independent contractors in massachusetts

Review and Analysis of the Massachusetts Independent

Contractor Law

G.L. c. 149, § 148B

Presented by:

Attorney Michael S. Gove

Employers Association of the NorthEast

Finance & Business Roundtable

March 9, 2012

UNPARALLELED RESPONSE, UNPARALLELED SOLUTIONS

Established in 1946

1380 MAIN STREETSPRINGFIELD, MA 01103

P. 413 781 0750F. 413 733 3042

64 GOTHIC STREET, SUITE 8NORTHAMPTON, MA 01060

P. 413 584 1282F. 413 585 5125

www.CooleyShrair.com

The foundation of our firm is presented in our mission statement – we promise unparalleled response time and unparalleled solutions, and we fulfill that promise. This commitment to our clients and our community distinguishes Cooley Shrair and contributes to our continued success.

PRACTICE AREAS

Auto Accidents Disability Mediation Product Liability

Banking Discrimination Medicaid Planning Real Estate

Bankruptcy Domestic Relations Mergers & Acquisitions Social Security Disability

Business Elder Law Personal Injury Special Education

Business Succession Planning Employment Private Education Tax

Civil Litigation Estate AdministrationProbate (Divorce, Custody, Guardianships, etc.)

Tax Issues

Commercial Real Estate (Zoning and Land Use)

Insurance Defense Probate Administration Tenant/Landlord Issues

Corporate LaborProbate Settlement of Estate and Related Litigation

Trademark/Copyright

OUR ATTORNEYS

PETER W. SHRAIR

DAVID A. SHRAIR

ROBERT L. DAMBROV

JOHN W. DAVIS

MICHAEL S. GOVE

DAWN D. McDONALD

SUSAN A. MIELNIKOWSKI

THOMAS A. MIRANDA

RONA S. FINGOLD (of counsel)

The Benefits of Independent Contractors

Why Use Independent Contractors?

Cost SavingsReduce costs associated with employee taxes.Reduce costs associated with unemployment or worker’s

compensation insurance programs.Reduce costs associated with employee benefit plans.Reduce costs associated with training new employees.Reduce costs associated with overhead required to

administer or supervise employees.

The Benefits of Independent Contractors (cont.)

Why Use Independent Contractors?

Other BenefitsFlexibility in designing, increasing, and decreasing your

workforce.

Easier to avoid lawsuits based on laws designed to protect employees in the workforce.

Easier to resist the creation of labor unions.

Section 148B

Classification of a worker as an employee is presumed unless:

A. The individual is free from control and direction; and

B. The service being performed is outside the usual course of the employer’s business; and

C. The individual regularly performs the type of service as an independently established occupation.

The “ABC” Test

Section 148B (cont.)

The burden of proof is on the employer.All three parts of the ABC Test must be met.The ABC Test does not take into account:

A failure to withhold taxes. A failure to pay unemployment contributions. A failure to pay worker’s compensation premiums. Whether the employee has secured worker’s

compensation insurance as a sole proprietor.

The misclassification of employees:

‡ Deprives employees of protections and benefits of• unemployment insurance.• worker’s compensation.• minimum wage laws.• employer provided benefit programs.

‡ Deprives the Commonwealth of tax revenues.• A 2004 study conducted by Harvard University estimated the annual

cost to be $152 million in lost income tax revenue, $91 million in lost worker’s compensation payments, and $35.1 million in lost unemployment insurance taxes.

Public Policy in Support of Section 148B

The misclassification of employees:

‡ Increases costs for the Commonwealth for health care and worker’s compensation for uninsured workers.

‡ Creates a competitive disadvantage between companies that misclassify employees and companies that comply with the law.

Public Policy in Support of Section 148B (cont.)

Free from Control and Direction• The worker must be free from control and

direction, both under the “contract for the performance of service and in fact.”

• Does NOT require an independent contractor be completely free from any outside forces.

The “A” of the “ABC Test”

ExamplesOliveira v. Advanced Delivery Systems, 27 Mass.L.Rptr. 402 (2010):

Even though the written contract between the parties stated a delivery truck driver was to “determine the means of performance” of the job, the court found there was some amount of control where the driver was frequently contacted to monitor progress on deliveries and was required to check in when delivery was complete for next assignment.

Amero v. Townsend Oil Co., 25 Mass.L.Rptr. 115 (2008):

An employer’s right to control a worker was clear when the employer required that the worker paint the employer’s logo on the worker’s vehicle, that the worker only deliver fuel oil to the employer’s customers on days chosen by the employer, and when the worker had no discretion in the price of the oil sold.

The “A” of the “ABC Test” (cont.)

Factors of Common Law Test Applicable

Before Section 148B was amended, the courts utilized a twenty-part test as illustrated by a ruling issued by the IRS to determine whether an employer had the right “to control and direct” a worker.

