It is
usually the case that when you contract for services with another company you
have engaged it as an "independent contractor." And, as a result, its
employees cannot claim that you owe them overtime pay. But the mere fact that
the services provided are funneled through a corporate form does not end the
independent contractor inquiry, as illustrated in a December 16, 2016
Massachusetts Supreme Judicial Court decision. Chambers v. RDI Logistics, Inc.,
SJC-12080.
Facts
RDI is a furniture delivery company that
provides "last mile" delivery services for large retail furniture
companies. The plaintiffs filed a class action claiming that they had been
misclassified as independent contractors and were owed overtime pay, treble
damages and attorneys’ fees. The plaintiffs all delivered furniture for RDI for
several years on a full-time basis, working approximately sixty hours per week.
RDI only does deliveries through "independent" business entities so
each plaintiff had incorporated his own business and then entered into a
contract with RDI. The contract precluded plaintiffs from performing any
delivery services for RDI’s competitors during the contract term and for three
years afterward. RDI required that the plaintiffs wear uniforms and to display
signs on their trucks bearing either RDI’s logo or the logos of RDI’s
customers. RDI deducted from the plaintiff’s pay the costs of uniforms, truck
lease payments, and damage allegedly done to customers’ property in the course
of their deliveries. RDI also regulated how the plaintiffs loaded the furniture
on their trucks, which customers they delivered to, and the specific windows of
time in which they were to deliver their goods to customers. Finally, RDI
required that the plaintiffs follow prescribed routes to reach their customers
and use global positioning system devices to ensure that the plaintiffs did not
deviate from their assigned routes.
The Lawsuit
RDI terminated the contract of one
driver under disputed circumstances. Another driver spoke to other drivers
about his view that they were misclassified as independent contractors. When
the founder and president of RDI learned of this discussion among drivers, he
terminated the second driver’s contract. Two days later, the two terminated
drivers filed a class action on behalf of themselves and other
similarly-situated drivers. The second driver also asserted a retaliation
claim. RDI filed counterclaims.
The Superior Court granted RDI’s motion
for summary judgment, holding that the Federal Aviation Administration
Authorization Act of 1994 (FAAAA), intended to deregulate the trucking
industry, preempted the misclassification claims under the Massachusetts independent
contractor statute, G.L. c. 149, Section 148B. The Supreme Judicial Court
granted plaintiffs’ application for direct appellate review and determined that
the FAAAA only partially preempted the Massachusetts statute and also found
that there were material issues of fact for trial on the misclassification
issues as well as on RDI’s assertion that the plaintiffs lacked standing under
the independent contractor statute.
Presumption Favoring Finding of Employee Status
The Court’s preemption analysis will be
of interest to readers in the trucking industry. However, we will address only
the broader independent contractor issues here. Under Massachusetts law, as is
generally the case, an individual performing any service for a company is
presumed to be an employee rather than an independent contractor. To overcome
the presumptive and establish that the individual is an independent contractor,
an employer must prove that:
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;
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.
G.L.C. 149, § 148B. To "rebut the
presumption of employment," an employer must satisfy all three of these
prongs.
Standing
RDI argued that the protections of the
independent contractor statute apply only to "individuals" who
perform services as individuals. RDI claimed that because the plaintiffs
contracted with RDI through corporate entities, they were foreclosed from
asserting employee status. The Supreme Judicial Court responded that the
statutory protection did not expressly exclude individuals who provide services
through a corporation. The Court cited the following factors from a
Massachusetts Attorney General advisory to determine if the corporate form
represents a legitimate business-to-business relationship or a scheme to
prevent the classification of workers as employees, whether:
1. The services of the alleged
independent contractor are available beyond the contracting entity;
2. The business of the contracting
entity is no different from the services performed by the alleged independent
contractor; and
3. The alleged independent contractor is
only a business requested or required to be so by the contracting entity.
The Supreme Judicial Court observed that
this is a "non-exhaustive list of factors" and held that the
touchstone is whether the use of the corporate form "was at the worker’s
behest or forced upon the worker by an employer in order to misclassify him or
her."
TAKE-AWAYS:
1. The corporate form does not
necessarily immunize you from a misclassification claim.
2. Make a fair evaluation, with the
advice of legal counsel, on independent contractor status under the statutory
criteria.
3. Don’t try to be "clever" to
avoid treating workers as employees; the penalties can be substantial, to say
nothing of the cost of litigation.
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