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SB 224 clarifies only half of contractor confusion

In June, Gov. Brian Sandoval signed Senate Bill 224, which creates a “conclusive presumption policy” for determining independent contractor status. Only by understanding how this new legislation affects their businesses will Nevada companies be able to win in the employee-versus-independent contractor classification dispute.

First, what is a conclusive presumption? In layman’s terms, a conclusive presumption is one that must be taken as true regardless of any evidence to the contrary. Therefore, if someone meets the criteria established by this new legislation, he or she will be conclusively presumed to be an independent contractor instead of an employee.

To qualify, the person must be in the United States legally and have entered a written contract with the company to provide services. The contract must require that person to hold all necessary state or local business licenses and to maintain any necessary occupational license, insurance or bonding.

The person must also satisfy three or more of the five following criteria:

▶ The person has control and discretion over the means and manner of the performance of any work and the result of the work;

▶ The person has control over the time the work is performed;

▶ The person is not required to work exclusively for the principal unless the person is prohibited by law from providing services to more than one principal or the contract provides that the individual will exclusively provide such services for a limited period;

▶ The person is free to hire employees to assist with the work; and

▶ The person must contribute a substantial investment of capital in the business of the person.

That a person is not conclusively presumed to be an independent contractor for failing to satisfy three of the five criteria does not automatically create a presumption that the person is an employee.

Determining whether someone is an independent contractor or employee is necessary because only employees are entitled to the protection of state and federal wage and hour laws (state law is codified under Nevada Revised Statutes Chapter 608 and federal law is codified under the Fair Labor Standards Act). Both NRS 608 and the Fair Labor Standards Act require employers to pay their employees at least minimum wage and to provide overtime compensation for any hours worked exceeding 40 hours a week.

Before SB 224 passed, Nevada courts applied the “economic reality” test used by federal courts when deciding whether a person is an employee who is entitled to the protections of the Fair Labor Standards Act or an independent contractor who isn’t entitled to such protections.

Under that test, courts consider the economic reality and all facts relevant to the parties’ business relationship. The factors and their weight depend on the situation involved. Historically, it has been difficult for someone to be classified as an independent contractor under the economic reality test.

Although SB 224 seemingly provides concise guidelines for Nevada businesses, proceeding with caution is highly recommended.

Most employers, whether they realize it or not, are covered by the Fair Labor Standards Act and must comply with its provisions and the provisions set out in NRS 608. Although these provisions are similar, the test for determining whether an employment relationship exists is now different under NRS 608 as compared to the act and different conclusions regarding that relationship may result.

SB 224 will likely result in more claims being filed in federal court against naïve employers who thought they could fulfill their obligations by merely complying with SB 224’s guidelines.

Besides being fact-specific, employment law can be complicated. Therefore, save your company time and money by having qualified employment counsel review these issues. Any costs incurred in doing so will most certainly be less than the penalties and fees that would be awarded for violating the Fair Labor Standards Act.

Jacquelyn Leleu is a partner at McDonald Carano in Las Vegas, practicing employment and labor law, commercial and complex litigation and construction law.

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