Lawsuits commonly arise over the classification of independent contractors as such, rather than as an employee of the business. Massachusetts laws set forth specific guidelines about worker classification, and misclassification can result in significant civil penalties.
Legal Definition of Independent Contractor
The Massachusetts Independent Contractor law sets forth a three-pronged test to determine whether a person is an independent contractor or an employee. The law presumes that all workers are employees unless they can be proven to be an independent contractor.
Under the law, a person is considered to be an employee unless:
- the worker is free from control and direction in connection with the work performed, both under the contract and in fact; and
- the work 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 involved in the work performed.
Free From Control and Direction
The employer has to prove that it does not control or direct the worker to such a degree that the worker is not an independent contractor. Certain things tend to look as though too much control is held:
- setting work schedules;
- requiring the worker to be in the office at a set time;
- requiring a uniform;
- giving specific instructions on how to perform the work;
- setting the worker's charge rates.
Determining the level of control appropriate for independent contractor status can be tricky, and the law continues to change.
Outside the Usual Course of Business
When a worker performs the kind of work the business typically does, he or she may not be considered an independent contractor. This can require an in-depth analysis of your business practices and the utilization of your current independent contractors.
Example: Your business builds residential homes. However, twice a month you hire an accountant to run through your finances and "books" to make sure things are correct and the business is financially compliant and healthy. The accountant's services are not the work performed by the business, but he or she is instead "incidental" to the primary purpose of the business. It is proper to classify the accountant as an independent contractor.
Independent Trade, Occupation, or Profession
Under this prong of the test, the employer needs to prove that the worker is capable of performing the service to anyone who would request it, not just for that particular employer. If the worker depends on the business for its particularized employment because no other company would hire for that kind of work, he or she is likely an employee.
Under each of these prongs of the test, the determination is extremely fact-dependent. Because of Massachusetts's intense laws regarding independent contractors, it is critical to perform a direct and in-depth analysis of your business's use of independent contractors to avoid serious penalties.
Misclassification can lead to penalties and problems with the IRS. Risks of misclassification include, but are not limited to:
- tax implications with the IRS and state tax agencies;
- lawsuits over lack of unemployment compensation;
- lawsuits concerning benefit plans and overtime pay;
- worker's compensation implications; and
- other criminal and civil liability.
A person that the business has labeled an independent contractor may sue the company claiming instead to be an employee under the Massachusetts Independent Contractor Law. If successful, he or she may be entitled to damages, and the business could be hit with financial sanctions.
Avoiding Misclassification Issues
To avoid issues related to misclassification of employees and independent contractors, your business should review its current use of independent contractors with a licensed Massachusetts attorney. The distinctions between an employee and an independent contractor can be very fine, and a trained legal expert can help you determine when an independent contractor designation is appropriate.
Remember that Massachusetts law will default to an assumption that a worker should be labeled an employee. If you believe your company would benefit by classifying a worker as an independent contractor, consult with legal counsel to make sure you do not face financial penalties for misclassification.
Consult a Massachusetts Employment Litigation Defense Attorney
There are ways to prevent issues with independent contracts which can save your business a great deal of time and money. When a lawsuit cannot be avoided, you need highly experienced lawyers at your side to protect your business interests.
At the Katz Law Group, we are here to protect your business's rights. Contact us today for a consultation.