Job Classification – Employee or Independent Contractor
Many businesses use independent contractors to augment their workforce. There is indeed benefit to hiring trained, non-employee workers with specialized skills on an as-needed basis.
The problem is some companies improperly classify workers as independent contractors, rather than employees, in order to avoid certain employer responsibilities, such as:
- Payroll taxes
- Disability insurance
- Unemployment insurance
- Social Security
- Workers’ compensation insurance
According to the Massachusetts Department of Industrial Accidents, there are between 126,000 and 250,000 misclassified workers in the Commonwealth. That means approximately 13 percent of the Massachusetts employers are classifying at least some of their workers.
Although independent contractors may have other remedies for injuries and illnesses that are work-related, they can’t receive workers’ compensation. It’s important if your benefits are denied for this reason to have an experienced workers' compensation lawyer review your case. The determination of who is an “independent contractor” and who is an “employee” is one that is ultimately based on the totality of the circumstances – not the final word of the employer.
Those factors include:
- Degree of control
- Opportunity for profit and risk loss
- Employee’s investment in the business facility
- Permanency of the relationship
- Skill required
- Degree to which employee’s services were integral to the business
There is no one factor that is deciding. Disputes are resolved by analyzing the circumstances as a whole.
When workers are misclassified, everyone loses:
- The employee loses the individual public and private benefits that “employees” have.
- The Commonwealth is negatively affected in the form of increased costs and lost revenue.
- The fair market competition is undermined because the companies that misclassify have an unfair advantage over those that play by the rules.
MGL ch. 149 § 148B is known as the Independent Contractor/ Misclassification Law. It provides guidance with respect to three elements that must exist in order for a worker to be classified other than an employee. Those are:
- Freedom of control.
- Services outside the usual course of employer’s business.
- Independent trade, occupation, business or profession.
The burden of proof is on the employer, and if the company is unable to prove any one of these three elements, the worker is considered an employee.History of the Law
Because of the negative impact misclassification has on those involved and society at-large, it’s been a concern for the Commonwealth for many years.
In the past, common law largely dictated how we determined the existence of an employer/employee relationship, based on the totality of the facts.
The first version of the law, passed by Massachusetts legislators in 1990, held that even if a working relationship was considered under common law to be that of an independent contractor, the worker could still be considered an “employee” for the purposes of the law.
The law has gone a number of changes and amendments since then, including changes to the public construction industry workers’ classification in 2004.The Three-Prong Test
Regardless of the title a company gives to a worker, a finding by the Department of Industrial Accidents or the courts that he or she is an “employee” will come with certain guarantees – including the right to compensation for work-related injuries and illnesses.
In fact, there is a presumption of an employee-employer relationship.
If an employer asserts that an injured worker who files a workers’ compensation claim is NOT an employee but rather an independent contractor, the onus is on the employer to prove it.
The three-pronged test is set forth in MGL ch. 149 § 148B.
- Freedom of Control. This stipulates that the in order to be an independent contractor, the worker has to be “free from control and direction in connection with the performance of the service,” both per the contract of service and in fact. Simply producing an employment contract or job description that says the worker is free of supervisory control or direction is not sufficient to prove this point. The workers' actual duties and activities are to be carried out with very little instruction from the company. This includes things like the approach of the job or the hours he or she can work.
- Service Outside the Usual Course of Employer’s Business. The law here doesn’t define the “usual course of business,” but in the 2006 Massachusetts Superior Court case of American Zurich v. Dept. of Industrial Accidents, it was noted that a worker whose services are a continuing and regular part of the company’s business and whose method of operation isn’t an independent business that is eligible for its own workers’ compensation coverage is found to be an employee. Separate and distinct businesses can’t be employees.
- Independent Trade, Occupation, Profession or Business. This is an issue of whether the worker is able to perform the service to anyone wishing to avail themselves of it. It’s also considered whether the worker, by the nature of the business, is compelled to depend on a single employer to continue his or her services. In the latter case, the worker may still be deemed an employee.
It’s worth noting the Obama Administration in 2015 expanded the definition of “employee” under the Fair Labor Standards Act, specifically with the intent of cracking down on employers that misclassify workers as independent contractors. The Economic Policy Institute estimates between 10 to 20 percent of all businesses misclassify at least one worker as an independent contractor.
When a company misclassifies a worker and improperly denies workers’ compensation coverage, the employer can be made to pay for not only the coverage but the entire cost of the proceedings that the worker was required to undergo to secure coverage. Additional penalties, including restitution, may be assessed as well.
Contact Jeffrey Glassman Injury Lawyers today for a free and confidential consultation.
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