Massachusetts employers beware! This article is aimed at providing education to employers operating businesses within the State of Massachusetts, at educating employers as to what an independent contractor is, and what it is not. Many employers assume that because a 1099 is issued on a given contractor that the contractor is not an employee. It is crucial for Massachusetts employers to understand that a 1099 is not the only factor that goes into what is deemed to be an independent contractor, as the reader of this article will soon discover.

What is an Employee in Massachusetts?

Defining an employee in Massachusetts might seem like a straightforward matter. It is not. In, Massachusetts, an employee is any individual who provides services to an employer. Let me repeat….any individual who provides services to an employer.

What is an Independent Contractor in Massachusetts?

Well, this is the million dollar question, because the answer is complex. This article explores the answer to this question below, however, for this moment consider this…under the Massachusetts Wage Act, if an individual provides services to the employer, a presumption is created in which that individual is considered or classified by the courts as an employee for the purposes of wage and overtime laws. Protection of an employee under wage and overtime law here means that the employer is on the hook for ensuring that it obeys all current law in these areas with respect to its employee.

Because the Massachusetts Wage Act creates the presumption that an individual performing services for an employer is an employee, this presumption must be rebutted by the employer (and satisfy the three factors which a court will consider in evaluating that rebuttal) in order for the court to view an employee who fits the definition of an employee as an independent contractor.

Why Does it Matter whether My Independent Contractor is Considered an Employee by a Court?

A great question, with a frankly scary answer. Consider this….your 1099 employee, or “independent contractor” is providing services to your business. While providing these services, and per the contract your company made with the 1099 employee/independent contractor you pay that employee $500 every time that employee performs a given service for you. A year passes and this employee serves your company with a complaint which alleges that the business has violated wage and overtime laws by not paying them within the law as prescribed by the Massachusetts Wage Act. The initial reaction of the company would probably be, “how can this person sue our company when they are not an employee, they are an independent contractor…”

While it is distinctly possible that the 1099 employee or “independent contractor” working in the preceding example may be an independent contractor, it is also possible that they are not. In fact, your company will be required to take on the responsibility of rebutting, in court, the presumption that this individual is an employee.

How an Independent Contractor is Considered an Independent Contractor by a Massachusetts Court

First, let me make clear in a disclaimer here that the three-part test used to determine whether an individual providing a service for a business or employer (an employee) is an employee or an independent contractor may be applied differently by different Massachusetts’ courts. So, it is critical for your Massachusetts business to consider contacting an attorney which can assist you in handling this complex issue…with that said, here is the 3-part test. It should be further noted here that a failure to meet ANY of the three elements in the test rules out a finding (by a Massachusetts Court) of independent contractor status. Practically, this fact means that your business needs to ensure that any “independent contractor” with which it engages truly is an independent contractor. Contact our office to learn more at 978-273-8337.

Prong 1: Freedom From Control

The first prong of the 3-part test used by Massachusetts courts to determine whether an individual who provides a service for an employer is an employee or an independent contractor is whether or not that individual is “free from control.” Here, the individual’s freedom from control refers to the control that an employer has in controlling and directing the means and methods that the individual uses in performing their work.

The key to establishing and satisfying that the individual is free from the employer’s control is to identify and establish autonomy, that is, the ability of the individual to operate without the control of the employer (or perhaps, with minimal control). While not part of the 3-part test used by Massachusetts’ courts in determining freedom from control, a helpful guide is the use of the twenty-factor test used by the Internal Revenue Service (IRS). The IRS offers these aspects of the test to determine the autonomy or freedom from control of an individual:

