Tag Archives: Massachusetts

DOL’s New Interpretation Regarding Classification of Workers: “Most Workers Are Employees.”

By Strang Scott on August 13, 2015

Many Massachusetts employers are subject to two different legal schemes regarding the proper classification of employees: Massachusetts state law, and federal law. It is important for employers to be familiar with both schemes in order to avoid a state or federal misclassification investigation. The Department of Labor Wage and Hour Division (“DOL”) recently issued an Administrator’s Interpretation addressing the legal standard used to determine if an individual should be classified as an “employee” or an “independent contractor” under the Fair Labor Standards Act (“FLSA”).

The Supreme Court and lower courts have developed an “economic realities” test which examines the actual relationship between the employer and the individual. The DOL’s interpretation attempts to clarify that test, to answer the question of “whether the worker is economically dependent on the employer or truly in business for herself.” Although the court system is not strictly bound by DOL interpretations, courts usually find such interpretations persuasive, and this interpretation is consistent with case-law. Under the test, each factor must be analyzed in relation to the other factors, and no single element of the test outweighs the others. While the elements of the test vary slightly under case law from different courts, they generally consist of the following six factors:

Whether the Work is an Integral Part of the Employer’s Business

Where the work performed “is integral to the employer’s business,” as it is more likely than not that the worker is economically dependent on the employer, and therefore an employee. This factor is considered a compelling factor and exists “even if the work is just one component of the business and/or is performed by hundreds or thousands of other workers.” Along those lines, the work can be considered integral if it is the same as the work of many other employees, such as at telemarketing call center, or even if the work is performed outside of the employer’s premises, such as at an employee’s home or at a customer’s location. For example, in a construction company that builds residential homes, a carpenter is integral to the business, while the accountant that handles the company’s annual tax returns is not.

Whether the Worker’s Managerial Skills Affect Their Opportunity for Loss or Profit

The next factor is whether the worker’s profit or loss is affected by their level of managerial skills and input. An analysis of the worker’s “managerial skills” focuses on that worker’s ability to affect the profitability of the employer’s business based on the managerial role the worker has. “Managerial skills” are those normally associated with operating an independent business, e.g. the individual’s ability to make hiring decisions, to determine what materials and equipment to purchase, how and where to advertise, and what location should be rented for the business. Merely working more hours does not demonstrate managerial skill. The corollary to the ability to increase profit is the risk of suffering loss. A true independent contractor is in business for themselves and may directly profit or loss based on the business’s success.

How the Worker’s Relative Investment Compares to the Employer’s Investment

Next is the value and degree of investment by the worker. The worker’s investment must be considered against the investment made by the employer. Independent contractors typically make investments that support a business as an independent going concern beyond the current job, and affect that businesses’ growth, its cost structure, and its presence in the applicable marketplace. Workers who make substantial monetary investments, even in tools or equipment used for the employer’s business, may still be classified as employees. To weigh in favor of an independent contractor, an investment must be a legitimate “business investment” or “capital expenditure,” not merely a tool or piece of equipment necessary to do the job, and such investment must be substantial. Even a seemingly large expenditure such as a vehicle may pale in comparison to the investment made by an employer which includes land and heavy machinery.

Whether the Work Performed Requires Special Skills and Initiative

In weighing this factor, the DOL is not assessing the specialty of the worker’s technical skills, but determines whether the worker utilizes “special skills,” involving business judgment and initiative. In other words, the skills of building and running the business, not technical skills. To be properly classified as an independent contractor, those skills must demonstrate that the worker is in business for themselves. A true independent contractor performs independent judgments beyond the current project, has autonomy in deciding the sequence of the work performed, has control over whether additional work is performed, and is responsible for acquiring the next job. An electrician is a technically skilled worker, but is only an independent contractor when actually running his or her own electrician business, not merely reporting to work as an electrician for another company.

