I. Introduction
Over the past several decades, the number of employers hiring independent contractors, consultants, freelancers, temps, part-timers, and contingent employees has increased significantly. Hiring independent contractors tends to provide employers with substantial financial savings, flexibility in staffing projects and greater efficiency due to the specialized expertise of the worker. Additionally, many workers prefer independent contract work because they reject the traditional 9-5, long-term employment under one employer in favor of the flexibility, diversity and freedom that comes with working as an independent contractor.
Notwithstanding the many benefits of the independent contractor relationship to both the employer and the worker, employers must be cautious when classifying a worker as an independent contractor. Serious civil liability may result from misclassifying workers as independent contractors under Massachusetts wage and hour laws, including mandatory treble damages and attorneys’ fees, costs and interest.
II. The Independent Contractor Statute – M.G.L. c. 149, § 148B
Like many states, Massachusetts has enacted legislation defining which workers may properly be classified as independent contractors, M.G.L. 149, § 148B (“Independent Contractor Statute”). Under Massachusetts Independent Contractor statute, a worker is presumed to be an employee, unless the employer can prove that the worker:
- Is free form the employer’s control and direction in connection with the performance of services;
- Performs services outside the usual course of business of the employer; and
- Customarily engages in an independently established trade, occupation, profession or business.
Unless a worker meets all three of these rigid requirements, the Independent Contractor Statute classifies such worker as an “employee” for purposes of Massachusetts wage and hour laws, regardless of whether the worker prefers to be classified as an independent contractor.
III. Attorney General Advisory
In 2008, the Massachusetts Attorney General issued an advisory providing guidance regarding the Attorney General’s understanding, and enforcement, of the Independent Contractor Statute (“Attorney General Advisory”). With respect to each of the “three-prongs,” the Attorney General’s Advisory provides the following:
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Prong I – Free from Control
An employment contract or job description indicating that an individual is free from supervisory direction or control is insufficient by itself to classify an individual as an independent contractor. Rather, to be free from an employer’s direction and control, a worker’s activities and duties should actually be carried out with minimal supervision.
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Prong 2 – Service Outside the Usual Course of Business of the Employer’s Business
Whether a worker is performing services outside the employer’s usual course of business depends on whether the services form a regular and continuing part of the employer’s business or are a part of an independent, separate, and distinct business from that of the employer. Thus, in Athol Daily News v. Div. of Employment and Training, 439 Mass. 171, 179 (2003), the Supreme Judicial Court held that newspaper carriers were performing services within the “usual course of business” of the employer newspaper because the newspaper defined its business as “publishing and distributing” a daily newspaper.
To aid in understanding how the Attorney General would enforce Prong 2, the Advisory provides the following examples:
- A drywall company classifies an individual who is installing drywall as an independent contractor. This would be a violation of prong two because the individual installing the drywall is performing an essential part of the employer’s business.
- A company in the business of providing motor vehicle appraisals classifies an individual appraiser as an independent contractor. This would be a violation of prong two because the appraiser is performing an essential part of the appraisal business
- An accounting firm hires an individual to move office furniture. Prong two is not applicable because the moving of furniture is incidental and not necessary to the accounting firm’s business.
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Prong 3 – Independent Trade, Occupation, Profession or Business
Finally, determining whether the service in question is an independent trade or business depends on whether “the worker is capable of performing the service to anyone wishing to avail themselves of the services or, conversely, whether the nature of the business compels the worker to depend on a single employer for the continuation of the services.” Coverall v. Div. of Unemployment Assistance, 447 Mass. 852, 857-58 (2006) (internal citations omitted).
It is worth reiterating that all workers are presumed to be employees unless the employer can prove that the worker satisfies all three prongs.
IV. Employer Liability for Violation of Independent Contractor Statute
Misclassification of workers under the Independent Contractor Statute subjects an employer to serious consequences, including potential criminal prosecution for the most egregious violations and civil liability for mandatory treble damages, attorneys’ fees, costs and interest.
