The Massachusetts Independent Contractor Anomaly: What is it and how can it be managed?

1. The Massachusetts Independent Contractor Anomaly:What is it and how can it be managed? Presented to M&A Club Boston Needham Sheraton Hotel, Needham, MA Wednesday, December 11, 2013 By Michael J. Radin, Esq. and Matthew S. Furman, Esq. Tarlow, Breed, Hart & Rodgers, P.C. Boston, Massachusetts MRadin@tbhr-law.com

2. E.g. IRS’s 20 Factors: Other States / Traditional Test • Worker compliance with instructions required; • Training; • Integration of worker’s services into the business; • Services are rendered personally; • Ability to hire, supervise and pay assistants; • A continuing relationship; • Set hours of work are established; • Full time is required; • Work performed on business premises; • Services performed in a set order or sequence; • Oral or written reports required; • Payment by the hour, week or month; • Payment of business and/or travel expenses; • Furnishing of tools and materials; • Worker’s investment in facilities used in performing services; • Worker’s realization of a profit or loss; • Worker performs services for more than one business at a time; • Worker makes services available to the general public; • Business has the right to discharge worker; and • Worker has the right to terminate the relationship.

3. An Employee Unless . . . Before July 19, 2004: Since July 19, 2004: (1) 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; and (2) the service is performed outside the usual course of the business of the employer; and, (3) 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. (1) such individual has been and will continue to be free from control and direction in connection with the performance of such service under his contract; and (2) such service is performed either outside the usual course of the business for which the service is performed or is performed outside of all places of business of the enterprise; and, (3) such individual is customarily engaged in an independently established occupation, profession or business of the same nature as that involved in the service performed. • Mass. Gen. Laws c. 149, § 148B (emphasis added to “Prong 2” on both).

4. Found To Be Employees Delivery Drivers Fucci v. E. Connection Operating, Inc. (2009) Taylor v. E. Connection Operating, Inc. (2013) (drivers living and working in New York with Massachusetts law clauses in their agreements). Cleaning Franchisees Awuah v. Coverall N.A., Inc. (2010) – “The[] undisputed facts establish that Coverall sells cleaning services.” See also DePianti v. Jan-Pro Franchising Int’l, Inc. (2013) (multi-tier system). Contra Jan-Pro Franchising Int’l, Inc. v. DePianti(Court of Appeals of GA 2011) Exotic Dancers Chaves v. King Arthur’s Lounge, Inc. (2009)

5. Current Court Challenges Real Estate Agents Monell v. Boston Pads, LLC (2013) – “Therefore, it is impossible for salespersons to satisfy the second prong of the independent contractor statute while simultaneously following the applicable real estate laws. . . . [Because there is a specific statue governing real estate salespersons,] ‘[t]he specific and not the general provision applies.’” This decision is currently under appeal. Boston Taxicab Drivers Sebago v. City of Boston et al. (2014?) This case is currently under advisement.

6. Penalties For Noncompliance I. Types of Damages • Timely Minimum Wage and Overtime • Benefits Other Employees Receive • E.g. vacation pay, sick pay, holiday pay, healthcare, retirement • Worker’s Compensation Insurance Premiums • Other Liability Insurance Premiums • Pay-to-Work Fees Awuah v. Coverall N.A., Inc. (2011) – “In substance, [franchise fees] operate to require employees to buy their jobs from employers, and in that respect we think they violate public policy.” II. Calculation of Damages • MandatoryTripling of All Damages • Interest (12% per annum from final violation)

7. Responsibility For Penalties “Any entity and the president and treasurer of a corporation and any officer or agent having the management of the corporation or entity shall be liable for violations of this section.” • Mass. Gen. Laws c. 149, § 148B(d) (emphasis added).

8. Managing The Anomaly (1) Pay Minimum Wage and Overtime (2) Deal with Legitimate Entities (?) Attorney General’s Advisory (2008) – “The AGO will enforce the Law against entities that allow, request or contract with corporate entities such as LLCs or S corporations that exist for the purpose of avoiding the Law.” Amero v. Townsend Oil Co. (2008) – “If incorporation alone sufficed . . . many employers would require that their employees do just that, and thereby exempt themselves from the requirements of the law.” (3) Specific Releases Crocker v. Townsend Oil Co. (2012) – “[An agreement] that includes a general release, purporting to release all possible existing claims will be enforceable as to the . . . Wage Act only if such an agreement is stated in clear and unmistakable terms. In other words, the release must be plainly worded and understandable to the average individual, and it must specifically refer to the rights and claims under the Wage Act.” (4) Restructure (?)