Whether the Worker’s and Employer’s Relationship is Permanent and Indefinite

The “permanence” of the relationship is not tied to the actual length of employment. Rather, a court will examine whether the relationship is only tied to the length of one project, or is to be continuous and repeated until either the worker or the employer elects to terminate the engagement. An independent contractor often handles one job or project for an employer, and does not work continuously or repeatedly for the same employer. This evaluation must also be made with consideration to the type of industry the work is being performed in. A lack of permanence or indefiniteness may be due to “operational characteristics intrinsic to the industry,” e.g. the use of part-time workers, seasonal workers, or staffing agencies, which still weighs on the side of employee if, for example, a particular worker works every applicable season for the same employer. True independent contractors function under their “own business initiative” and are running a business separate from that of the employer.

The Nature or Degree of Control the Employer Assert Over the Worker

The final factor of the “economic realities” test involves a determination of the type of control exercised over the worker by the employer. Employers who control the meaningful portions of the work performed by the worker are utilizing employees, not independent contractors. The “independent” work performed must be more than mere theory; the worker must actually exercise control over the meaningful aspect. Additionally, lack of direct supervision by the employer will not necessarily be indicative of independent contractor status where the worker performs work from home or at offsite locations. Examples of control indicating an employer-employee relationship includes regulating aspects of the worker’s job; setting work schedules; standardizing a dress code; and directing what tasks are carried out by the worker. The DOL’s interpretation cautions against giving the “control” factor an oversized role and states that this factor must be analyzed in the context of whether the worker is economically independent from the employer.

Impact of the DOL’s Interpretation

The DOL’s interpretation sets forth its official position on how employment relationships should be evaluated under the FLSA. Although the DOL’s interpretation is not binding on courts, it is persuasive and should be considered by employers. Businesses will benefit from reviewing their use of independent contractors, both in regard to the current legal standard and under the changes in the DOL’s interpretation, to evaluate any potential misclassifications. Federal investigations are time-consuming and the monetary penalties for misclassification can be severe.

The foregoing information is a general summary of the Administrator’s Interpretation published by the DOL. If you are operating your own company or are concerned about your rights as an employee, contact a knowledgeable employment attorney to review your classification scheme.

Employee Handbooks: Have you covered the basics?

By Jordan Scott on August 3, 2015

Many companies use an employee handbook or manual, which can be a useful management tool when properly utilized. An effective handbook sets forth company policies in plain English and covers every important company policy. Clarity is vital when implementing any kind of policy, and employees will benefit from understanding both what the company offers and what it expects in return. Although an employee handbook is recommended for most businesses, it is possible to do more harm than good, particularly when policies are poorly presented, or if the company sets forth a series of policies but fails to follow them.

There is no one-size-fits-all employee manual. Some manuals that just cover the basics may be ten to fifteen pages long, while some large corporations have manuals numbering into the hundreds of pages. In general, an employee handbook should serve as an employee resource, a convenient way for a company to communicate with its employees.

Most handbooks set forth employer commitments, which are useful to provide clarity to employees and as a partial defense to some employment-related claims. For example, employers should include policies relating to discrimination, sexual harassment, workplace bullying, drug and alcohol use, and violence, and then state how complaints are handled. This ensures that employees know that the company will not stand for any kind of dangerous and illegal conduct. Employees will feel safe in the workplace, and should a problem occur, the employer will be prepared to handle the problem and minimize the impact. For example, should an employer face a claim from an employee regarding sexual harassment, an anti-sexual harassment policy in a handbook will demonstrate that the employer has taken proactive steps to comply with the law and provide a safe environment, which can be helpful in resolving the claim with a minimal cost.

Employers and employees will also benefit from clearly stated internal policies and procedures related to the day-to-day operations of the company. For example, employees should be well aware of the company’s dress code, the company’s standard business hours, what sort of lunch breaks and other breaks are permitted, as well as how the company handles tardiness and unexcused absences. It is also wise to set forth how the company handles various kinds of leave: paid vacation is considered a “wage” in Massachusetts, and the Commonwealth recently enacted the Earned Sick Time law. There are also laws governing time off for holidays and jury duty. The various employment-related laws provide benefits and obligations to employers and employees, and so it is in everyone’s best interest to set forth how the company handles these matters in writing.

