Another Strike Against Using Independent Contractors in Massachusetts

If the provisions of the Massachusetts Independent Contractor law are not enough to persuade employers they are better off classifying their workers as employees whenever possible, a recent decision against FedEx Home Delivery may help get them there. Earlier this Fall, the National Labor Relations Board decided that FedEx misclassified 20 of its delivery drivers as independent contractors. The NLRB did not apply Massachusetts law and heard the case in Connecticut. Applying what it likely a far easier standard for employers to satisfy, it nonetheless ruled against FedEx, determining that it had too much control over its drivers to treat them as contractors.

Control over a worker’s job duties/performance is one of three elements in the Massachusetts Independent Contractor statute; employers must prove they don’t exercise such control, then satisfy two other elements in order to beat back misclassification claims under this state’s law. Unless they do so, employers are automatically liable for three times the value of any wages, commissions and, perhaps, benefits the workers would have received but for their improper treatment as contractors. In addition, losing employers must pay their workers’ legal fees. Damages can be quite high when multiple employees are involved, as the recent $2 million settlement reached in a wage case by the Massachusetts Attorney General demonstrates. To make matters worse, workers who agree they are contractors cannot be held to their bargain, even when documented in writing.

Misclassification claims are quite common in Massachusetts, and large employers often must deal with them as class action suits that apply to large numbers of employees. Given the risks, all should take care to carefully analyze their employment practices to ensure compliance with the independent contractor statute and other wage-related laws, many of which carry the same triple damage/legal fee penalties.


Government Agency Learns Hard Way the Potential Cost of Retaliating for a Wage Complaint

Not even a government agency, it seems, can escape the potentially dire consequences of violating the Massachusetts Wage Act, even when an employee enjoys civil service protection that many thought, at least, provides the sole remedy for covered workers.

In a decision issued last week, the SJC upheld a large judgment for retaliation against the Attleboro Housing Authority. A jury found that the Authority improperly laid off its employee about a month after he filed a seemingly minor complaint that his hourly pay rate should have been higher than it was. The jury awarded a mere $2,300 in lost wages based on the hourly rate discrepancy, then added $130,000 for retaliatory discharge under the Act. The court tripled both figures and awarded legal fees to the employee, as it must under Mass. Gen. L. ch. 149, s. 150, and the award against the Housing Authority exceeded $400,000 before interest at 12% was added.

The moral of this story is patent: when an employee has made any claim regarding the payment of his/her wages, discretion dictates that employers approach layoffs and other job terminations with extreme caution. In the Attleboro Housing Authority case, the poignancy of this lesson is heightened by the fact that the Authority took the plausible position that the Wage Act did not apply because the employee enjoyed the protection of the civil service system, which provides a wholly separate avenue for redress of job terminations like the one at issue. Both the lower court and the SJC concluded, however, that civil service employees have a choice to pursue their claims under the Wage Act.

Voter Initiative Leads to New Sick Leave Rights for All Massachusetts Employees

Passage of the sick leave law by voters on November 4 will have tangible effects on virtually all Massachusetts employers. Though the statute might not require companies that already have written sick leave policies to change things very much, its varied provisions will nonetheless require a careful review of those policies to ensure statutory compliance. Employers who don’t now have formal sick leave rules will need to adopt them by July 1, 2015, when the statute will take effect.

As of that date, all employers must provide for the accrual of sick leave at the rate one hour for every 30 hours worked, up to a maximum of 40 hours per year. Companies with 11 or more workers must pay employees at their regular hourly rates when time is used; those with 10 or fewer need not do so. Employees are entitled to begin using accrued sick time 90 days after accrual begins (July 1, 2015 or the first day of employment, whichever occurs first). Though workers can carry sick time over from year to year, employers are not required to permit them to use more than 40 hours in a calendar year. Unlike vacation pay, earned but unused sick leave need not be paid out when an employee leaves the job. [Read more...]

Wage Laws Require Both Proper Payment and Good Record Keeping

When it comes to paying employees their wages, being practical sometimes is not quite good enough. So learned a group of restaurant owners who insisted their workers received all the wages due to them under federal law, but lost a $129,000 judgment on the issue nonetheless. The case offers two important lessons for employers: First, be sure to comply with both the technical and practical requirements of wage payment laws; and second, don’t  pick legal fights with federal wage and hour auditors unless absolutely necessary.

In the case, which dealt with minimum wage requirements under the U.S.’s Fair Labor Standards Act, the employer restaurant sought to apply the tip credit to its wait staff employees. The credit allows employers to pay a reduced hourly rate to employees who regularly receive tips as part of their jobs. In all cases, the credit must meet a minimum rate and the employees’ total wages, when tips are included, must satisfy the minimum wage rate in effect. Employers are required to keep records of hourly payments and tips for each employee, and those records must be available for state and federal auditors on request. Employers are also required to give notice to their employees that the tip credit system is being applied to them. The employers in this case did not do so. Though they claimed that their employees earned far more than the minimum wage when tips were considered – a claim that might well have been true – they did not keep records of those tips. Still, they challenged a federal audit result in court. The result was the large judgment, which will increase substantially when interest is added.

In Massachusetts, tip credits are governed by a state statute. Employees must be notified the credit is being applied and records of wages paid must be properly maintained. Massachusetts employers are, of course, governed by federal law as well. As a result, employees in restaurants, who are exempted from overtime requirements by state law, must receive overtime for hours above 40 each week. The effect on the tip credit is to increase both the hourly rate that must be paid for hours above 40 weekly and the gross wages that must be earned once tips are included. Massachusetts law currently requires that tipped employees receive $2.63/hour, and the rate will increase to $3.75 over the next several years. The state’s minimum wage, now at $8/hour, will also increase, to $11 by 2017. Violators can be punished with triple damages and legal fee awards.

U.S. Appeals Court Finds that Massachusetts’ Independent Contractor Statute Could be Precluded by Federal Law

In  a decision that could have broad implications for enforcement of Massachusetts’ tough employee classification law, the U.S. Court of Appeals has concluded that federal law just might make it null and void, at least as it applies to motor carriers. The problem, the court held, is that one of three tests under Mass. Gen. L. ch 149, s. 148B may infringe upon the federal government’s superior authority to regulate interstate commerce.

Relying on the FAAAA (Federal Aviation Administration Authorization Act),  a federal law that bars Massachusetts and other states from regulating the prices, routes or services offered by motor carriers, the Court of Appeals reversed a lower court’s award of judgment to the Massachusetts Attorney General. The AG is defending a suit brought by the Massachusetts Delivery Association, which argues that broad language in the Massachusetts Independent Contractor Statute  effectively bans courier companies from engaging delivery drivers as contractors. Same day delivery companies are being forced to hire drivers as employees, they argue. The result is higher prices and different routes and other services.

There can be little doubt that same day courier companies have been under fire in recent years because of the Independent Contractor Statute. Many of them have faced class action lawsuits that claim their contracted drivers are misclassified. Demands for damages have been in the millions of dollars, and some courier companies have changed their business models as a result.

Governor Revises Proposed Bill to Restrict Noncompetition Agreements

Though his proposal to ban noncompetition agreements in Massachusetts died in the state legislature over the summer, Governor Deval Patrick still hopes to enact a state law restricting their use. This time, the Governor is seeking to more strictly regulate noncompetition contracts by requiring, among other things, that they be proposed in writing to prospective employees at the time a job offer is made.

The Governor’s push to restrict noncompetition agreements is motivated by concerns over the negative impacts they sometimes have on economic growth. “Providing the talent needed to support the kind of growth we want and need is considerably more difficult if employees are legally unable to move between jobs in the innovation economy,” the Governor wrote in a letter to legislators that accompanied his revised proposal on August 13. Once again, Mr. Patrick’s bill was referred to committee for evaluation. The Governor’s first noncompetition proposal, which sought to ban the agreements altogether while retaining employers’ abilities to protect important interests, was never acted upon by either the state senate or house of representatives.

The new bill is House 4401. In addition to delivering advance notice, it would require employers to provide employees an opportunity to consult with counsel prior to signing a noncompetition agreement. When forms are used with current employees, the proposal requires that something other than continued employment  be given to them and that they have 10 business days to consider competitive restrictions before they sign them. The Governor’s bill also includes restrictions on the bases for enforcing noncompetition agreements that are consistent with current law. The modified proposal is the product of interactions with business leaders and others that the Governor engaged in after his first bill was filed.

Court Declines to Expand the Massachusetts At-Will Employment Rule

Once again, Massachusetts has rejected an employee’s effort to expand the public policy exception to the at-will employment rule. This time, a fired worked argued that public policy should prevent employers from terminating workers who threaten to sue a third party in connection with a work-related injury. The court disagreed.

