Massachusetts Makes Changes To Statutes
Governing Independent Contractors

On July 11, 2004, the legislature reformed the Massachusetts laws on Public Construction. As a part of that legislation, a change was adopted that amends the MA statutes governing Independent Contractors in MA.

Specifically, the law now contains three, “bright-line” tests that must ALL be passed if someone that you are treating as an Independent Contractor is NOT going to be re-classified as an EMPLOYEE.

The three tests are:

• 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; and
  
• the service is performed outside the usual course of the business of the employer; and
  
• 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.

As to the first test, failure to have a written contract specifying independent determination of the performance of the service is fatal to an argument that the person is an independent contractor, but will not, alone tip the scales to independent contractor status. Rendition of the services by the contractor on your business premises will give the appearance of the ability to control their functions. According to an advisory opinion issued by the Attorney General, either of these two situations (no written contract with determination of manner of rendition of services by the contractor and rendition of the services off premises) will cause the person to be treated as an employee.

As to the second test, if the services provided by the independent contractor are of a type that are normally furnished by you in the ordinary course of your business, the person will be re-classified as an employee.

As to the third test, the person must have a “stable of clients” to which they are providing the same services on a regular and continuous basis. If you are their only client, they will be considered an employee.

Once classified as an employee, the employer faces charges of failure to:

• pay time-and-one-half for overtime;
• maintain wage and hour records;
• cover the employee under worker’s compensation;
• pay the employee on the same cycle/pattern as other employees; and
• withhold MA income taxes on their wages.

Violation of ANY of these provisions carry both civil and criminal fines and potential imprisonment, with an increasing schedule for both, once there has been ONE instance of violation. There is also the potential for the “employee” to be able to sue for treble damages and attorneys’ fees. The “employee” may also be entitled to benefits under your various programs (health insurance, group life insurance, pension contributions, stock options, vacation pay, sick time, etc.).

Given the “stealth” nature of this issue and the onerous nature of the penalties involved, we urge you to review the people to whom and arrangements under which you issued 1099s for 2004 to see if you have exposure under these provisions. You may need to alter your arrangements with them, in order to comply with these provisions, although if they are only working for you, it may be impossible to avoid the imposition of “employee” status under these rules. You should consider consulting an attorney well versed in employment law, if any question exists. Please call us, if we can be of assistance, 781- 453-8700.

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