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Attorney General Enforcement
The Attorney General is authorized to issue a civil citation or institute criminal prosecution for intentional or even unintentional violation of the Independent Contractor Statute. Willful violations of the law can result in fines of up to $25,000 and imprisonment for one year, with subsequent violations carrying a $50,000 fine and two years imprisonment. Even unintentional violations can result in a fine up to $10,000 and six months imprisonment.
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Workers Private Right of Action
Workers aggrieved under the misclassification statute may bring a private right of action, on behalf of themselves and others similarly situated, seeking mandatory treble damages, mandatory attorneys’ fees, costs and interest.
- Mandatory Treble Damages
In 2009, the Supreme Judicial Court held that mandatory treble damages for violation of the Independent Contractor Statute includes any wages and benefits the worker proves he was denied because of his misclassification, including “holiday pay, vacation pay, and other benefits that he would have been entitled to as [an] employee.” Somers v. Converged Access, Inc., 454 Mass. 582, 594 (2009). Notably, in Somers, the Supreme Judicial Court rejected the employer’s defense that the worker was paid more as an independent contractor than he would have been paid as an employee.
Liability for misclassification also includes payment of back taxes and penalties for federal and state income taxes, Social Security and Medicare and payment of any misclassified injured employees workers’ compensation benefits.
- Mandatory Attorneys’ Fees
Finally, employers who violate the Independent Contractor Statute are also liable for mandatory attorneys’ fees, costs and interest. See Killeen v. Westban Hotel Venture, LP, 69 Mass. App. Ct. 784, 790 (2007). The mandatory attorneys’ fee provision provides an incentive for attorneys to represent workers in misclassification cases, even where the potential recovery for the worker is not substantial. Consequently, the number of misclassification cases continues to rise.
Conclusion
Potential financial liability for misclassification of workers is considerable. All employers who hire independent contractors, consultants, freelancers, temps, part-timers, and contingent employees should carefully consider whether the worker is properly classified as an independent contractor. There is currently legislation pending at the State House that would relax the strict three-pronged test set forth in the Independent Contractor Statute.[1] However, until such legislation is enacted, Massachusetts continues to adhere to one of the most rigid independent contractor statutes in the country. Given the potential for serious liability under the Independent Contractor Statute, including mandatory treble damages, mandatory attorneys’ fees, costs and interest, employers should carefully examine how they classify their workers to ensure compliance with the strict criteria set forth in the statute. In the event that there is any confusion over proper classification, the employer should seek legal advice to ensure compliance with the Independent Contractor Statute.
About the Author
Goldman & Pease LLC provides experienced, professional legal counsel in corporate and business law, real estate and civil litigation. The firm provides legal planning and counseling to help clients avoid problems by addressing changing circumstances and by anticipating future opportunities. Attorney Howard S. Goldman is the founding partner of the law firm of Goldman & Pease LLC, 160 Gould Street, Needham, Massachusetts 02494, (781) 292-1080, and email address of hgoldman@goldmanpease.com. Mr. Goldman concentrates his practice in the areas of real estate, finance, and civil litigation, where he represents business owners, property managers, developers, and contractors for more than thirty five years. He is an active member of the Massachusetts, Norfolk, and Rhode Island Bar Associations in his field and is also an active member of CAI and IREM, where he frequently lectures and writes columns affecting the real estate and finance industries. Associate Kalee DiFazio assisted in drafting this article and focuses her practice on civil litigation matters, including contract disputes, real estate and complex business litigation.
[1] See H.1725 and H. 1727 which seek to amend M.G.L. c. 149, sec. 148B by changing the “and” in between prongs 2 and 3 to an “or,” which would allow an employer to prove that a worker is an independent contractor in multiple ways. Also, S.1002 seeks to amend M.G.L. c. 149, sec. 148B by removing the independent contractor test altogether and inserting the following text “(a) For the purposes of this chapter and chapter 151, the Commonwealth shall adopt rules and regulation to conform to section 3121 of the Internal Revenue Code and section 530(d) of the Revenue Act of 1978, as described in IRS Publication 15-A, as amended and in effect on January 1, 2014.
