Contractors and Employers Beware: Misclassification of employees as independent contractors can be expensive. G.L. c. 149, §148B establishes the standard for determining whether an individual performing services for another should be classified as an employee or independent contractor. Section 148B provides that an individual who performs services will be deemed an employee for the purposes of G.L. c. 149 and 151 – the Commonwealth’s wage statutes – unless the employer can prove by a preponderance of the evidence all of the following:
(1) That the individual is free from control and direction in connection with the performance of the service, both under his contract for the performance of service and in fact;
(2) That the service is performed outside the usual course of business of the employer; and
(3) That the individual is customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the service performed.
In Somers v. Converged Access, Inc., 454 Mass. 582 (2009), the Supreme Judicial Court (SJC) of Massachusetts held that, where an individual is misclassified as an independent contractor, his or her damages are the equivalent of the wages and benefits he or she should have received as an employee but did not, plus treble damages. In such a case, the employer may not even offset payments made to the individual as an independent contractor against what he or she should have received as an employee.
The existence of an independent contractor agreement and/or the parties’ intention to maintain an independent contractor relationship will be irrelevant unless the employer can first satisfy the requirements of §148B. In this regard, §148B is a strict liability statute. As a result, if an employer misclassifies an employee as an independent contractor, the employer will suffer the consequences, including tremble damages, plus the aggrieved employee’s attorneys’ fees and costs. The Somers case highlights a harsh result indeed.
In addition, misclassification of employees can subject an employer to audits conducted by various state and federal agencies, including the Commonwealth’s Department of Unemployment Assistance (for failing to make unemployment insurance contributions), the Massachusetts Department of Revenue, and the Internal Revenue Service. The potential penalties for employee misclassification resulting from these audits can be financially devastating.
In light of the significant risk of liability and exposure noted above, employers are well-advised to seek advice from experienced employment counsel on wage and classification issues. If you have questions regarding, please contact Nicholas Anastasopoulos or Corey F. Higgins in the Labor and Construction Groups at Mirick O’Connell at (508) 791-8500.