Now, the same analysis is often used by courts and some commentators in determining the first part of the ABC Test.

The “A” of the “ABC Test”

Outside the Usual Course of

the Employer’s Business• Does not include every aspect of an employer’s

business.• The service being performed by the worker can

be incidental to the business of the employer, but it cannot be necessary.

• Imagine the services being provided were stopped: would the business continue to exist?

The “B” of the “ABC Test”

Examples

Monteiro v. PJD Entertainment, 29 Mass.L.Rptr. 203 (2011): Court determined that a business that served alcohol and provided a venue for exotic dancers was “in the business of providing adult entertainment.”

Awuah v. Coverall North America, 707 F.Supp.2d 80 (2010): Court determined that a franchising entity which held itself out as the contracting party with clients, received a percentage of all fees for services provided by the franchisees, and provided training and uniforms to franchisees, was in the same business as the franchisees.

The “B” of the “ABC Test” (cont.)

Regular, Independent Performance of Service

• The worker must be contractually able to provide services to anyone who wishes to utilize the worker; and

• The worker must in fact be able to provide services to anyone who wishes to utilize the worker. The nature of the business cannot require the worker to depend on a single employer.

The “C” of the “ABC Test”

Factors to be ConsideredBoston Bicycle Couriers, Inc., 56 Mass. App. 473 (2002)

i. The worker is free to perform services to others without interference from employer.

ii. The worker’s business was created and exists separate from the relationship with the employer.

iii. The worker’s business is not dependent on engagement by any particular employer.

iv. The worker’s business would survive without the employer.

The “C” of the “ABC Test” (cont.)

Examples

Boston Bicycle Couriers: Court determined that the couriers did not work for other services, stopped delivering packages when their services were terminated with the employer, that employer provided all equipment to couriers, and that the contracts were with, and prices were set by, the employer.

Athol Daily News, 439 Mass. 171 (2003): Court determined that paper delivery workers were free to conduct other services or deliver other items to their clients, that the workers purchased their own newspapers and resold them to clients, and that the scope of the worker’s jobs were dependent on their ability and initiative in gaining more clients.

- The delivery of newspapers in Athol illustrates the “incidental” factor of part two of the ABC Test.

The “C” of the “ABC Test” (cont.)

Violations of Section 148B requires two steps: i. misclassification of an employee and

ii. violation of one of the following:• Ch. 149 (wage and hour laws)• Ch. 151, s. 1A, 1B, and 19 (minimum wage laws)• Ch. 151, s. 1, 1A, 1B and 19 (overtime laws)• Ch. 151, s. 15 (accurate records law)• Ch. 62B (withholding of taxes)• Ch. 152, s. 14 (worker’s compensation law)

Violations of Section 148B

Criminal and civil penalties. Statute of limitations for criminal and civil will

vary depending on the claim.

Enforced by the Attorney General.

“Willful” vs. “Unintentional” violations.

Willful includes a “reckless disregard” for whether the conduct was prohibited.

Violations of Section 148B (cont.)

Willful Violations:

First Violation: Fine up to $25,000 and/or imprisonment for up to one year.

Second Violation: Fine up to $50,000 and/or imprisonment for up to two years.


Unintentional Violations:

First Violation: Fine up to $10,000 and/or imprisonment up to six months.

Second Violation: Fine up to $25,000 and/or imprisonment up to one year.


Debarment: A prohibition against performing any services on any public work.

Willful violations of Section 148B result in a mandatory five year debarment.

Unintentional violations of Section 148B result in a debarment period up to six months (for the first offense) and up to three years (for any subsequent offense).


Civil Penalties Also enforced by the Attorney General Civil citations can be up to $25,000.

Limited to $15,000 if no previous violations. Limited to $7,500 if no previous violations and

violation was unintentional.

Automatic debarment for two years after three civil citations.


Private Actions Against Employers

Other remedies at law or in equity are explicitly allowed by

Section 148B.

• Violation of the wage statute:– G.L. c. 149, s. 150: Treble damages, plus attorneys’ fees and costs.

• Violation of the unemployment compensation statute:– G.L. c. 151, s. 1B: Treble damages, plus attorneys’ fees and costs.

• Willful or knowing violations implicate Chapter 93A:– Treble damages, plus attorneys’ fees and costs.


Who’s Liable? “Any entity and the president and treasurer of a

corporation and any officer or agent having the management of the corporation or entity.”

Somers v. Converged Access, Inc., 454 Mass. 582 (2009) Court determined the worker was an employee and found liability

for violations of wage laws and unemployment laws fell against both Converged Access, Inc. as the employer, and also against Per Suneby, the President and Chief Executive Officer.


