Monday, January 25, 2021
On January 19, 2021, the U.S. Department of Labor’s Wage and Hour Division (“WHD”) issued an Opinion Letter applying the Department’s recently-issued Final Rule concerning Independent Contractor Status under the Fair Labor Standards Act (the “Final Rule”). This Opinion Letter provides helpful guidance to businesses, especially those in highly-regulated industries, on how to properly structure their relationships with independent contractors under the Fair Labor Standards Act (“FLSA”).
As background, the FLSA’s minimum wage and overtime pay obligations apply only to those workers it defines as employees individuals who are economically dependent on a business for continued employment. These obligations do not apply to independent contractors individuals who, as a matter of economic reality, are in business for themselves.
Highlights
The California Supreme Court in Vazquez v. Jan-Pro Franchising
International, Inc. ruled that its decision in Dynamex Operations
West, Inc. v. Superior Court 4 Cal. 5th 903 (2018) (Dynamex),
applies retroactively to all cases not yet final as of the date
Dynamex issued on April 30, 2018.
This critical holding finally and definitively answers the open
question regarding the retroactive application of the ABC test for determining employee vs. independent
contractor status.
The ruling means that nearly all cases that were not final as
of the date Dynamex issued will be governed under the ABC standard instead of Borello.
The California Supreme Court in
To embed, copy and paste the code into your website or blog:
On January 6, 2021, the U.S. Department of Labor issued its final rule on Independent Contractor Status under the Fair Labor Standard Act (FLSA) outlining how employers can properly classify workers as independent contractors, instead of employees, which in practice means that the worker does not have to be paid minimum wage or overtime. This Rule, following a 30-day comment period during which the Department received over 1,800 comments, is a boon to employers as it provides clarity and more leeway in defining who is an independent contractor.
The Rule explains that the five-factor economic realities test governs the analysis of whether a worker can properly be classified as an independent contractor. This test is less restrictive on employers than those used in some states, such as California’s use of the ABC test. Under the five-factor economic realities test, the following is considered: