Employee or Independent Contractor?: How to Classify Workers In Massachusetts using the Three-Prong Test
Want to know if you have been misclassifying your workers as independent contractors rather than as employees? Better yet, want to know if you have been misclassified by your employer?
Today’s blog will discuss the legal standard in Massachusetts to determine whether a worker is an independent contractor or an employee under the law. Employers who misclassify their employees as independent contractors may have to pay serious penalties, fines and damages (including treble damages and attorney’s fees and costs). Likewise, if you have been misclassified as an independent contractor, you may have been deprived of employment wages, overtime, vacation benefits, employment insurance and other employment-related benefits, and may be entitled to restitution.
The Massachusetts General Laws c. 149 §148B (also known as the Massachusetts Independent Contractor Law) establishes a three-prong test to determine whether a worker is an employee or independent contract. The law begins with the presumption that all Massachusetts workers are employees. To overcome this presumption and show that a worker is an independent contractor, the employer must demonstrate that the worker satisfies each and every element of a three-part test for independent contractors. Failure by the employer to prove only one of the three prongs is enough to establish that the worker is an employee. Again: you need all 3 to be an I.C.
Under the Massachusetts Independent Contractor Law, an individual performing any service, shall be considered to be an employee under those chapters unless:
- the individual is free from control and direction in connection with the performance of the service, both under his contract for the performance of service and in fact; and
- the service 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 as that involved in the service performed.
Prong 1: Free From Control and Direction
The burden is upon the employer to demonstrate that the services at issue are performed free from its control or direction. The test is not so narrow as to require that a worker be entirely free from direction or control from outside forces. To satisfy the first prong, the employer must demonstrate that the services provided by the worker at issue are: (i) Free from its control and direction; and (2) Carried out with minimal instruction.
Things like the following tend NOT to be freedom from control and direction:
- Setting hours or schedules;
- Requiring the worker to be in an office or another location at a set time;
- Requiring the worker to wear a uniform;
- Instructing the worker on how to perform their job or interact with customers;
- Requiring the worker to use the employer’s tools, equipment, vehicle, or office;
- Determining the fees and rates the worker charges to third-parties for its services.
It is important to note that the lack of a contract between the worker and employer does not in and of itself prevent the employer from being held liable for misclassifying a worker as an independent contractor. Likewise, 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 under the Law. It has been well settled that the parties’ intentions as to whether the individual is an employee or an independent contractor are immaterial. Courts have also held irrelevant whether the worker has established a sole proprietorship, d/b/a (doing business as type of business), LLC or another entity type. In fact, telling the worker to do so – or evidence that the worker registered the entity at or around the time of ‘hiring’ can be used to show the employer had control over the worker and the worker was not free from the employer’s direction.
To be free from an employer’s direction and control, a worker’s activities and duties should actually be carried out with minimal instruction. For example, an independent contractor completes the job using his or her own approach with little direction and dictates the hours that he or she will work on the job.
Prong 2: Work Outside the Usual Course of Business
The second prong makes it virtually impossible for an employer to use an independent contractor to do the same type of work typically done by the employer. If you are trying to determine whether the services the worker performs are necessary to your business or merely incidental you need to take a hard look at what your business does – and that does not necessarily mean the CORE business.
- If you own a food delivery company, and you have a worker that reports to your warehouse on a set schedule, wears your company uniform and undergoes training by you – and the worker typically drives a small van to deliver food, then that worker is almost certainly an employee. But if you have another worker who starts delivering auto parts instead of your core business purpose – food delivery – that worker is still almost certainly an employee.
- But if you engage a worker to come into your office twice a month to do bookkeeping, and your business is just one of many businesses for whom the bookkeeper keeps books, then chances are that worker is properly classified as an independent contractor. The service of bookkeeping is totally outside of the delivery service business, and it is ‘incidental’ to the business.
Massachusetts courts have not had that many chances to analyze the meaning of “usual course of business” and the phrase itself is not defined in the statute.
Prong 3: Worker Must Be Customarily Engaged In An Independently Established Trade, Occupation, Profession OR in a Business Of The Same Nature As That Involved In The Service Performed
Under the third prong, you need to determine whether the service in question could be viewed as an independent trade or business because the worker is capable of performing the service to anyone who requests it. A worker who cleans offices is a good example (e.g. night cleaning person cleans an accountant’s office).
Another determination of this prong is whether the nature of the business compels the worker to depend on a single employer for the continuation of the services. Although the court can consider whether a worker is capable of performing the service to anyone who wants the worker’s services, the court may also consider whether the nature of the business compels the worker to depend on a single employer for the continuation of the services. In this regard, we determine whether the worker is wearing the hat of the employee of the employing company, or is wearing the hat of his own independent enterprise.
These are highly fact intensive cases – and this is why anyone who uses workers classified as independent contractors should seriously consult with an attorney to determine if that classification is correct based on the specifics of the employer – worker relationship. If you are a business owner-employer or a manager or supervisor responsible for the payment of wages, that oversees independent contractors, avoid the independent contractor v. employee trap — contact one of the Boston Business Lawyers at The Jacobs Law LLC today. Likewise, if you feel you have been improperly classified as an independent contractor and deprived of your wages, contact us now at THE JACOBS LAW LLC.
Remember, an OUNCE of Prevention is worth a TRIPLE POUND of Cure when it comes to these issues. Contact THE JACOBS LAW LLC today. YOUR ATTORNEYS FOR LIFE & BUSINESS®