Employers, especially in California, are required to comply with a vast and complex set of laws regarding their employees. Proposals to change some of the more well-known laws have been submitted at both state and federal levels. In California, AB 5 was introduced as a placeholder bill in December 2018. This bill intends to codify the Dynamex decision which was published last April. Dynamex adopted a new test to determine when a worker is an employee rather than an independent contractor, and has caused many employers to rethink its classification procedures. At the federal level, the Department of Labor (DOL) published for comment its long awaited proposal for the overtime rule in the Federal Labor Standards Act (FLSA). This law provides a test to determine when an employee is eligible for overtime pay under the FLSA. Part of the test involves the employee’s salary. The DOL’s proposed change increases this salary amount.
California’s AB 5
We covered the Dynamex decision when it was published in 2018 here. In this decision, the California Supreme Court adopted Massachusetts’s ABC test for determining whether a worker is an employee or an independent contractor. In short, this test analyzes: (a) whether the hiring entity exercises significant control over the worker, (b) whether the worker is engaging in activities which are within the hiring entity’s regular course of business, and (c) whether the worker is engaged in an independently established trade, occupation, or business doing the services the worker is providing for the hiring entity. Importantly, Dynamex made clear that workers would be presumed to be employees, and that it is up to the employer to prove the worker is in fact an independent contractor.
The Dynamex decision has left significant confusion and uncertainty in its wake. To curtail this, AB 5 was introduced at the beginning of California’s legislative season, and is aiming to codify Dynamex‘s ABC test as well as clarify some of the uncertainty surrounding the test. Notably, AB 5 is also reportedly intending to broaden the reach of this test. The Court in Dynamex was careful to note the ABC test would only apply to Wage Order issues – meaning it would not apply for discrimination, harassment, and other claims not covered by the Wage Orders. AB 5 intends to broaden the ABC test to apply to these additional claims.
AB 7 was also introduced at the beginning of the legislative season as a placeholder bill. This bill intends to disregard the Dynamex decision and go back to the Borello test which had previously been used to determine whether a particular individual is an employee or an independent contractor.
Department of Labor’s Overtime Rule
A number of state and federal laws provide a statutory framework governing overtime. The FLSA is one of those laws, providing that employers must pay their employees who work more than 40 hours in one week at least 1.5 times their regular rate of pay. However, one exception to this rule, the “white collar exception,” operates to allow employers with employees who meet certain criteria to be exempt from the FLSA’s overtime rules.
The basic test to determine whether an employee falls within the FLSA’s “white collar exception” is: (a) whether the employee is paid a predetermined and fixed salary, not based on hours, (b) whether that salary meets a specified minimum amount, and (c) whether the employee’s duties are primarily executive, administrative, or professional. If an employer can satisfy all three of these factors, the employee is not entitled to overtime under the FLSA.
Since 2004, the minimum salary specified has been $455 per week ($23,660 per year). In 2016, the DOL proposed to increase this amount to $913 per week ($47,476 per year). This proposed change was adopted, but a Texas Federal Court enjoined the enforcement of the updated rule. On March 21, 2019, the DOL again has proposed to increase this amount, but this time only to $679 per week ($35,308 per year). Employees making this salary or above then would qualify for the exception, so long as they meet the exception’s other requirements.
The public will have 60 days to submit comments on this proposed rule, and after the DOL reviews the comments it may make further changes before adopting the proposed rule.
Regardless of whether these proposals are accepted as currently written or whether they undergo changes before their adoption, employers should keep an eye on them to ensure they remain compliant with the law.