Misclassifying Workers Can Mean Big, Big Damages

Employers who misclassify their workers as independent contractors now have even more to worry about. In August, the state’s highest court made clear they could pay huge damages for this transgression of the law, even if they merely made an honest mistake.

In a majority opinion, the Massachusetts Supreme Judicial Court concluded that employers can’t defend an independent contractor classification lawsuit by claiming a worker would have made less money if he/she had been properly classified as an employee. Damages are not measured by the difference between what a worker received and what he would have received as an employee.  Instead,  under the independent contractor provisions of the state’s Wage Act, damages equal the value of “wages and benefits [a worker] should have received as an employee, but did not,” the court wrote.

The ruling puts real teeth into the state’s independent contractor law, which effectively bans this classification but, according to some employers, at least, previously was a paper tiger. Now, things like lost vacation time, holiday pay and overtime wages are clearly within the statute’s ambit. What’s more, the Supreme Judicial Court held that a misclassified employee’s “contract rate is his wage rate,” a phrase that could bring huge damages to independent contractors who are not paid for every hour they are on the clock. If, for example, a limousine company pays its misclassified driver one hour’s time to perform a trip that, door-to-door, takes three hours, it has arguably underpaid the employee by two-thirds, even if the hourl rate it paid the contractor was far higher than it would have been had he/she been an employee.  It doesn’t take a math major to figure out how quickly the numbers can add up for just one worker, let alone an entire workforce full of them. Take that potential number, triple it, and add legal fees — all as required by the Wage Act — and you’ll soon realize that a single misclassification suit could put a small company out of business in a hurry.

The best practice for employers is to avoid this potential nightmare altogether. Workers in Massachusetts should be classified as employees in all but the most extreme cases. In order to qualify as independent contractors under the Wage Act, they must meet three criteria: 1) they must be free from the employer’s direction and control; 2) the service they perform must fall outside the company’s usual course of business; and 3) the independent contractor must customarily carry on an established trade or occupation. The second prong of this definition is so broad that experts wonder whether anyone can be properly classified as an independent contractor in Massachusetts. Given the damages that now are clearly available under the statute, employers should use extreme caution in this area of the law.

The action item for companies who use independent contractors is clear: review the practice and change it unless you are absolutely certain that the classification is correct. Before retaining any worker as an independent contractor, an employment attorney should be consulted. Remember, you can’t rely on a worker’s agreement to misclassification as a defense. The statute imposes strict liability upon company and individual decision-maker alike. Violation of the Massachusetts Wage Act is not a matter to be trifled with as to independent contractors or any other covered aspect of employee compensation.

Boston, MA employment lawyer Attorney Jack Merrill provides legal services to employees, employers and businesses throughout the Boston metro west and Worcester County region including Ashland, Dedham, Framingham, Franklin, Hopkinton, Maynard, Marlborough, Milford, Natick, Needham, Newton, Shrewsbury, Sudbury, Waltham, and Worcester, Massachusetts.