Salesperson as Independent Contractor? No Says Massachusetts Federal Court
We see a lot of entities treating individuals as independent contractors. We receive numerous calls from individuals who think they are misclassified in that fashion. Many employers have asked us to analyze whether their independent contractors should be classified as employees. We see this frequently, from both sides, with salespeople. Thankfully, a recent Massachusetts court, in the case of Valle v. Powertech Industrial, injected some helpful guidance as to when salespeople are employees and when they are independent contractors.
William Valle began working for Powertech in 2002 as a sales representative. Powertech, a “power solutions manufacturer,” contracted with Mr. Valle and agreed to pay him a commission on sales. The relationship deteriorated and Mr. Valle filed suit seeking unpaid commissions. During their relationship, Powertech treated Mr. Valle as an independent contractor. Mr. Valle sued for that too.
The Court began its analysis by reciting the presumption and three-part test listed above. (If you are new to the independent contractor game, you really should read this first). The Court focused its analysis on the second prong of the test used to analyze independent contractor status: whether the service is performed outside the usual course of the business of the employer. Before analyzing that prong, the Court noted that an entity will fail this part of the test unless it can show the services were incidental to its business.
As a starting point, the Court identified the entity’s “usual course of business,” a necessary first step in analyzing prong two. According to its website and motion papers, Powertech is a ‘leading power solutions manufacturer with a diverse power-related product line that rangers from surge protection to power management.” That Court noted that Powertech had a “Customer Care” section of its website, issued a sales catalog, and prided itself on promptly replying to customer requests. The Court went on to note that Powertech has a sales division with seven employees that make direct sales to customers and commercial resellers and that Valle performed services similar to those employees. Accordingly, Powertech’s “usual course of business” included sales, meaning the individual was misclassified as an independent contractor.
The Court provided a helpful summary of other cases in this arena and explaining how those cases differed from Valle. First, in Sebago v. Bos. Cab. Dispatch, cab drivers were held to be independent contractors because the entities were in the medallion-leasing and radio-dispatching business: not the cab-driving business. Second, in Ruggiero v. Am. United Life Ins. Co., insurance agents who sold insurance and annuities were held to be independent contractors because the agencies were not in the business of selling insurance products directly: they were in the business of determining what products to make available, structure and draft the policies, and obtain regulatory approval.
I must confess: this opinion doesn’t surprise me that much. It seems like a pretty clean issue for the court to decide and one that I’m surprised the employer fought. What did surprise me about this opinion, however, were the examples given by the court of other situations where an employer will fail prong two of the test: art instructor services performed on a regular or continuous basis within an art museum, musicians performing as a usual and customary activity at a beer bar, and an organist playing music as a usual part of a funeral home’s business. The musician one is particularly surprising. Are we really saying that a bar’s “house band” are employees of the bar?
So why does this matter? A court’s told an entity that an individual it contracted with should have been treated as an employee and not an independent contractor. So what? Well, the problem for employers in these situations is that they’ve probably failed to comply with employment laws relative to their treatment of that individual. They proceed in this fashion under the (now wrong) assumption that those laws don’t apply to the individual because that person isn’t an employee. That’s where the trouble lies. Have they, for example, paid the individual at least minimum wage for the first 40 hours worked in a week? Have they paid them overtime for hours over 40? Have they made payroll contributions on their behalf? Did the individual not qualify for unemployment because of the misclassification? Is the individual out considerable money due to not having health insurance that is only provided to employees? Did the individual have to go ‘out of pocket’ for a workplace injury because of a lack of workers’ compensation coverage?
How about Mr. Valle? How did he say he was injured as a result of the misclassification? Well, he brought a claim under the Massachusetts Wage Act for unpaid commissions, a claim that can only be brought by employees. He also brought a retaliation claim under the Massachusetts Wage Act, claiming that Powertech ended its relationship with him because he filed a suit under the Wage Act. Had the court found him to be an independent contractor, it would have dismissed both of those claims. But, it didn’t. And so the claim lives, along with Mr. Valle’s right to recover triple damages, interest, costs, and attorneys’ fees.
At Steffans Legal, we have vast experience in determining whether an individual is or is not an independent contractor according to Massachusetts law. We’ve represented individuals in Berkshire County, Middlesex County, Worcester County, Bristol County, and Barnstable County on this issue. And we’ve represented businesses in Berkshire County and Hampden County on this issue. Whether you are an independent contractor wanting to learn more about how this opinion impacts your relationship with your employer, or an employer wanting to determine how much risk you have relative to your treatment of individuals: feel free to give us a call.