Today’s technology focused world has many traps for the unwary. Companies of all sizes have begun implementing policies related to the use of social media in (and sometimes outside of) the workplace, the use of company email, and the requirement to maintain the confidentiality of sensitive company information. Although risk can never be eliminated, an effective handbook can minimize the company’s exposure to lawsuits and costly government investigations.

An effective handbook can aid with both hiring and firing. On the hiring side, there is a real cost to bringing on a new employee, as that person must spend time learning the ways in which matters are handled by the company. A good handbook will ease the transition, minimizing the time that must be spent learning the company’s system and also acting as a resource for questions the employee has regarding company policy. On the firing side, an effective handbook will set forth grievance and termination procedures, so both the managers in charge of firing and the employees understand what is expected of them. A handbook also aids an employer in fighting off wrongful termination lawsuits by showing that a particular policy was in place, an employee was warned about violating such policy, and then the employee was ultimately terminated for violating the policy. Further, fired Massachusetts employees are entitled to unemployment assistance unless the employer can demonstrate one of a few factors, including the employee’s deliberate violation of a company policy. A handbook, read and signed by each employee, is evidence of the existence of company policies.

Any company with more than a handful of employees should consider developing an employee handbook. Consulting with a qualified employment attorney will ensure that the handbook complies with current law and does not expose the company to unnecessary risk.

Avoiding Fatal Errors When Submitting Bids on Public Construction Projects

By Kathryn Ragucci Lynch on June 18, 2015

Those who perform public work in Massachusetts know the phrase “lowest, responsible and eligible” bidder well, as it applies to the standard for awarding subcontracts on public construction projects subject to the bid statutes. However, as many subcontractors have experienced, some of the bid requirements to be considered an “eligible” bidder are in fact waivable by the awarding authority.

The nuances of public bidding are that some bid requirements, even those that are statutory, are waivable by the awarding authority. For instance, the bidding statute requires that a sub-bidder must include its certificate of eligibility and update statement with its bid to establish prequalification. However, the Attorney General (“AG”) has held that a bidder can actually submit its certificate of eligibility after the opening of the bids. Yet, failure to submit the update statement at the time of bid opening necessitates automatic rejection of the bid. Why this discrepancy? In evaluating whether an awarding authority has the discretion to accept a bid that fails to include a certificate of eligibility at the time of bid opening, the AG reasoned that awarding authority can verify contemporaneously whether a bidder is DCAM certified. Therefore, there is no harm in allowing a bidder to submit its certificate a few hours later. Conversely, allowing a bidder to furnish its update statement after bid opening would result in an unfair advantage because the update statement, unlike DCAM certification, cannot be independently and instantaneously verified. Allowing a bidder to submit a document that is entirely within the bidder’s control, like the update statement, could result in “two bites of the apple,” as the saying goes, because the bidder could decide after bid opening whether to submit the document based on whether the bidder still wants the job.

So how does one determine which deviations from the bid requirements would be minor enough to warrant an awarding authority to use its discretion to accept an otherwise non-complying bid? It all comes down to whether or not a bidder would have an unfair advantage which would undermine the purpose of the competitive bidding statute to obtain the lowest price for work that competition among responsible bidders can secure. For instance, as explained above a certificate of eligibility submitted late is not unfair as there is no upper hand gained by a certificate-less bidder. Conversely, a bidder is not allowed to submit bid security a few hours late. The AG explained allowing a bid bond to be submitted even a few hours late could upset the balance of fair bidding as some bidders could abuse such leniency by submitting a low bid without a bid bond and then have second thoughts after the opening and nullify their bid by never filing a bond. Below is a brief summary of bid requirements that the AG has determined require rejection by the awarding authority, and those for which the awarding authority may use its discretion in determining whether to reject. It’s important to recognize that an awarding authority is not compelled to overlook “waivable” bid requirements.

Bid Requirements which the AG has held may be waived by the awarding authority, in its discretion:

1. Minor clerical errors.

–Such clerical errors much be minor enough that they are obvious and deceive no one.

2. Failure to submit non-statutory items where bid documents do not make submission mandatory.

–These include items which do not go to the scope of work or price of the work.