Calculation of Damages For Private Actions

Somers v. Converged Access, Inc. Presume the payment to the worker for services as an

“independent contractor” are the worker’s base hourly rate. Damages equal wages and all benefits not paid. The employer cannot argue that it would have paid the

worker less if the worker had been properly classified as an employee.


Incorporation by the Worker

• Incorporation of the worker will assist with, but not guarantee, satisfying part three of the ABC Test.

• The Attorney General will look beyond the entity to determine if:

i. the services of the entity are available to more than one employer;

ii. the services provided by the entity are identical to the services provided by the employer; and

iii. the entity was created at the request or requirement of the employer.

Avoiding the Problem

Incorporation by the Worker (cont.)

• Even if the worker is incorporated, the Attorney General may find the worker:i. is subject to the employer’s control and direction

(a violation of Part One of the ABC Test), or

ii. is performing services within the usual course of business of the employer (a violation of Part Two of the ABC Test).

Avoiding the Problem (cont.)

Using Leased Workers

• Temporary Placement Agencies– Responsible for payment of wages, unemployment and worker’s

compensation premiums, and withholding requirements.

• Be Careful! Courts may find “joint employer” status.– Company A possesses “sufficient control over the work of the

employees” of Company B.– Applied by Massachusetts courts to employee discrimination laws

(Commodore v. Genesis Health Ventures, 63 Mass.App.Ct,. 57 (2005)), and to worker’s compensation laws (Case of Whitman, 80 Mass.App.Ct. 348 (2011)).

Avoiding the Problem (cont.)

Independent Contractor Law v. IRS and Common Law Test

Violations of Section 148B require misclassification and violation of another law (c. 149, c. 151, c. 62B, and c. 152).

BUT, Chapter 62B and Chapter 152 contain their own definitions of “employee” and the Department of Revenue and the Department of Industrial Accidents have stated that the definitions in Section 148B will not apply to determinations of employee status for purposes of tax withholding or worker’s compensation.

“The classification of certain persons as employees or independent contractors for purposes of chapter 149 does not govern the status of such persons for purposes of chapter 62B.”

- TIR 05-11: Effect of New Employee Classification Requirements.

Exclusions

Independent Contractor Law v. IRS and Common Law Test

With different definitions, a specific worker could intentionally be treated as an: Employee under Chap. 149 and 151

= Payments. Independent contractor under Chap. 62B and 152

= No payments.

Unintentional misclassification under the ABC Test that happens to qualify under the common law test may be able to avoid liability for violations of Chap. 62B and 152.

Exclusions

The Mass. Dept. of Revenue and Dept. of Industrial Accidents continue to apply the common law test.

Twenty factors:

1. Worker compliance with instructions required.

2. Required training by the employer.

3. Greater integration of worker’s services into business.

4. Services rendered personally by worker.

5. Employer retains ability to hire, fire, supervise and pay assistants.

6. Worker and employer have a continuing relationship.

7. Set working hours are established.

What if Section 148B Doesn’t Apply?

8. Full time employment is required.

9. Services are performed on the business premises.

10. Services are performed in a set sequence.

11. Oral or written reports to the employer are required.

12. Payment is made in regular intervals.

13. Employer pays for business and travel expenses.

14. Employer furnishes tools and materials.

15. Employer, rather than worker, invests in facility.

16. Employer, rather than worker, realizes profits or loss.

17. Worker only performs services for one employer at a time.

18. Worker does not make services available to general public.

What if Section 148B Doesn’t Apply? (cont.)

19. Employer has right to discharge worker.

20. Worker has right to terminate relationship.

Not the current test under Massachusetts law.

But these factors can be used to assist in analyzing part one of the ABC Test.

What if Section 148B Doesn’t Apply? (cont.)

Mass. Delivery Association v. Coakley,

2012 WL 170877 (January 20, 2012)

Currently ongoing in Massachusetts federal court. Plaintiff alleges that Section 148B infringes on a federal

law setting rates for motor carriers under the Federal Aviation Administration Authorization Act.

District Court determined it would abstain from making a decision because a few members of the Mass. Delivery Association had raised the issue as defendants in cases brought by the Attorney General’s office.

Constitutional Challenges to Section 148B

In January, Appeals Court determined that abstention was not appropriate and that the challenge could continue.

A victory for the plaintiff in this case, or for the individual defendants in the state litigation, would open the door for further constitutional challenges, in cases where federal law may preempt the definition of employee found in Section 148B.

Constitutional Challenges to Section 148B (cont.)

Section 148B imposes a strict standard.Must meet all three parts of the ABC Test.Penalties imposed for intentional and

unintentional violations.Liability against employers and individuals. Incorporating or leasing workers is not a

guaranteed solution.May not apply to withholding or worker’s

compensation violations.

Summary

Questions?

independent contractors in massachusetts

Documents