applied to find the answer.” His memo states that independent contractor status should be interpreted narrowly. In this case, Postmates couriers were set up with the company for long-term, uninterrupted employment, and they did not set their own fees. The workers were supplied with an app, credit card and brand markings and are closely monitored through a customer rating system.

“The board gives weight to actual, and not merely theoretical, entrepreneurial opportunity, and also evaluates the constraints imposed by a company on the individual's ability to pursue this opportunity,” the 2016 memo said.

The right to pursue collective action, despite an arbitration agreement, is central to pending U.S. Supreme Court litigation. The justices in October heard a trio of combined disputes over whether to uphold employee contracts that ban class actions.

This post was updated with comment from Postmates and the NLRB lawyer who wrote the advice memo.

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