The incorrect classification of workers as independent contractors is a perennial hot topic that continues to bedevil employers. Massachusetts has one of the strictest, and hardest to satisfy, tests for determining which workers can be genuinely classified as independent contractors. By statute, (G. L. c. 149, § 148B), any worker who performs services in the "usual course" of an employer’s business must be classified as an employee and not as an independent contractor. As a result, companies who use independent contractors are vulnerable to lawsuits challenging the legitimacy of their classification decisions.
Some companies try to avoid liability by compensating "independent contractors" at rates high enough to match or exceed the compensation provided to employees. A recent decision by the Massachusetts Supreme Judicial Court (SJC), however, deprives employers of this "safe harbor" defense and highlights the economic risks of misclassifying workers.
In the case of Somers v. Converged Access, Inc., a former high-tech worker, Robert Somers, sued Converged Access Inc. (CAI) claiming that he had been mischaracterized as an independent contractor and had lost out on benefits that CAI provided its employees (e.g., vacation pay, holiday pay, health insurance, and 401(k) plan). The trial court dismissed Somers’s claim on the ground that he suffered no damages where CAI had paid him more as an independent contractor than he would have made in wages and benefits as an employee.
On appeal, CAI argued that Somers was looking for a windfall because CAI had already paid him more than it paid its employees. The SJC rejected this defense, stating that "[w]ere employers who violated the statute permitted a ‘safe harbor’ that allowed them to demonstrate that they would have paid the employee less had they known he or she was not an independent contractor, there would be no financial incentive to ensure employer compliance and employees would be left with no meaningful protection from misclassification."
The SJC reversed the dismissal and sent the case back to Superior Court. The SJC noted that at trial, the employer would be entitled to credit any wages it paid the plaintiff as an independent contractor against the plaintiff’s wage claim. The plaintiff, however, if he prevailed on the merits of his misclassification claim, would be entitled to damages representing the full value of lost benefits (and potentially lost overtime as well) without off-set. Moreover, the Court noted that under the recently amended Massachusetts Payment of Wages Statute (G. L. c. 149, § 148), treble damages are mandatory, and therefore Somers, if he prevailed at trial, would be entitled to three times the economic value of the lost benefits.
This case starkly highlights the risks of mischaracterizing workers as independent contractors. Especially in the high-tech, scientific, and financial services areas, where workers are frequently brought on as independent contractors at significant hourly rates (often well above those paid to employees), the case shows that an employer will not be able to defend a claim by showing that the worker did better than he/she would have done as an employee.
The Somers case serves as a wake-up call for Massachusetts employers that they should approach with great care the decision to classify a worker as an independent contractor.