The Supreme Judicial Court Gives Employers A Gift In The Ongoing Independent Contractor Saga
Under Massachusetts law, it’s quite difficult to properly treat an individual as an independent contractor. You can read more about that here. It certainly isn’t impossible to properly classify someone as an independent contractor, but it certainly is difficult. Thankfully (if you are an employer) the Supreme Judicial Court (SJC) has carved a pro-employer exception into the law that makes it much easier to treat someone as an independent contractor, at least for workers’ compensation purposes.
Earlier this year, the Supreme Judicial Court held that the Massachusetts’s Independent Contractor Statute (M.G.L. ch. 149 §148B) does not dictate how to determine if someone is an independent contractor for workers’ compensation purposes. Instead, according to the Court, that question is determined by Massachusetts Workers’ Compensation Statute (M.G.L. ch. 152).
Ok. So. Different tests for different purposes. One to determine if someone is an employee for workers’ compensation purposes, and one to determine if someone is an employee for all other purposes. Is that a big deal? In short, Yes. That’s the case because the tests are very different.
The Workers’ Compensation Test: To determine if someone is an independent contractor for workers’ compensation purposes, courts will consult the following factors, balance all of them, and make a determination as to whether, when taken as a whole, someone is an independent contractor. That means either side can “win,” even if some of the factors don’t cut in their favor: (1) the extent control exercised over the individual, (2) whether or not the individual is engaged in a distinct business, (3) whether the work is typically performed by an employee, (4) the skill required in the occupation, (5) whether the individual supplies the tools and the place for doing the work, (6) the length of time for which the person is employed, (7) the method of payment, whether by time or by job, (8) whether or not the work is a part of the regular business of the employer, (9) whether the parties believe they are creating an employment relationship, (10) whether the principal is or is not in business, (11) the tax treatments applied to the payment(s), and (12) the presence of the right to terminate the relationship without liability. No one factor is more important than another. All factors must be balanced in order to determine if someone is an independent contractor or an employee.
The Test for Other Purposes: To determine if someone is an independent contractor for other purposes, including whether they should have been paid overtime and if they are protected by state anti-discrimination laws, a very different test is used. IN those situations, the entity must satisfy all three of the following factors. If they lose on one, they lose on all: (1) the individual is free from control and direction, (2) the service performed is outside the entity’s usual course of business, and (3) the individual is customarily engaged in an independently established trade. All three factors must be resolved in the employer’s favor in order for someone to be properly treated as an independent contractor.
There is no question the SJC’s decision is an important one for employers in that it allows them to be more likely to escape risk related to workers’ compensation regarding its treatment of individuals as independent contractors. It also creates a situation where the same person could be deemed an employee and an independent contractor at the same time, just for different purposes.
Employers using independent contractors should take this case into account when it structures those relationships. It is an absolute best practice to enter into written agreements prior to treating someone as an independent contractor as that written agreement will be a very important piece of evidence if that treatment is ever challenged.
If you have questions about independent contractor classification in Massachusetts contact us today.