• Instructions – is the individual required to comply with an employer’s instructions as to how to perform their duties, and when and where these duties are to be performed?
• Training – Is the employer training the individual?
• Integration – Do the individual’s services align with services and operational aspects of the employer? If they do, it is very possible that the individual is an employee, rather than an independent contractor because the law in this area requires independent contractors to be performing work that is different than the work or services provided by the employer. In other words, if the employer performs a given service as its usual course of business, and the individual working for that employer performs the same type of work or service, that individual may very well be considered by a Massachusetts court to be an employee not an independent contractor.
• Use of Assistants – Does the employer direct any assistants (if present) that the individual uses to perform its service?
• Are the Services Personal? – That is, does the individual perform their work personally, face-to-face?
• Ongoing Relationship – What is the nature of the relationship with the employer?
• Fixed Work Hours – Does the individual or the employer set the hours or work?
• Full Time – Is the individual’s position considered full-time?
• Where is the Work or Services Performed?
• Is there a schedule, a pattern through which work is regulated?
• How is the individual paid….hourly, fee agreement, etc.?
• Equipment – If equipment is necessary for the individual to perform its duties, who provides this equipment?
• Investment – Does the individual own fully or partially the tools or facilities used to perform the service?
• Sharing of Loss or Profits by the individual?
• Multiple Clientele – Can the individual work for multiple employers at once?
• Who Markets services to the public, the employer or the individual?
• Termination – can an employer discharge the individual without liability at any time?
• Can the individual walk away at any time?

2nd Prong – Is the Work or Service Occurring Outside the Usual Course of Business of the Employer?

Often described as the most difficult test to overcome for an employer, this prong is where the rubber meets the road in making a determination between employee and independent contractor. While there is no clear definition to make a definite determination here, the Attorney General in a 2008 Advisory made this statement, “[it] will consider whether the service the individual is performing is necessary to the business of the employing unit or merely incidental in determining whether the individual may be properly classified as other than an employee.” The bottom line in this statement is that if the service performed is necessary to the business, the individual is an employee.

Further guiding us, the Attorney General’s Office provides examples as follows:

LIKELY TO BE CLASSIFIED AS EMPLOYEES:

A company in the business of drywall installation employs an individual to install drywall. The employer classifies this individual as an independent contractor and issues a 1099. The individual is likely going to be considered an employee not an independent contractor under Massachusetts law because the individual’s work is essential to the business. Here, a drywall company installs drywall and, therefore, any work involving the installation of drywall is essential to that company.

A motor vehicle appraisal company hires an individual to appraise motor vehicles. The individual here is likely classified as an employee, despite any attempts by the employer to make a classification of this individual as an independent contractor. Here again, appraising motor vehicles is essential to the business model of a motor vehicle appraisal company and, therefore, a necessary or essential component to its business.

LIKELY AN INDEPENDENT CONTRACTOR

An accountant employs an individual to move furniture in the accountant’s office. Here, the accountant is not in the business of moving office furniture, that is office furniture moving is not an essential component of its business and so, prong 2 is not violated. There is likely no employee relationship created here between the accountant and the mover.

How the business defines itself is one area where an employer may make some inroads in broadening its usual course of business. The Court will also look at evidence of what the business’s usual course of business: business objectives, demonstrable purposes of a given business, etc. It is also important to note that claiming the mere management of individuals by a business may not be sufficient evidence to persuade a court that an individual is an independent contractor under this prong.

The Third Prong – Independent Trade, Occupation or Business

To answer the third and final prong of the 3-part test as to whether your worker is an employee or an independent contractor, Massachusetts business’s must decide whether the worker is performing in what is customarily known as a independently established trade, occupation, profession, or business with the same nature as the service the worker is performing. This is a vague description, which requires some interpretation – and which, by the way, can be viewed in a widely variable manner from court to court in Massachusetts

The court, with this third prong, is attempting to “discern whether the worker is wearing the hat of an employee of the employing company, or is wearing the hat of his own independent enterprise.” Boston Bicycle Couriers, Inc. v. Deputy Director of the Division of Employment and Training, 56 Mass. App. Ct. (2002). Another question that court asks in determining this prong is if the worker is an entrepreneur. Courts may consider a worker as an entrepreneur, that is, with its own proprietary interest where that worker is free to operate without hindrance, where that enterprise exists separate and apart from its relationship with the employing unit (for example, where it is an established corporate entity such as an LLC or incorporated), where the worker is not dependent upon the employing unit, and would survive even without the relationship with the employing unit. Id.

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