Citing precedent, the Massachusetts Court of Appeals ruled this month that the trial court’s judgment against the former employee was appropriate. It reasoned that the narrow public policy exception to the at-will employment rule is meant to be just that – narrow. Holding differently, it reiterated, would ultimately eviscerate the rule via exceptions that would swallow the rule and force employers to have “just cause to terminate an at-will employee.”

Under the at-will rule, employees and employers are free to end their working relationships at any time, for any reason. Neither side needs to have a reason or provide notice in advance. Massachusetts courts created the public policy exception to protect employees from job loss when their conduct promotes a recognized public policy that benefits the Commonwealth. The plaintiff in Santarpia vs. Senior Residential Care/Kingston, Inc. claimed she was let go two years after suffering a workplace injury because an attorney sent a letter to her employer’s landlord seeking damages for her injuries. Though the employer could not (and did not) fire the worker because she was injured on the job, it could do so based on her demand to its landlord.

Former Teacher to Keep Pension Despite Child Pornography Conviction

Despite pleading guilty to buying and possessing child pornography, a former 9th grade science teacher, coach and sports referee for the Amherst-Pelham regional school district will keep his retirement benefits. In a decision released this week, the Massachusetts Supreme Judicial Court found that, because the teacher’s crimes did not relate to or concern his teaching job, a retirement benefits forfeiture provision could not be applied to deny him the pension he earned during his 22 years as an educator.

The teacher, Ronald Garney, was identified in 2004 as part of a federal investigation into web sites that sell child pornography. Following two years of monitoring by local police, Mr. Garney’s home was raided and various illegal pornographic images were found. He acknowledged that he’d viewed child pornography for 12 years and, in lieu of being fired, resigned his teaching position. Upon reaching retirement age in 2007 and before he pled guilty to the charges against him, Mr. Garney applied for and was granted his benefits. The Massachusetts Teachers Retirement System reversed that decision in 2009. None of the illicit images or activities related to Mr. Garney’s teaching position or his students and, for this reason, the SJC concluded, it was compelled by statutory language to find that his earned retirement benefits were not forfeited by law.

Meal Breaks: To Pay or Not to Pay?

Paying employees the wages they are due for their work is, conceptually, at least, a pretty straightforward matter. Working 8 hours, e.g., results in 8 hours of pay, less time spent on a meal break of 30 or 60 minutes. But when it comes to deducting time spent on meals by hourly employees, things sometimes get tricky. While Massachusetts and federal law permit meal breaks to be unpaid, the rule applies only when employees are completely relieved of their work duties.

As with many things legal, interpreting what this means can be anything but straightforward. Wage and hour guidance indicates that, any time an employee is required to remain on site or to perform any sort of work, either actively or not, meal break time must be paid. This likely means that an employee who sits with others during lunch and discusses work issues needs to be paid for the break time, even if the employer supplies a sandwich at no cost to the worker. It certainly means that, when an employee may possibly perform work while on break – answering a phone call, e.g., or addressing questions about a work issue – the time spent eating is compensable regardless whether work is actually performed. Not surprisingly, employers sometimes stumble on this issue. Because the penalties for not paying workers for all hours worked can be severe (triple the amount owed plus legal fees under the Massachusetts Wage Act), the damage from an error in this area can be significant, especially for larger employers. [Read more...]

Task Force that Investigates Employee Misclassification is Broadened, made Permanent by Statute

Some six years after it was created by executive order, the joint task force on the underground economy and employee misclassification is being formalized by statute. As part of the recently enacted minimum wage law, there was created a “council on the underground economy” to coordinate state-wide efforts to combat misclassification.

The new Council was preceded in 2008 by a task force that Gov. Deval Patrick created under his executive authority. Its mission, then as now, is to investigate and help root out what Massachusetts considers a widespread effort to avoid tax laws and underpay workers by misclassifying them as contractors rather than employees. Under the new statute, the Council is empowered to educate business owners about the law, to conduct targeted investigations, and to take enforcement actions through multiple agencies. Its stated goals are to protect workers’ rights and ensure fair competition. The Council also clearly aims at helping the government increase collections of various tax-related assessments.

Included as part of the Council will be the same agencies that previously formed Gov. Patrick’s task force along with many additions. Eight of them are unnamed and will be appointed by the governor from among state agencies. The Council will be chaired by the secretary of labor and workforce development. The Department of Industrial Accidents, Division of Unemployment Assistance, and Department of Revenue will all have representatives just as they did on the task force.