Dramatic Changes in Massachusetts Wage Laws and Use of Independent Contractors

With the recent enactment of M.G.L. c. 149, § 150 on April 14, 2008, the Massachusetts Legislature has enacted a new law that will impose automatic triple damages in civil actions against violators of certain existing Massachusetts wage laws. Examples of the affected laws include, but are not limited to: failure to properly pay overtime wages, payment of less than minimum wage, failure to pay wages on a weekly or bi-weekly basis, deducting for but failing to pay for group insurance policies and failure to properly classify workers as “employees” or “independent contractors.” The law went into effect on July 12, 2008 and mandates that triple damages be levied against violators, even in situations where the violator was acting in good faith or the violation was an inadvertent mistake.

We would like to focus our discussion on the last example named above, more commonly referred to as the “Massachusetts Independent Contractor Law”, M.G.L. c. 149 § 148B. The Independent Contractor Law was dramatically amended in 2004 and requires business owners to classify their workers as “employees” or “independent contractors” for purposes of providing health care coverage, unemployment insurance and workers’ compensation benefits. With the recent changes to M.G.L. c. 149, a business owner who violates the Independent Contractor Law may be subjected to triple damages for the worker’s lost wages and benefits in addition to litigation costs and reasonable attorney’s fees. Additionally, the Massachusetts Attorney General’s Office, in issuing its recent Advisory 2008/1, has made it clear that it will enforce the Independent Contractor Law not only against obvious violators, but also, against entities that “allow, request or contract” with entities whose sole existence is based upon the avoidance of the Independent Contractor Law.

The presumption exists that all workers are employees and the burden of proof rests upon the business owner to prove that a worker is not an employee but, instead, an independent contractor. Massachusetts courts now rely upon a three-part test to determine the proper classification of a worker. This is a significant and material change in Massachusetts from past practice, where employers could reasonably rely upon the long followed indicia of employment as articulated by the Internal Revenue Service. Massachusetts now requires that all three parts of the test be met in order for a worker to be classified as other than an employee. We believe it is now critical for all business owners to familiarize themselves with this test in order to determine if they are properly classifying their workers and adhering to the framework of the Independent Contractor Law.

The first part of the test takes into consideration the business owner’s “degree of control and direction” over the worker. The courts have interpreted the first part of the test to mean that a worker’s activities and duties should be carried out with minimal instruction, the worker should be relying upon his or her own knowledge and approach to complete the work and, the worker is in a position to dictate his or her own working hours.

The second part of the test considers the type and nature of the service provided by the worker. In essence, in order for the worker to be considered an independent contractor, and not an employee, the worker must be providing a service that is “outside the usual course of business of the employer.” For example, a landscaping company who classifies a worker who cuts grass as an independent contractor would be in violation of the second part of the Independent Contractor Law. However, if the same landscaping company hired a graphic designer to design a logo, it would not be in violation of the Independent Contractor Law as the designing of a logo is incidental and not necessary to the landscaping business.

The third part of the test considers whether the worker in question is capable of providing the service for anyone wishing to avail themselves of the service. In plain language, one must ask: is the worker’s ability to provide the service dependent upon the employer’s business or is the worker able to provide his or her service independently from the confines of the business?

For a business owner to potentially incur triple damages for a violation of the Independent Contractor Law, two things must occur. First, the worker must be misclassified as an independent contractor as described above according to the three-part test. Secondly, with regard to the employee in question, the business owner must violate a labor law specifically referenced in the Independent Contractor Law.

In sum, if a business owner is found to have both misclassified an employee and violated a specifically referenced wage as referenced in the Independent Contractor Law or allowed, requested or contracted with entities whose sole existence is based upon the avoidance of the Independent Contractor Law, then the business owner may be liable for payment of triple damages for workers’ lost wages and benefits in addition to litigation costs and reasonable attorney’s fees.