Convincing a court that a company has properly classified a worker as an independent contractor has become increasingly difficult in Massachusetts. So, the Massachusetts Supreme Judicial Court’s decision just last week that taxicab drivers are, in fact, properly classified as independent contractors was somewhat unexpected.… Keep reading
As we have previously posted in Choice of Law in a Contract Can Be Critical, Ensuring Your Dispute Is Resolved in the Forum You Want Is Not Always Easy, and Selection of Forum Other Than Massachusetts May Not Avoid Wage Act Enforcement, choice of law and forum selection provisions should be conscious decisions made in the context of each specific contract. If in-house counsel do not carefully draft these provisions in their independent contractor or consulting agreements, they may be overlooking a possible means of avoiding or minimizing liability in Massachusetts under the so-called Massachusetts Independent Contractor Law (M.G.L. c. 149, §148B), the Massachusetts Weekly Payment of Wages Act (M.G.L. c. 149, §148) and/or the Massachusetts minimum wage and overtime laws. Because these statutes do not contain any explicit geographic restriction on their application, their applicability to non-Massachusetts residents performing work outside of Massachusetts for Massachusetts companies has been unsettled. (I have previously posted here and here on the staggering ramifications of misclassifying a worker as an independent contractor in Massachusetts.)
With the new year, taking the time to review the status of your independent contractors may create valuable savings. Independent contractors, when properly classified, can often be a valuable and efficient means for both businesses and individuals to conduct business. Many businesses engage workers on an independent contractor basis as means of avoiding rigorous requirements associated with an employment relationship, including payment of minimum wages and overtime; provision of benefits, workers’ compensation insurance and unemployment benefits; and protections under discrimination and safety laws – all of which may result in significant costs to the operation of a business. If employees are misclassified as independent contractors, however, the company risks the potentially hefty damages resulting from a misclassification.
The downturn in the economy has changed the face of independent contractor arrangements for a variety of reasons. For workers, being classified as employees often means that they receive benefits, including paid vacation time, subsidized health insurance, workers compensation insurance benefits and unemployment benefits. For many government agencies, classifying workers as employees often generates greater revenue from employment taxes that should have been paid, plus penalties and interest. According to the National Employment Law Project’s Summary of Independent Contractor Reforms, New State … Keep reading
Many are familiar with Juliet’s tribute to Romeo: “What’s in a name? that which we call a rose By any other name would smell as sweet.” In the context of employees and independent contractors, however, Juliet is quite wrong. As I discussed in a prior post, it can be perilous to misclassify workers as independent contractors, and, under the Massachusetts independent contractor law, workers are deemed employees unless all three of the following criteria, commonly known as the “ABC” Test, exist:
- the individual is free from control and direction in connection with the performance of the service, both under his contract for the performance of service and in fact; and
- the service is performed outside the usual course of the business of the employer; and
- the individual is customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the service performed.
Further, misclassifying an employee as an independent contractor could trigger violations of other laws, with the Massachusetts Weekly Payment of Wages Act (“Wage Act”) (and its mandatory treble damages and attorneys’ fees) being the most treacherous.
Most employment claims can be avoided by simply being aware of what the law requires. Here are three recurring issues which plaintiffs’ class action attorneys and government agencies are targeting across the country and which can be easily avoided by taking action now.
1. Misclassification of Workers as Independent Contractors
The Internal Revenue Service (IRS) and US Department of Labor (US DOL) have been increasingly cracking down on independent contractor misclassification. Last year, Massachusetts, along with several other states, signed a Memorandum of Understanding (MOU) with the IRS and DOL, formally agreeing to cooperate in investigating independent contractor misclassifications. If a violation occurs, the government agency investigating the matter is obligated to report it to the other state and federal agencies which may be affected by the misclassification, potentially opening up the company to an audit by the IRS or the US DOL.
Massachusetts has one of the toughest tests to be met in order to classify someone as an independent contractor, and the penalties for misclassifying vary with the legal requirement which was not met as a result of the misclassification. For example, if a worker was not paid accrued wages or vacation time upon termination, the … Keep reading