3. Noncompliance with discretionary minority requirement.

4. Failure to acknowledge addenda which do not go to price and scope.

–Such addenda must be small or insignificant as to be a minor deviation.

5. Update statement with an omission.

–Massachusetts Courts have held that even if a contractor makes an intentional misrepresentation on the update statement, the awarding authority still has the discretion to terminate, but is not required to terminate the contract.

6. Submitting certificate of eligibility after bid opening.

There are certain deviations from the bid requirements that mandate bid rejection by the awarding authority:

1. No bid bond.

2. No signature on bid.

3. Failure to submit update statement.

4. Failure to timely submit bid.

5. Bids that are incomplete, obscure, or contain conditions.

–For example, failure to bid on materials specified in bid documents; failure to acknowledge addenda which affect price and scope of work; or not bidding on the amount of material specified. Another pitfall would be a bidder who put conditions on the bid price or does not comply with specifications but tries to change them.

Of course, the statute also provides modes of protesting the award of a contract. A bidder can chose to go to either Superior Court, or to the Attorney General’s office to protest a bid award. Because these issues are often very fact specific, bidders that may have been aggrieved by the awarding authority or other parties in the bid process should consult their construction attorney to determine whether there are grounds for a bid protest, and to provide the bidder with guidance on the bid protest process.

Transgender Inclusion in the Massachusetts Workplace

By Jordan Scott on June 10, 2015

Massachusetts has long been a leader in civil rights, and several years ago Massachusetts joined the minority of states that provide explicit protection against discrimination on the basis of gender identity. Massachusetts’ anti-discrimination law was amended to add “gender identity” to the list of protected categories which extend to the workplace, housing, and government agencies. While that law provides much needed protections, employers are increasingly concerned about workplace issues specifically affecting transgendered people.

One question facing employers is harassment. As gender identity is part of the broad anti-discrimination statute, harassment and similar conduct is handled the same as it would be for race, gender, or other protected categories. Employers should include gender identity as part of their regular anti-harassment workplace training. The anti-discrimination statute also impacts the hiring of employees, and employers should refrain from asking any gender identity-related questions unless the gender of the employee is relevant to a bona fide occupational qualification. The law does permit such exceptions, but employers must ensure the qualification is legitimately needed and cannot be viewed as a pretext.

Another question facing employers is how to handle restrooms. The best practice would be to have one gender neutral bathroom, which appears to be a growing trend. The White House recently opened a gender neutral bathroom, as have several universities. When having a gender neutral bathroom is not possible for financial or other reasons, employers must defer to the employee’s choice of restroom, which is consistent with just-announced federal best practices issued by the Department of Labor. Forcing an employee to use a certain restroom would likely be considered discriminatory.

Some of the country’s largest companies have already implemented policies that acknowledge and respect gender identity issues. By one count, over half of Fortune 500 companies have included gender identity in their nondiscrimination policies. While protecting transgendered people is law in Massachusetts, it is also good business. Every business should strive to employ the most talented people it can, and gender identity (just like race, religion, and other personal categories) is simply irrelevant to the quality of the employee. Employers should work with their human resources staff and employment counsel to craft and implement policies that maximize the available workforce. Should you have questions or concerns regarding Massachusetts’ anti-discrimination law or your company’s practices, consult with your employment attorney.

Proposed Bill Targets “Wage Theft” in Massachusetts

By Jordan Scott on May 26, 2015

Strang Scott has previously written about both the Wage Act, the Massachusetts law protecting the earnings of workers, as well as the independent contractor statute, which governs the classification of workers as either employees or independent contractors. Violating the Wage Act and independent contractor statute can have significant real-world consequences. One consequence is a state investigation of wage theft. “Wage theft” is a broad term signifying an employer’s illegal retention of earned wages. The Boston Globe recently reported that “wage theft” is rampant throughout the construction industry. Wage theft often incurs in conjunction with the misclassification of workers as independent contractors, particularly at the subcontractor level where many workers are paid in cash. According to the Globe, the Massachusetts attorney general’s office has issued 253 wage-related citations to the construction industry alone over the last eighteen months, totaling more than $1.6 million in penalties and unpaid wages. The Attorney General’s office views investigating and prosecuting wage theft as a priority.

