In Terry v. Sapphire Gentlemen’s Club, 336 P.3d 951 (Nev. Oct. 30, 2014), the Nevada Supreme Court adopted the Fair Labor Standard Act (FLSA)’s “economic realities” test to determine whether workers can be classified as independent contractors under Nevada law for purposes of minimum wage payments under Nevada Revised Statutes' (NRS) Chapter 608. In an apparent move to overruleTerry, the Nevada Legislature passed Senate Bill 224 (S.B. 224). Signed into law on June 2, 2015 by Governor Brian Sandoval, S.B. 224 establishes a “conclusive presumption” that a person is an independent contractor, rather than an employee, if certain conditions are met. A “conclusive presumption” is a presumption that must be taken as true regardless of any evidence to the contrary. As a result, it is likely that more workers can properly be classified as independent contractors under NRS Chapter 608. Significantly, S.B. 224 applies to any currently ongoing dispute relating to whether a worker is an independent contractor and therefore owed minimum wage under Nevada law.
The New Test in Nevada
Effective June 2, 2015, S.B. 224 provides that a person is conclusively presumed to be an independent contractor for purposes of NRS Chapter 608 if:
- The person is not a foreign national who is legally present in the United States;
- The person is required by contract with the principal to hold any necessary state or local business license and to maintain any necessary occupational license, insurance or bonding; and
- The person meets 3 or more of the 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, with limited exceptions, is not required to work exclusively for the principal.
- The person is free to hire employees to assist with the work.
- The person contributes a substantial investment of capital in the business of the person.
Moreover, even if a person is not conclusively presumed to be an independent contractor for failure to satisfy three or more of the criteria set forth in section (c) above, that does not automatically create a presumption that the person is an employee.
- What is the scope of the conclusive presumption provided by S.B. 224?
By the terms of S.B. 224, the conclusive presumption applies only to claims arising under NRS Chapter 608 or any proceeding to recover unpaid minimum wages under Section 16 of Article 15 of the Nevada Constitution. NRS Chapter 608 deals with the payment of wages, overtime, minimum wage, tokes, deductions from wages, record of wages, paydays, uniforms, and similar issues.
- Who is a “foreign national?”
A foreign national is a person who is: (1) not a United States citizen; (2) not admitted for permanent residence; and (3) legally present in the United States.
- Is a contract required under S.B. 224?
In order for the conclusive presumption test to apply, a contract is necessary. However, a person is not automatically considered an employee without a contract. Rather, it is likely that the “economic realities” test will apply to those situations.
- Does S.B. 224 get rid of the “economic realities” test entirely?
No. S.B. 224 only applies to claims raised under Nevada’s wage and hour laws. The FLSA’s “economic realities” test still applies to employees and workers classified as independent contractors under federal law. Principals engaging independent contractors will still need to review the application of the FLSA and workers’ status under the economic realities test.
- Does the conclusive presumption under S.B. 224 apply to the Nevada Unemployment Compensation Law?
No. The test for whether a person is an independent contractor for unemployment purposes is set forth in NRS 612.085. This test is commonly referred to as the “ABC test” and sets forth generally that a person is an employee unless: (A) the person is free from control over the performance of the services; (B) the service is either outside the usual course of the business or outside of all the places of business; and (C) the service is performed in the course of an independently established trade.
- Does the conclusive presumption under S.B. 224 apply to Nevada's Industrial Insurance Act?
No. The Nevada Industrial Insurance Act (NIIA) has its own test. Similar to the Unemployment Compensation law, NRS 616B.603 requires that the contracting entity cannot be in the “same trade, business, profession or occupation” as the independent enterprise. Moreover, NRS 616B.603(2) defines an “independent enterprise” as “a person who holds himself out as being engaged in a separate business and: (a) [h]olds a business ... license in his own name; or (b) [o]wns, rents or leases property used in furtherance of his business.” See also Hays Home Delivery, Inc. v. Employers Ins. Co. of Nevada, 31 P.3d 367, 370 (2001). Finally, the NIIA also imposes a control test. NRS 616A.255 specifies that an "independent contractor" is a person who renders service for a specified amount of compensation for a specified result, under the control of the employer as to the result of his work only and not as to the means by which such result is accomplished.
- What other employment tests should employers be aware of?
For tax purposes, the IRS uses a 20 factor test commonly referred to as the “right-to-control-test” because each factor is designed to evaluate who controls how the work is performed. The more control the company exercises over the worker, the more likely it is that the worker is an employee.
In order to comply with S.B. 224, parties should enter into a written contract setting forth that the worker is an independent contractor and is required to hold all necessary business licenses. Additionally, the principal should assure that the worker can satisfy at least three of the criteria specified in Section 3 of S.B. 224. Where possible, compliance with said criteria should be documented in the written contract and otherwise.
It is important to note, principals using workers classified as independent contractors still need to evaluate that classification under the various other federal and state statutory schemes.