Employee or Independent Contractor?
The question of whether one is an employee or independent contractor can be a complicated one. I have defended the state independent contractor law in federal courts and enforced it at the state level. Mistakenly classifying an employee as an independent contractor when legally he or she should be treated an an employee is called "misclassification" and can be subject to civil or criminal penalties, so it's important to get it right.
There are slightly different tests to determine if one is properly to be classified as an employee or independent contractor depending upon the context in which you are looking to apply it -- unemployment benefits, for example, or the wage laws. That said, there is also a lot of overlap.
One important rule to understand first is that the employer's determination, or what is set out in a contract, does not control. In other words, just because there may be a contract in place between company A and person B that says "person B is an independent contractor, not an employee" does not end the inquiry. The question is a legal one that turns on a number of considerations.
For both wage law and unemployment purposes, it is important to look at two factors:
1. the amount of direction and control exercised by the putative employer over the putative employee; and
2. whether the putative employee is customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the service performed.
Generally speaking, the more direction and control exercised by the putative employer over the putative employee, the more it begins to look like an employment relationship and not a business to business relationship. Alternatively, the more an individual holds herself out to be an independent entrepreneur having her own business or in her own trade, the more likely she is legally to be deemed an independent contractor.
Subcontracting Concepts, Inc. v. Commission of the Division of Unemployment Assistance, 86 Mass. App. Ct. 644 (2014) provides a recent example where, even though the worker, Mr. Flynn, had a contract that called him an independent contractor and even though neither he nor the business he worked for, SCI, paid him as a W2 employee or withheld taxes, he was deemed by the courts to be an employee as a matter of law and able to collect unemployment.
The courts looked at the two factors discussed above -- the direction and control exercised by SCI over Mr. Flynn as well as the extent to which Mr. Flynn held himself out as an independent entrepreneur. Mr. Flynn worked as a delivery driver delivering packages for SCI:
Under the contract at issue, SCI required Flynn to submit to the control or direction of Ace, SCI's client. Flynn had a contractual obligation to SCI to perform his work through whatever means or methods Ace required. SCI required that Flynn check with Ace prior to working for any other carrier, follow Ace's delivery routes and wear a T-shirt bearing the Ace logo, and ensure that anyone working with Flynn met SCI's requirements. SCI controlled how Flynn maintained the vehicle he used for deliveries and who he allowed in his vehicle while servicing SCI's customers. While Flynn had some choice as to the manner in which he performed his deliveries, SCI had authority to exercise a substantial degree of control over numerous details of the performance (citations omitted).
.... In this case, Flynn, ... depended on a single employer for the continuation of the services he performed while not wearing the hat of his own independent enterprise. Flynn worked five days a week for Ace between 9 p.m. and 6 a.m., with little time to engage in any independent enterprise. Flynn worked for no one else during the period he was employed by SCI. Flynn was required to obtain approval prior to performing work for any other clients, thus placing limits on his ability to work for anyone wishing to avail themselves of his services (citations omitted).
Because SCI maintained a significant amount of direction and control over Mr. Flynn and because he was not able to maintain his own independent enterprise, the Massachusetts Appeals Court and the Division of Unemployment Assistance (DUA) determined that he was an “employee,” who performed “employment” services for SCI, who was his “employer” under the unemployment statute. G. L. c. 151A, § 2.
For purposes of the wage laws, the Attorney General's Fair Labor Division -- where I used to work -- has issued an advisory on how it interprets and enforces M.G.L. c. 149, s. 148B. If you need help determining proper classification of employees v. independent contractors, contact me.