Nevada Legislature Drop Kicks Economic Realities Test to the Curb

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Last December, in Terry v. Sapphire Gentlemen’s Club, the Nevada Supreme Court held that workers were employees rather than independent contractors by adopting the Fair Labor Standards Act’s (FLSA) federal “economic realities” test for assessing independent contractor versus employee status under Nevada law. Last week, in an apparent move to overrule the Court, the Nevada legislature passed Senate Bill 224, signed into law by Governor Brian Sandoval, which establishes a “conclusive presumption” that a worker is an independent contractor, rather than an employee, if certain conditions are met. This is great news for employers in Nevada, and hopefully the Bill’s language will serve as a model for other states.

The case actually involved exotic dancers in Nevada’s booming adult entertainment industry, and the Court had ruled that the employer had improperly classified 6,000-plus dancers as independent contractors under Nevada’s minimum wage law. This would have translated to thousands of dollars in back wages, along with fines for misclassification.

The legislature’s move makes it much more likely that workers can be classified as independent contractors and, significantly, it applies to currently ongoing disputes over status and pay.

The test as adopted in Nevada requires that the worker not be a foreign national who is legally present in the United States, and who is required by contract with the principal to hold any necessary state or local business license and to maintain any occupational license, insurance or bonding. Further, the worker must meet 3 or more of the following criteria: 1) The worker has control and discretion over the means and manner of the performance of any work and the result of the work; 2) the worker has control over the time the work is performed; 3) the worker, with limited exceptions, is not required to work exclusively for the principal; 4) the worker is free to hire employees to assist with the work; and 5) the worker contributes a substantial investment of capital in the business of the worker.

Importantly, even if the worker is not conclusively presumed to be an independent contractor for failure to satisfy three or more of these criteria, it does not automatically create a presumption that the worker is an employee.

A couple of caveats, however. The FLSA’s “economic realities” test is not banished entirely. The new law only applies to claims raised under the state’s wage and hour laws. The FLSA’s test is still applicable to employees and workers classified as independent contractors under federal law. Conclusive presumption is also not the test under Nevada’s Unemployment Compensation Law and Industrial Insurance Act.

Practically speaking, Nevada member employers should have a written contract with independent contractors requiring the independent contractor to hold all necessary business licenses. And the principal must make sure that the worker can satisfy three of the criteria set forth above. (Note that these criteria can be set forth in the agreement between the parties themselves.) The employer should document all of this and have it clearly set forth in writing.

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Posted In: Legal