Massachusetts Court Rules Again On Classifying Independent Contractors and Whether Certain Deductions and Employment Expenses Can Be Considered Wages
We’ve written about independent contractors before, focusing on how difficult it is in Massachusetts to properly classify individuals as independent contractors. That’s the case primarily because Massachusetts’s employers must satisfy all three prongs of a burdensome test to successfully defend their use of independent contractors. More on that here.
On May 1, 2019, a Massachusetts federal court, in the case of DaSilva et al. v. Border Transfer of MA, Inc., made it even more risky and difficult for employers using independent contractors by (1) dispensing with an approach that some courts had recognized as successful when using independent contractors and (2) clarifying and expanding upon the potential damages afforded to individuals who are misclassified in this fashion.
Plaintiffs Marcos DaSilva and Matteus Ferreira worked as delivery drivers for Defendant Border Transfer of MA, Inc. Plaintiffs sued under the Massachusetts Wage Act, claiming that Border Transfer had misclassified them as independent contractors and that, as a result, had unlawfully deducted certain business expenses from their pay. At the close of discovery, both parties asked the court to rule in their favor, spending considerable time focusing on the types of damages to which plaintiffs would be entitled if they successfully established they should have been classified as employees.
Can a Company Be a Misclassified Independent Contractor?
Before addressing that issue, however, the court dispensed with Defendant’s argument that the individuals were independent contractors because they contracted with Border Transfer through corporate entities, noting that “incorporation cannot be a shield to prevent liability under the Wage Act.” That isn’t to say corporate identity can never be relevant to the independent contractor analysis. But it is to say that a court will ignore a worker’s corporate form for purposes of the Wage Act when that form aims to prevent the classification of workers as employees instead of representing a legitimate business-to-business relationship initiated at the worker’s behest.
So how do you know when a court will recognize v. ignore the corporate form? Thankfully, the Court identified helpful factors to consider when conducting this analysis: (1) whether the services of the alleged independent contractor are not actually available to entities beyond the contracting entity, even if they purport to be so; (2) whether the business of the contracting entity is no different than the services performed by the alleged independent contractor; or (3) the alleged independent contractor is only a business requested or required to be so by the contracting entity.” The Court disregarded the plaintiffs’ incorporation because Border Transfer contracts only with corporate entities, has the right to terminate a driver if he dissolves his corporate entity, and imposes a non-negotiable agreement on its drivers. As a result, the Court ignored, for purposes of determining contractor v. employee status, the fact that the plaintiffs were corporate entities. The Court noted that the class of plaintiffs did not include individuals who hired secondary drivers to cover Border Transfer routes, meaning that incorporation status likely would matter under those circumstances.
What About the ABC Test?
The Court conducted the ABC test to determine if the individuals were misclassified.
As to prong A, the court held that the entity controlled the individuals’ performance in many respects, including mandating the type of vehicle to use, the type of uniform to wear, prohibiting them from subcontracting, requiring them to get insurance, requiring attendance at meetings, dictating order of deliveries, requiring calls to customers thirty minutes before arrival, and providing specific instructions on installations. The Court held that this level of control meant the individuals were employees, not independent contractors, despite the fact that the agreement also said that the individuals were independent contractors and despite the fact that the employer did not always exercise its right to control.
As to prong C, the court analyzed whether the worker is capable of performing the service to anyone wishing to avail themselves of the services or, conversely, whether the nature of the business compels the worker to depend on a single employer for the continuation of the services. The court determined that factors supported the employer’s and employee’s positions on this factor and declined to side with one or the other.
Damages Available to Misclassified Independent Contractors
Now that the Court decided the entity may have been a misclassified employee, it analyzed what sort of damage the misclassification may have caused and determined what, if anything, could be classified as a wage damage.
In doing so, the Court initially addressed the defendant’s argument that any deductions/costs that plaintiffs authorized may not be considered unpaid wages under the Wage Act. This seems like a decent argument given that the Wage Act does allow for employers to take ‘authorized deductions’ from wages. The Court dispensed with this argument, finding that such authorization amounted to a ‘special contract’ prohibited by the Wage Act as a unlawful way to contract around the requirements of the Wage Act.
The Court next addressed whether the employees could recover workers’ compensation premiums and cargo insurance premiums they paid directly to third-party providers. This was a resounding ‘Yes” because ‘an employee may recover workers’ compensation insurance premiums an employer requires him to pay” even if those are paid to a third party and not the employer. The Court felt the same way about the cargo insurance premiums, because “Border Transfer’s requirement that is drivers purchase cargo insurance is unlawful because it forces them to bear the cost of protecting against property damage for which they ultimately may not be responsible.”
Lastly the Court determined whether Border Transfer’s practice of deducting from wages for unfinished deliveries, something it did when a scheduled delivery was cancelled before the driver did any work and when a delivery was unsuccessful because the customer is not home or rejects the shipment. According to Border Transfer, this deduction was lawful because wages were not ‘earned’ under these circumstances. The Court analyzed the parties’ contract and held that it was possible the drivers were supposed to be paid per ‘stop,’ not per ‘completed delivery.’Accordingly, the Court held that it could be the case that the deductions were unlawful because they were taken even when a driver made a scheduled ‘stop,’ even if the delivery was not completed.
Are you a Massachusetts based independent contractor with questions about whether you are classified correctly? Do you have questions regarding authorized deductions and employment related expenses?