Increased Federal and Massachusetts Scrutiny of Worker Misclassification (Independent Contractor vs. Employee):

As I previously discussed in an Alert in February 2009, the possible misclassification of employees as independent contractors is a significant concern for Massachusetts businesses due to significant liability under wage and independent contractor laws, and ramped up enforcement by the Attorney General.

For instance, see the AG’s recent settlement involving restaurant meal delivery companies’ misclassifying their drivers as independent contractors, and the August 2009 SJC case favoring an employee who had been misclassified, even though the worker received more money as an independent contractor than he would have as a correctly classified employee.

In 2008, the Massachusetts Attorney General issued an “Advisory” alerting businesses to the importance of properly classifying “employees” and “independent contractors”. The Commonwealth is concerned that misclassification of workers affects tax revenues and may deprive a worker of unemployment insurance, workers’ compensation benefits or other protections.

Businesses are subject to civil and criminal penalties for misclassification; the company’s president, treasurer and CEO could have personal liability (with claims possibly excluded from coverage under a Director’s and Officer’s insurance policy); and, the worker could potentially recover triple damages and attorneys’ fees.

The Attorney General’s Advisory concerned the Massachusetts Independent Contractor Law or Misclassification Law, General Laws Chapter 149, section 148B (“Law”). The Law provides that an individual shall be considered an employee unless the business can prove otherwise. The business has the burden of proving compliance with a 3-part test:

1. the individual must be “free from control and direction” both in the contract and in fact;

2. the individual must perform work outside the usual course of the business of the employer; and,

3. the individual must be engaged in an independently established trade or business.


The Attorney General provided the following classification examples:

- A worker completes the job using her own approach with little direction from the business and dictates the hours that she will work on the job – independent contractor.

- A worker’s services form a regular and continuing part of the company’s business and the worker does not operate as an independent business – employee.

- A worker performs services that are part of an independent, separate and distinct business from that of the company – independent contractor (possibly).

- A painting company hires an individual as an independent contractor to finish a painting job – employee.

- A painting company hires a second company as a subcontractor to finish a painting job, and all of the second company’s workers are employees – independent contractor.

- An appraisal company hires an individual to appraise property – employee.

- An accounting firm hires an individual to move office furniture – independent contractor.

- A company in the business of selling a product hires an individual to make sales calls as a sales representative – employee.

In addition to the State liability concerns, the federal Labor and Treasury Departments are stepping up enforcement, including the IRS’s random audit of 6,000 businesses to see if they are properly classifying employees and complying with laws on paying employment taxes and protecting workers (e.g., Social Security, Medicare, health benefits, overtime, unemployment, anti-discrimination, etc.).