Employers who commit wage theft or misclassify their workers do so at substantial risk. Any worker is free to file a complaint with the Attorney General’s office, which will conduct a preliminary investigation or allow the worker to file a private law suit. Should the Attorney General ultimately find that a violation occurred, penalties start at $10,000 for non-willful violations, and $25,000 for willful violations. Repeat violations incur higher penalties, and willful violations may be further punished by debarment, preventing offending companies from seeking public contracts.

Current Massachusetts law holds the employer and the employer’s owners and/or managers liable for wage-related violations, but the legislature is considering expanding on current law. State Senator Sal DiDomenico has filed a bill to address the wage theft problem. Among other provisions, the bill (currently known as S.966) will hold “lead companies” responsible for wage violations. “Lead companies” are defined as any business entity that obtains or is provided workers directly from a labor contractor or indirectly from a subcontractor. In other words, should this bill become law, first tier subcontractors and general contractors would share liability for wage issues, include wage theft and independent contractor misclassification. Opponents of the bill have highlighted the potentially unfair burden the legislation would place on honest general contractors, and it is unknown if the bill will ultimately become law. However, all employers (particularly subcontractors, general contractors, and other entities operating in the construction industry) should properly classify all of their existing workers and be advised that the legislature may increase their direct liability for unpaid wages and misclassified workers. Employers should consult with their counsel to ensure that all workers are properly paid and classified.

Massachusetts Supreme Judicial Court Interprets the “Tips Act”

By Jordan Scott on April 16, 2015

Massachusetts law protects the “tips” or gratuities that waiters and similarly employed individuals typically receive from customers. That law is commonly known as the Tips Act (M.G.L. ch. 149, sec. 152A). The Tips Act provides that all tips must be given to the employees that earned the tips, and that tips cannot be shared with managers or the employer itself. The Tips Act applies to three categories of employees: “wait staff employees,” “service employees,” and “service bartenders.” “Wait staff” includes waiters, waitresses, bussers, and counter staff who serve food or beverages (or bus tables) in a restaurant or banquet facility and who have no managerial responsibility. “Service employees” is a catch-all definition that includes any employees who provide services directly to customers and who customarily receive tips, but also have no managerial responsibility. “Service bartenders” are employees who prepare beverages to be served to customers by other employees.

A recent Supreme Judicial Court case, Meshna & others vs. Scrivanos & another, interpreted some key provisions of the Tips Act. In Meshna, current and former Dunkin’ Donuts employees filed suit over a “no-tipping” policy found at some individual stores that prohibited employees from receiving tips from customers. The plaintiffs argued that the Tips Act prevented employers from instituting a “no-tipping” policy. The defendants prevailed, with the Court finding that the Tips Act allows employers to have a “no-tipping” policy so long as the policy was clear to customers.

The Court went on to consider the scenario where an employer has a no-tipping policy, but does not communicate that policy to customers. The Court held that if the policy is not communicated, then any tips left at the store belong to the employees, as customers have a reasonable expectation that the money left as tips will be given to the wait staff. As long as the policy is explicitly stated by the employer, however, even money left by customers may be retained by the employer without violating the Tips Act, regardless of the customer’s intent. The Meshna holdings are consistent with existing interpretations of the Tips Act.

Some restaurants and banquet halls impose an additional “administrative” fee on their invoices and contracts. Under the Tips Act, employers are permitted to impose an “administrative fee,” or something similar, but such fees must be clearly stated to all customers (in a contract or on the bill itself) that the administrative fee is paid to the employer or management. Because the Tips Act defines “service charge,” “tip,” and “gratuity” as synonyms, employers that desire to include an additional charge beyond the cost of the food, should avoid the term “service charge” and use “administrative fee” or “management fee” as a best practice. Massachusetts Courts want to see evidence that the employer informed customers that any extra fees do not represent a gratuity for employees. Should you have questions regarding whether your invoices or current practices comply with the Tips Act, consult your employment law attorney for a definitive answer.

