In 2015, we saw a significant increase of investigations into the misclassification of workers as independent contractors conducted by the Department of Labor (“DOL”). This increase was unsurprising, given Secretary Perez’s statement in December of 2014 that such misclassifications were departmental priority, and the subsequent release by the Wage and Hour Division of a memorandum of guidance on the issue in July of 2015.
Private independent contractor misclassification claims are also on the rise, both nationally and in Massachusetts – a trend that will likely continue in 2016. Given this climate, and given the fact that the Commonwealth follows the most stringent test for independent contractors in the nation, employers are well advised to conduct self-audits to ensure that all workers are properly classified.
Under the Massachusetts independent contractor statute, workers are presumed to be employees for purposes of the wage and hour laws. To overcome this presumption, the putative employer must be able to show that:
- The worker is free from control and direction in connection with the performance of the service, both under the terms of the contract and in fact;
- The service is performed outside the usual course of the business of the employer; and
- The worker is customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the service performed.
Of these, the second prong is usually the hardest to meet. According to the Attorney General’s Office, which is the state agency that enforces the statute, the relevant question is “whether the service the individual is performing is necessary to the business of the employing unit, or merely incidental.” Critical to this inquiry is the scope of the employer’s business, which is determined largely by looking at how the entity holds itself out. For example, courts look at the entity’s own public-facing definition of its business contained in its promotional literature, online presence, annual reports, and other materials.
If you are interested in conducting a self-audit or you have any questions regarding the independent contractor statute or wage and hour laws, please contact any of the attorneys at Royal, P.C.