2026 Employment Law Update | Part 2

Employment Law Update

By: Shar Bahmani, Katya L. Norris, Evan Hiller, Paige Kemper, and Natalie Zarasian

Arizona businesses and employers are off to the races already in 2026, and with each new year brings new developments for Arizona employers to be mindful of. This article provides part 2 of Sacks Tierney’s 3-part 2026 Employment Law Update series. Below is a high-level review of some of the employment law developments over the last year and those changes taking effect in 2026. This article is designed to provide an update regarding both Arizona and federal law. While this provides a broad overview of recent developments, employers are encouraged to work directly with their local counsel for specific questions relating to the interpretation of law and the impact on their respective businesses. 

Independent Contractor vs. Employee Rule Field Assistance Bulletin (May 1, 2025)

Correctly classifying workers as either employees or independent contractors has widespread implications with respect to multiple employment statutes, both federal and state-specific laws.  Misclassifying a worker can lead to exposure across these various laws, including, but not limited to wage laws, overtime requirements, leave requirements, and tax implications. While there is no identical framework across the various applicable employment laws, the frameworks are similar and generally consider a number of factors to answer the question whether the worker controls the relationship and is in business for themselves (contractor), or whether the employer controls the relationship and the worker works subject to the control exerted by the employer (employee).

One such applicable law for which the correct classification of workers is important is the federal Fair Labor Standards Act (“FLSA”).  The federal administrative agency charged with enforcing the FLSA is the U.S. Department of Labor, Wage and Hour Division (“DOL”).  There is ongoing litigation challenging the enforceability of a regulation under the FLSA, titled Employee or Independent Contractor Classification Under the Fair Labor Standards Act, 89 Fed. Reg. 1638 (the “2024 Rule”). While the litigation is ongoing, the DOL has instructed its investigators not to apply the 2024 Rule’s analysis in current enforcement matters. Instead, the Department will enforce the FLSA in accordance with Fact Sheet #13 (July 2008) (the “Fact Sheet”), and as further informed by Opinion Letter FLSA2019-6. However, the 2024 Rule is still applicable for purposes of private litigation.

The Fact Sheet provides that a person is considered an employee, rather than an independent contractor, when he or she, as a matter of economic reality, follows the usual path of an employee and is dependent on the business which he or she serves. The determination is based on the total activity or situation, and the court considers the following factors of consideration to be significant: (1) the extent to which the services rendered are an integral part of the principal’s business; (2) the permanency of the relationship; (3) the amount of the alleged contractor’s investment in facilities and equipment; (4) the nature and degree of control by the principal; (5) the alleged contractor’s opportunities for profit and loss; (6) the amount of initiative, judgment, or foresight in open market competition with others required for the success of the claimed independent contractor; and (7) the degree of independent business organization and operation.

Employers should be mindful of certain situations that may unintentionally constitute a formal employment relationship under the FLSA. Specifically, the following circumstances are common situations where an employment relationship can be found: (1) workers in the construction industry; (2) franchise arrangements; (3) volunteer services; and (4) trainees or students.

FLSA Exemptions

The FLSA requires employers to pay employees a federal minimum wage and overtime compensation. However, the FLSA provides exemptions to the overtime requirements for specific categories of employees and jobs based on a number of circumstances, most importantly, the duties of the particular position. The employer has the burden to show that an exemption applies to an employee. A common misconception resulting in misclassification of employees is the wrong notion that salary-based employees are automatically classified as exempt employees.

In E.M.D. Sales, Inc. v. Carrera, 604 U.S. 45 (2025), the Supreme Court of the United States somewhat relaxed the burden on the employer to prove that an employee is correctly classified as an exempt employee not entitled to overtime pay.  The Court held that, when the designation of an employee as exempt is challenged, the employer must prove, by a preponderance of the evidence (i.e., more likely than not), that the exemption appropriately applies to the employee. The Court’s holding is a lower burden of proof than the standard previously imposed on employers, thereby somewhat reducing litigation risks to employers by relaxing the burden to show that the employee was correctly classified. 

Nonetheless, employers should remain careful in determining whether an employee is correctly classified as a non-exempt employee not entitled to earn overtime.  Misclassification errors can result in costly litigation and exposure including up to three years of overtime payments that were not paid, payment in liquidated damages in double the same amount of the missed payments, attorney’s fees, and other sanctions that may be imposed by the DOL. 

For further information, please do not hesitate to reach out to Sacks Tierney’s employment law team:

Shar Bahmani – Shar.Bahmani@SacksTierney.com

Katya Norris – Katya.Norris@SacksTierney.com

Evan Hiller – Evan.Hiller@SacksTierney.com