Enforceability of Massachusetts’ New Earned Sick Time Act

By Strang Scott on March 2, 2015

By Michael T. Mullaly

On November 4, 2014, Massachusetts voters approved the Earned Sick Time Act (“Act”). The Act is codified at G. L. c. 149, § 148C and becomes effective on July 1, 2015. The application of the Act to unionized employees, however, raises complex legal issues and is already the subject of active litigation in Massachusetts.

The Act applies to all private-sector employers in Massachusetts, including individuals, and requires employers to credit each employee with one hour of earned sick time for every thirty hours worked by such employee. In the case of an employer with eleven or more employees, each employee is entitled to accrue and use up to forty hours of earned sick time — with pay — per calendar year. In the case of an employer with ten or fewer employees, each employee is entitled to accrue and use up to forty hours of earned sick time — without pay — per calendar year. Additionally, the Act provides for the limited “carrying over” of unused earned sick time into the following calendar year.

Under the Act, earned sick time may be used for a broad range of purposes relating to the mental and physical health of, or the effects of domestic abuse upon, the employee and certain of his or her relatives.

The Act provides strong protections against employer retaliation. Moreover, any violation of the Act, even an unintentional one, entitles the aggrieved employee to recover three times his or her actual damages, together with reasonable attorneys’ fees.

The administrative burden and considerable exposure that arise from the Act demand the attention of every employer in Massachusetts, irrespective of its size or sophistication. Indeed, the above description sets forth only a brief summary of the Act, which must be analyzed in its entirety and with careful attention to the circumstances of each employer.

Particularly complex legal questions arise where the Act must be applied to unionized employees. The source of this complexity is federal preemption, a legal term used to describe the situation that results when Congress demands, or the Constitution itself indicates, that only federal law may govern a particular matter. (Ordinarily, there is no prohibition against states enacting legislation addressing the same subject matter as federal law, provided that the state law does not conflict with or undermine the policy aims of the federal law.) Although preemption is, relatively speaking, somewhat rare, labor-management relations is one of the principal areas in which it does appear.

There are three distinct types of federal preemption in the realm of labor law. The Act implicates one type in particular, which is generally called “Section 301 preemption” in reference to its origin in § 301 of the Labor Management Relations Act (“Section 301”). See 28 U.S.C. § 185. Section 301 would appear simply to confer a right to sue in federal court upon a plaintiff alleging the violation of a contract between an employer and a labor union representing an employee (i.e., a collective bargaining agreement). The United States Supreme Court, however, has long read Section 301 to articulate a strong policy interest in favor of having all such contracts interpreted according to a single, nationally uniform body of law (i.e., federal law). As a result, the actual effect of Section 301 is to “preempt” — that is, extinguish — any state-law claim that requires the interpretation of a collective bargaining agreement. Some preempted state-law claims (e.g., for breach of contract) can be construed as claims under Section 301 and then be adjudicated under federal law. In other cases, however, the complaint must be dismissed for failure to state a claim.

Notably, the Act contains many provisions that, in the case of a unionized claimant, appear to require an interpretation of the underlying collective bargaining agreement. For example, in cases where the Act requires an employee to be paid for his or her use of earned sick time, the employee must be “compensated at the same hourly rate as the employee earns from the employee’s employment at the time the employee uses the paid sick time.” The Act also provides that “nothing in [the Act] shall be construed to diminish or impair the obligation of an employer to comply with any contract, collective bargaining agreement, or any employment benefit program or plan . . . that provides to employees greater earned sick time rights.” Further, the Act states that an employer may satisfy its obligations by means of “a paid time off, vacation or other paid leave policy” that makes “available an amount of paid time off sufficient to meet the accrual requirements of [the Act],” provided that such policy permits time off “for the same purposes and under the same conditions as earned paid sick time under [the Act].” Determination of the applicable rate of pay, of the comparative generosity of the labor contract and the Act, and of the compliance of any alternate paid time off policy all seem to depend upon an analysis of the collective bargaining agreement applicable to the claimant. For this reason, there is a strong possibility that unionized employees seeking to bring actions under G. L. c. 149, § 50 for violation of the Act will be thwarted by Section 301 preemption.

