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Posted on August 22, 2022
Massachusetts employers often struggle to cope with the two Massachusetts independent contractor (IC) statutes. There is guidance from the Massachusetts Department of Revenue (DOR), but the DOR guidance does not have the force of a statute and most cases are likely to arise under state law rather than federal.
Here are the two Massachusetts laws used to define independent contractors and how to identify the differences between them.
The strictest Independent Contractor standard
The Massachusetts Wage and Hour law (MGL 149 §148B) has one of the most rigid standards in the country. Wage and Hour is the law AIM members are most familiar with and perhaps have encountered if they’ve ever been challenged on an employee misclassification decision or nonpayment of a wage claim. This independent contractor standard consists of the following three-prong test, all of which must be met for a proper designation:
(1) 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
(2) the service is performed outside the usual course of the business of the employer; and,
(3) 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.
The Attorney General’s office has issued guidance on the topic.
The slightly less strict standard
There is another independent contractor test that is included in at least two significant Massachusetts laws. The first is the unemployment insurance (UI) law (MGL 151A, §2) and the second is the Paid Family and Medical Leave Act (PFMLA). This provision has been in the unemployment insurance law since 1971.
Under the UI and PFMLA laws, the individual working for another is presumed to be an employee unless the employer can demonstrate all three of these prongs are met:
The inclusion of the additional language suggests a slightly broader definition of independent contractor enabling the employer to demonstrate that the individuals are not employees based upon the fact that “the service… is performed outside of all places of business of the enterprise for which the service is performed.”
A review of relatively recent court cases filed under this law identifies two specific cases where the question was whether individuals were employees or independent contractors. In one case involving newspaper delivery people, the court found that they were independent contractors because “the newspaper did not exercise control and direction over adult carriers’ delivery of newspapers for purposes of determining whether an employment relationship existed.” The only requirement of the job was that the newspaper be delivered in good condition and before a certain time each day.
In the second case, involving bicycle courier services, the court ruled they were employees because the couriers were not independent businessman with other customers, did not have business cards or use invoices, advertise their services or maintain a separate place of business. Furthermore, they were given pagers by the company and their working relationship could be terminated by the company on 30 days’ notice.
There has not been any litigation yet regarding independent contractors under the Paid Family and Medical Leave Act so it remains to be seen what the court will do in that context.
Employers should be careful in the manner in which apply the independent contractor standard to individual workers as the company may have to deal with classification issues under both laws.
AIM members with human resources questions may call the Employer Hotline at 800-470-6277.