Are You Correctly Classifying Your Independent Contractor?
Massachusetts Independent Contractor Law: A Trap For Employers
The Massachusetts Independent Contractor Law makes it extremely difficult (if not impossible) to classify workers as independent contractors rather than employees. Paired with stiff civil and criminal penalties, the law can have costly results for employers who get it wrong. The following is a brief summary of the law (Mass. Gen. Laws, Ch. 149, Sec. 148B) and several cases that have that have interpreted it.
In 2004, the Massachusetts legislature revised the statutory definition of independent contractor. One who works for another is presumed to be an employee unless the following three criteria can be met:
- The individual is free from control and direction in connection with the performance of the service both under the contract and in fact;
- The service is performed outside the usual course of the business of the employer; and
- The individual is customarily engaged in an independently established occupation, profession or business on the same nature as that involved in the service performed.
The first prong did not change Massachusetts practice, but it is important to note that there must be a contract, oral or written, that provides that the individual is free from control and direction. Then, there must be actual freedom in the performance.
The second prong substantially changed the analysis and enlarged the trap. According to the Attorney General’s Advisory Opinion on Independent Contract Law (2008), the fundamental inquiry of the second prong is whether the service is necessary to the business of the employing unit or whether the service is merely incidental. The Advisory Opinion provides the following examples: it would violate prong two for a drywall contractor to classify a drywall instructor as an independent contractor; it would not violate prong two for an accounting firm to hire a mover to move furniture. Proving that the provided service is incidental presents a serious challenge to employers. For example, in a case brought against Coverall, a franchisor, the Court rejected Coverall’s defense that the cleaning workers’ services differed from its usual course of business, which it alleged to be franchising, not cleaning. The Court found that franchising is not a business, but rather a means of distribution of services. Awuah v. Coverall North America, Inc., 707 F.Supp.2d 80 (D. Mass. 2010).
To meet the requirements of the third prong, an employer must show that the service can be viewed as an independent trade, profession or business because the worker is capable of performing the service for anyone wishing to avail themselves of the service, or conversely whether the nature of the business compels the worker to depend on a single employer for the continuation of the services. In a case involving carriers who delivered newspapers, the Court determined that the carriers were independent contractors because they were free to, and in many cases did, deliver papers for competing publishers. Athol Daily News v. Mass. Division of Employment & Training, 439 Mass. 171 (2003).
Missclassifying employees as independent contractors can expose employers to civil and criminal liability under Massachusetts’ wage and hour, minimum wage, overtime, payroll records, tax withholding, and workers’ compensation laws. Violations can result in fines and debarment from public projects. Multiple violations can result in imprisonment. The statute also provides employees with a private right of action to sue on their own behalf and on behalf of others similarly situated and recover lost wages, benefits, attorney’s fees, costs and treble damages. Treble damages are mandatory for violations of the Massachusetts Wage Act (including misclassifications) regardless of the circumstances, such as an employer’s “honest mistake” or good faith. Since available damages include wages and employee benefits, a 2009 decision confirmed that employees who earned more pay as independent contractors than they otherwise would have as employees, may still recover the value of the benefits. The Court found that such employees are not without provable damages. Somers v. Converged Access, Inc., 454 Mass. 582 (2009).
Given the strict liability nature of the Massachusetts Wage Act and its harsh penalties, employers simply cannot afford to make mistakes. Proper classification is essential. Massachusetts employers must regularly review their employment relationships with competent counsel to ensure that their practices are not creating civil and criminal liability.
Please direct any questions regarding this summary to Christopher A. Callanan, (617) 330-7575; email@example.com.