Section 301 preemption may likewise preclude the Attorney General from pursuing civil sanctions against employers alleged to have violated the Act with respect to unionized employees. In fact, this is among the relief sought in a recent petition for declaratory relief filed by a group of employer associations in the construction industry. See Labor Relations Division of Construction Industries of Massachusetts et al. v. Commonwealth of Massachusetts, No. 1:15-cv-10116 (D. Mass.). The litigation remains in its beginning stages, but may ultimately provide a greater measure of certainty in this area before the Act becomes effective on July 1, 2015.

Independent Contractors and Employees in Massachusetts

By Jordan Scott on February 23, 2015

It is increasingly common for employers to use “independent contractors” in addition to, and sometimes instead of, employees. Independent contractors tend to cost less for the employer, as the employer is not required to cover payroll taxes, unemployment insurance, benefits (including health insurance, a benefit that many employers are now required to provide), and other expenditures required for employees. Misclassifying workers, however, can lead to significant civil and criminal penalties under Massachusetts law, including monetary fines and imprisonment. Both business entities and management may be targeted, and violators may be barred from obtaining public works contracts.

Massachusetts state law (M.G.L. c. 149, s. 148B) governs the distinction between an “independent contractor” and an “employee.” Massachusetts uses a three-part test for determining independent contractor status, and begins with the presumption that an individual is an employee, not an independent contractor. The employer bears the burden of proof that the individual was properly classified. To be properly classified as an independent contractor, each of the following prongs must be met:

A. The first prong is freedom from control. Under this prong, the individual must be free from control and direction in connection with the performance of their services, both under a contract for the performance of that service and in fact. The burden is on the employer to demonstrate that the individual’s services are performed with minimal direction or control. Best practices here for employers include avoiding micromanaging employees and ensuring that an independent contractor agreement is in place.

B. The second prong is that the individual’s service is performed outside the employer’s usual course of the business. The statute does not define “usual course of business,” and there is not a lot of case-law on the topic. At a basic level, the employer must not be in the same business as the independent contractor.

C. The final prong is that 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. Employers should ask themselves if the individual in question is willing and able to provide their services to other employers.

A good example of a true independent contractor is an accountant that services a construction company. The construction company is in the business of construction, and employs a variety of tradesmen and project managers to accomplish its core business objectives. The company would hire an accountant to handle tax filings and provide general tax advice. Here, all three prongs are met: presumably, the construction company would not provide any control over the accountant’s duties, and instead just set a goal, such as “complete and file the company’s taxes.” The accountant is outside of the company’s usual course of business, as the company handles construction, not accounting. Finally, the accountant is in an independent occupation and business. The accountant likely works for a separate accounting business, formed for the purpose of providing accounting services to the general public.

Massachusetts has very strict standards for independent contractor classification and employers should be careful to evaluate those standards when classifying their own employees. Some employers balk at the added costs of employees and seek alternative solutions. Unfortunately, there is no exception for short term workers or anything of that nature, but employers may be able to use a temp agency, where the individual in question is an employee of that agency. Another potential option is to have the individual in question incorporate their business, and then contract with that business (with the individual being an employee of their own company). Although there is merit to that approach, there are a number of associated pitfalls and employers should tread lightly.

Misclassifying an employee as an independent contractor can lead to significant civil and criminal penalties, and the Attorney General is not shy about prosecuting such violations. The Attorney General’s office is empowered to investigate possible independent contractor misclassifications, and individuals who believe they have been misclassified are able to file complaints with the Attorney General’s office as well as file their own private lawsuits against their employers. Further, misclassifying an employee often coincides with the violation of other state laws, such as the Wage Act overtime laws and minimum wage laws, making a misclassification a potentially very expensive mistake. The information provided here is just a summary. Employment laws, and their interpretation by courts and government agencies, are constantly in flux. Before making any important employment decisions, it is best to consult with an employment lawyer to minimize the chance of unpleasant legal actions or regulatory scrutiny.