Nationally and In Massachusetts, Employee Misclassification Receives Renewed Attention

Much has been made of Massachusetts’ very restrictive independent contractor law, amended in recent years at the behest of construction unions.   With the law now in place for a few years, litigation challenging workers’ classifications has increased.   If recent court decisions are any indication, employers face an uphill battle in establishing that individuals are, in fact, independent contractors.   The difficulty many employers face is establishing that the work the individual is performing is “outside the usual course of the business of the employer.”   If this test isn’t met, then the person will be found to be an employee, as the Massachusetts Superior Court found in a recent case involving exotic dancers.

Now Massachusetts’ highest court has weighed in on the issue of damages.   The Massachusetts Supreme Judicial Court recently held in Somers v. CAI that an employee who has been misclassified as an independent contractor is entitled to damages under the Massachusetts Wage Statute, M.G.L. ch. 149 §§ 148, 148B, and 150, despite that the amount of money the worker received as an independent contractor was more than what he would have received had he been correctly classified as an employee.  The court rejected the defense that the individual earned more money as a result of being classified as an independent contractor, and instead held that the rate he was paid as an independent contractor was his “wage” for purposes of the law, and any overtime should be calculated at time-and-a-half of that rate.  The court concluded that the plaintiff was entitled to overtime, vacation and holiday pay and other employee benefits based upon this hourly rate.  In the court’s view, the employer’s asserted defense that Somers had been paid more than what he would have been paid as an employee was contrary to the purposes of the statute because it undermined the financial incentives on employers to comply with the law and left employees with no meaningful protection against misclassification.  The SJC remanded the case for trial.

Notably, although the case was brought when the Wage Statute did not provide for mandatory treble damages, the court noted that should the plaintiff prevail, he would be entitled to treble damages for any lost wages, including overtime pay calculated on the basis of his contractual rate of $65 per hour, vacation and holiday pay and other benefits.

The message is clear:  employers need to be careful when classifying individuals as independent contractors, and it is not enough to compensate them well.  In fact, this higher compensation could come back to haunt employers.  This points to a need to carefully structure any arrangements with persons considered independent contractors and consider the many risks associated with this.

Indeed, this is an issue likely to get more national attention in the coming years.  A report issued this month by the U.S. Government Accountability Office spotlighted the issue of employee misclassification and called for closer coordination between federal such as the Department of Labor and counterpart state agencies.   The IRS, too, announced this month that it would step up audits of businesses in order to detect situations where employees have been misclassified, and collect back taxes for the misclassification.

Jonathan Keselenko, Foley Hoag LLP, Boston, MA

jkeselenko@foleyhoag.com

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