Employee Versus Independent Contractor Status

The proper classification of an individual worker as either an employee or an independent contractor will have a significant impact in the payroll and benefits area on any business. It is, therefore, essential that employers note the important distinctions between a person who is classified and treated as an employee and one who can be classified as an independent contractor.

The Attorney General is charged with the aggressive enforcement of the misclassification of a worker as an independent contractor by employers. This article seeks to explain the Attorney General’s position in this area through relevant state statutory and case law.

Statutory Law

M.G.L. c 149, Section 148B, establishes a rebuttable presumption that any person performing services for another is an employee, unless it is shown that the person is exempt (i.e. not an employee) because he or she meets the three prong test. The test is as follows:

(a) . . such an individual has been and will continue to be free from control and direction in connection with the performance of such service under his contract;

(b) and such service is performed either outside the usual course of business for which the service is performed or is performed outside of all places of business of the enterprise, and,

(c) such individual is customarily engaged in an independently established occupation, profession or business of the same nature as that involved in the service performed.

The statute prohibits the consideration of the failure of an employer to withhold federal or state income taxes from an employee or provide for unemployment compensation or workers’ compensation in making a determination of the person’s classification.

An employer who misclassifies an employee as an independent contractor when the facts clearly show the worker to be an employee may be prosecuted. It can also be reasonably inferred that when an employer misclassifies an employee as an independent contractor, there will be violations of state and federal tax laws, workers’ compensation laws and unemployment fraud. These are significant violations of the law that carry with them significant consequences.

Case Law

In Massachusetts, the test used to determine whether an individual is, on the one hand, a servant or an employee or, on the other hand, an independent contractor is the ‘control’ which may be exercised over the individual in the performance of his work. Control over the individual extends not only to the result to be accomplished but to the methods used to accomplish the result.

The question is not so much one of whether the person for whom the work is being done finds it necessary to intervene and supervise the details of the performance, but whether it is understood that he has the right to do so.

The totality of the circumstances of the employment or services rendered governs whether the individual is classified as an employee. Factors include the degree of control, the opportunity for profit and risk of loss, the employee’s investment in the business facility, the permanency of the relationship, the skill required, and the degree to which the employee’s services were integral to the business. No individual factor is determinative. All of the factors must be weighed in the totality of the relationship.

Whether a person is an employee or an independent contractor involves, in the first instance, an inquiry into the right of the supposed employer to control the work activities of the employee.

This article only addressed Massachusetts law, employers should understand similar federal laws apply, such as the Fair Labor Standards Act of 1938. Much of this article was derived from an advisory decision of the division of Fair Labor and Business Practices Criminal Bureau which is part of the Attorney General’s Office.