As the economy continues to sputter along, both federal and state taxing agencies have been aggressive in pursuing businesses that misclassify workers as ‘independent contractors’ rather than ‘employees.’ Taxing authorities and government coffers are deprived of valuable revenue when businesses misclassify employees as independent contractors. For employees, businesses are required to pay payroll taxes, workers compensation insurance coverage, social security, and unemployment assistance contributions.
With mandatory triple damages and attorney’s fees for state law violations (these are in addition to any potential violations of federal laws), Massachusetts has one of the most powerful wage and hour laws in the country. This law provides the Attorney General’s Office with plenty of ammunition to pursue rigorous enforcement. In fact, last July, the Massachusetts Attorney General’s Office reached a $3 million settlement with FEDEX Ground over the alleged misclassification of delivery drivers as independent contractors.
M.G.L. c. 149, s. 148B, establishes a three-part test that presumes an individual who provides services is an employee unless:
- 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.
- The service is performed outside the usual course of the business of the employer.
- 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.
Oftentimes, interpreting whether a worker meets one or more parts of this three part test is tricky, and in many industries, there is a longstanding practice of classifying workers as independent contractors which must now be reevaluated.
Traditionally, part-time or seasonal delivery drivers were treated as independent contractors: a position that the Massachusetts Attorney General disagreed with, and which was the impetus for the action against FEDEX Ground. The Attorney General, Martha Coakley, was quoted as saying,
“We have made enforcement against employer misclassification a priority because employers who misclassify workers are gaining an unfair advantage over their competitors and unfairly depriving the Commonwealth of tax and other revenues.”
The Attorney General’s Office cited FEDEX Ground for violation of the Independent Contractor Law; misclassifying its drivers; failing to provide a proper paystubs to employees; failing to provide workers’ compensation; failing to pay overtime to certain drivers; and neglecting to deduct and withhold state income taxes.
The Attorney General’s Office coordinated a joint investigation of FEDEX Ground with the Executive Office of Labor and Workforce Development and the Massachusetts Department of Revenue. According to the Attorney General’s Office, this joint investigation revealed that FEDEX Ground’s misclassification of employees had resulted in significant underpayments to the Department of Revenue (Massachusetts taxation authority), Division of Industrial Accidents (MA agency governing worker’s compensation insurance and claims) and Department of Unemployment Assistance (MA agency governing unemployment claims).
The settlement obtained by the Attorney General’s Office included payment to the 13 drivers named in the Attorney General’s citation. Not surprisingly, FEDEX Ground drivers in Massachusetts brought their own individual lawsuits against FEDEX Ground seeking enhanced damages under the statutory provisions that permit a private right of action.
With the stringent wage and hour laws here in Massachusetts, employees and businesses alike must carefully evaluate how workers are classified. Businesses must implement immediate remedial measures if they have misclassified their workers in order to mitigate continuing violations. Enforcement authorities and employee advocates continue to scrutinize employers’ classification decisions making self-assessment an important part of every businesses evaluation relative to the classification of their workers.