Expressing uncertainty whether a company’s shifting of business expenses to its employees is actionable under the Wage Act, a federal court judge is asking the Massachusetts Supreme Judicial Court (SJC) to answer three questions:

1. Does the independent contractor/employee test under the Act determine a worker’s status for workers compensation insurance purposes? The SJC has already held that employers cannot shift this cost to its employees, but the question what constitutes an “employee” for workers compensation purposes is unsettled.
2. Can an employer contractually bind its employees to pay for equipment such as uniforms and package scanners that are necessary for the performance of their job duties? Indications are that the answer to this question is likely “no,” but the federal court sees tension between two prior Massachusetts cases.
3. Does the Wage Act ban an agreement under which employees pay a third party vendor for work related vehicle expenses such as maintenance and operation? There is little question that reimbursement for work-related miles must be reimbursed in most or all cases, but there appears to be no statement of law that addresses this particular question.

The SJC’s answers to these questions, which may issue this Spring, are likely to have a significant impact on the employer/employee relationship in Massachusetts. The Wage Act provides for automatic triple damages and the imposition of legal fees against offending employers, so the stakes are high. Some cases now plainly support the notion that the foisting of business expenses such as insurance and automobile costs violates the Act. Under the federal court’s readings of Massachusetts case law, however, answers to the three questions are unclear. Employment attorneys – along with any employer who may now be shifting expenses like those identified above to their workers – will be watching closely for the SJC’s reply to the federal court.

Pointing out that “legitimate business-to-business relationships” are not barred by the Massachusetts Independent Contractor statute, a superior court judge held recently that a delivery company would not be liable for damages under the law if the contractors it uses to make deliveries in fact operate their own delivery businesses.

In typical fashion, the plaintiff’s class action counsel argued at summary judgment in the case Okeke v. Dynamex Operations East, Inc. that drivers who make deliveries for the company must be considered employees under a portion of Mass. Gen. L. ch. 149, s. 148B, the Massachusetts Independent Contractor statute. The law holds that workers who perform duties within the usual course of business of the entity they work for are employees and not contractors as a matter of law. While the argument has frequently persuaded courts in the past, it did not in the Okeke case, in which the judge cited evidence that some drivers operated businesses and employed as many as 17 others to make deliveries for Dynamex.

“Were the plaintiffs’ interpretation of section 148B to prevail, no corporation operating in the Commonwealth could contract with another corporation to perform work in the same field. Under the plaintiffs’ view, the latter courporation would be an employee of the former, because its services would be provided in the former corporation’s usual course of business,” the court wrote.

The decision seems to turn on particular facts that may not exist in all cases. The use of independent contractors to perform delivieries is common in the delivery business. The simple formation of a corporate entity to nominally “employ” a driver and receive his/her pay is likely not enough to defeat application of the Independent Contractor statute. Where as in Okeke a contractor employs numerous drivers himself, however, the situation may be different as long, at least, as the employer properly pays workers under applicable wage and other laws.

When a company’s employee numbers start to grow, so too does its exposure to a plethora of wage and hour rules. A small business can become “enlightened” about one or more of them in a number of ways, from a complaint by a disgruntled former (or current) worker to a random audit by governmental authorities to a class action lawsuit by opportunistic lawyers. Violations of the law can bring substantial damages that may include civil penalties, tripling of unpaid wages, and reimbursement of an opponent’s legal fees.

In most cases, complaints from individual employees can be handled expeditiously. It’s when employees join together in class action suits or employers are audited by state or federal labor authorities that damage exposure becomes dangerous. Audits are common in Massachusetts and can revolve around worker classifications, weekly wages or overtime payments, contributions to the unemployment fund, and other issues. As companies grow, then, they should audit their own policies in these areas to ensure they comply with applicable laws. Waiting to do so until an auditor or a lawsuit arrives at the door can cost tens or even hundreds of thousands of dollars. [Read more...]

The common practice of paying real estate agents as independent contractors and denying them the benefits of employment is under legal fire. A class action lawsuit now awaiting decision at the Massachusetts Court of Appeals tests whether the real estate industry can continue to ignore a law that effectively bans the use of contractors in Massachusetts.

In a rather surprising decision in July, a superior court judge decided that they can. He relied on a Massachusetts statute that permits brokers to employ their real estate agents “either as an employee or as an independent contractor.” Noting a conflict between this language and the terms of the Independent Contractor Statute (Mass. Gen. L. ch. 149, §148B ), the court opted to ignore the latter law. The state legislature, it concluded, intended that agents be contractors despite provisions to the contrary in the Independent Contractor Statute. [Read more...]