In January, the US Department of Labor announced a final rule that clarifies the standard for determining independent contractor vs. employee status under the Fair Labor Standards Act (FLSA).
This final version of the regulation, which takes effect on March 8, now determines whether a worker is an employee entitled to overtime, minimum wage, and other FLSA protections or an independent contractor exempt from those requirements.
29 CFR Parts 780, 788, and 79 reaffirm that an economic reality test will identify whether an individual is an independent contractor or employee. The determination is based on two primary factors:
Three other factors that may serve as guidelines are:
As a general rule, when the first two factors conflict, the remaining three will help guide the analysis..
When AB 5 became law in September 2019, it codified the three-prong ‘ABC’ test established in Dynamex. This test presumed that all workers were employees and required the employer to prove otherwise by showing that a contractor was:
AB 5 also exempted certain industries, occupations, and contracted relationships (e.g., attorneys, doctors, architects, accountants) from this test and allowed hiring entities to use an earlier standard established in G. Borello & Sons, Inc. v. Department of Industrial Relations.
In October 2020, AB 2257 amended AB 5 by exempting additional business relationships and occupations and clarifying the professional services, referral agency, and business-to-business exemptions established by AB 5. However, it maintained that hiring entities must use the ABC test to classify a worker unless there was an exemption allowing the use of the Borello test instead.
While the new (and possibly final) regulation has a few things in common with earlier legislation, there are some differences that may leave you with questions. If you are concerned that your employer may be misclassifying you as an independent contractor, contact a California employment law attorney for advice.
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