The Massachusetts Attorney General’s Office (“AGO”) recently issued an Advisory that provides guidance on how it will interpret and enforce the state’s Independent Contractor Law. The law presumes that an individual is an employee, and an employer must satisfy each part of a stringent three part test to establish that the individual is instead an independent contractor: (1) the individual must be free from the employer’s control; (2) the individual must perform work outside of the usual course of business of the employer; and (3) the individual must be engaged in an independently established trade, occupation, profession or business.
The Advisory stresses that the proper classification of workers as employees is the goal of the statute. To satisfy the first prong, an employer cannot rely upon a contract or job description. Instead, it must prove that the individual is in fact free from the employer’s actual control, which means that the individual should perform tasks with minimal instruction. The Advisory states that the second prong requires proof that the services performed by the individual are merely incidental to the employer’s business. Lastly, the Advisory explains that the third prong of the test looks at whether the individual provides the services in question to anyone. If the individual is dependent upon a single employer, the third prong may not be met.
The AGO is empowered to investigate potential violations of the law. An investigation may be triggered by poor recordkeeping, “under the table” payments, insufficient workers’ compensation insurance or the failure of “independent contractors” to pay income taxes. The AGO warns that it intends to enforce the law not only against entities that misclassify individuals as independent contractors, but also against those that allow, request or contract with corporate entities that exist for the purpose of avoiding the law.
A violation occurs when an employer misclassifies an individual as an independent contractor and fails to comply with the state wage and hours laws, payroll recordkeeping laws, the income tax withholding law or certain workers’ compensation provisions. Although misclassification alone does not trigger liability, it is highly likely that several of these other laws will be violated as a result of misclassification. Both business entities and individual corporate officers and managers may be liable for violations, and the statute authorizes the AGO to impose substantial civil and criminal penalties, including heavy fines and imprisonment. Plus, the individuals themselves can sue for damages relating to their misclassification.
Note that the Advisory clarifies the Independent Contractor Law, but other federal and state laws use different tests for determining whether an individual is an employee versus an independent contractor. This means that an individual may be an employee for some purposes but not others. For example, an individual may be an employee under the Independent Contractor Law for purposes of the Massachusetts Payment of Wages Statute but may be an independent contractor under the federal tax code. The struggle for employers is to reconcile these differences in order to be in compliance.