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SEPTEMBER 2008
Chapter 80 of the Acts and Resolves of 2008
New Law Increases Exposure for Inadvertent Misclassification of Independent Contractors
By: Dana Fleming, Esq. and Jonathan Hausner, Esq. – Seyfarth Shaw LLP
The stakes just got higher for employers in the Massachusetts construction industry. On July
13, 2008 a new law went into effect mandating triple damages for all wage and hour violations,
including the inadvertent misclassification of independent contractors. Further, by Executive
Order 499 Gov. Deval Patrick formed a special task force focusing on the “Underground Economy
and Employee Misclassification” – namely, independent contractors.
Because construction industry employers often rely heavily on independent contractors to
supplement their workforce, the new law carries significant weight. In fact, Gov. Patrick
mentioned the construction industry in Executive Order 499 – but not in a good way. The Order
stated that a “recent study based on audits of Massachusetts unemployment records for
construction employers between 2002 and 2005 found that up to 14% of the employees covered by
the audits were estimated to have been misclassified by employers.”
Massachusetts General Laws Chapter 149 §148B “The Independent Contractor Statute” (most recently
amended in 2004) made broad changes to laws governing public construction. In particular, the
law increased the penalties for misclassifying workers as independent contractors. Such
penalties can be severe and include debarment from public projects. The 2004 amendment did
however keep the standard for determining whether an individual is an employee or independent
contractor intact. That determination is subject to a three-part test:
PART 1 - “Freedom from Control.” The first part of the test requires that the individual be
free from control and direction, both under his employment contract and in fact. The burden is
on the employer to prove that the worker is entirely free to perform his services on his own
terms.
PART 2 - “Service Outside the Usual Course of the Employer’s Business.” The second part
requires that the service the worker performs be distinct from those typically provided by the
employer. For example, if an accounting firm hired a furniture mover, then the mover may be
classified as an independent contractor.
PART 3 - “Independent Trade, Occupation, Profession or Business.” The third part requires that
the worker must be customarily engaged in an independently established trade, occupation,
profession or business. This means that if a worker relies too heavily on a company for the
continuation of his or her services, that worker may not be “independent”. In the past, a
worker could satisfy the third prong by showing that he was a sole proprietor or partnership.
Now, in its latest advisory on the subject, the Attorney General’s Office has deemed such
evidence to be “irrelevant.”
There is no doubt that in Massachusetts properly classifying workers as independent contractors
is hard to do. All too often well meaning and diligent employers accidently run afoul of the
law and misclassify workers.
Chapter 80 of the Acts of 2008 impacts the enforcement of the Independent Contractor Statute
and applies to public and private construction. Specifically, Chapter 80 holds employers
liable for triple damages for all worker misclassifications, without exception. This is the
first law of its kind in the nation setting Massachusetts apart from all other states and the
federal government. Under all other state laws and the Fair Labor Standards Act, a
misclassifying employer may defend itself by arguing good faith or “I made an honest mistake”.
In Massachusetts, however, good faith gets you nowhere. Even an honest mistake, one which an
employer tried hard to avoid, subjects that employer to triple damages.
Today, triple damages are mandatory for all wage and hour violations that occur in
Massachusetts. It is still unclear whether the law has a retroactive effect or if it will
catch on across New England. What is clear is that 1) the Massachusetts government is looking
hard at employers who use independent contractors; 2) Chapter 80 will vastly increase the cost
of all future wage and hour disputes in Massachusetts; and 3) the new law provides a breeding
ground for litigation.
In July, Norfolk Superior Court received the first – but certainly not the last – complaint
in a class action lawsuit against a Massachusetts employer for allegedly misclassifying
independent contractors. While the defendant in that case is not in the construction industry,
construction professionals, and all other employers who employ independent contractors, are
potential targets.
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