DOL Rolls Back Obama-Era Joint Employer and Independent Contractor Guidance

By Amelia J. Holstrom - Skoler, Abbott & Presser, P.C.

June 23, 2017

Earlier this month, the United States Department of Labor withdrew its 2015 and 2016 guidance on joint employment and independent contractors. The Obama-era joint employment guidance had expanded the definition of “joint employment” to include situations where multiple employers had the mere authority to control the employees’ terms and conditions of employment, as opposed to the previous interpretation that only employers that actually exerted direct control over terms and conditions of employment would be considered joint employers.  The independent contractor guidance, on the other hand, had narrowed the definition of independent contractor under federal law, making it more difficult to classify a worker as an independent contractor.   The DOL has removed both guidance documents from its website and will no longer be adhering to the guidance.

Although employers nationwide praised the DOL’s latest move, it is crucial for employers in Massachusetts to remember that Massachusetts has one of the most – if not the most – restrictive independent contractor statutes in the United States, and that the DOL’s new enforcement priorities do not change their obligation to comply with that law.

The Massachusetts independent contractor statute was intended to drastically reduce the number of individuals that can be properly classified as independent contractors by creating a framework by which the vast majority of workers must be treated as employees and therefore are entitled to the benefits and rights of employment.  Consistent with this purpose, the statute contains a three-prong test to establish that someone is an independent contractor: (1) the individual is free from control and direction with the performance of the service, both under his contract and in fact; (2) the service is performed outside the usual course of 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.  If any of the above statements are not true regarding an individual’s work, the worker must be classified as an employee.  Under the law, it is the employer’s burden to prove that all three prongs of the independent contractor test are met.

Despite the law’s very broad language, some industries have had success in getting Massachusetts courts to carve out narrow exceptions to the independent contractor statute.  For example, the Supreme Judicial Court has held that real estate agents and Boston taxi cab drivers can be classified as independent contractors even though such employees seem never to meet prong 2 of the independent contractor test (because Massachusetts law requires real estate agents to work for a real estate brokerage, and it requires cab drivers to belong to radio associations that provide dispatch services).

In the case of real estate agents, the SJC reasoned that because the laws regulating real estate agents explicitly state that real estate agents may work as independent contractors, that language overrides the language of the independent contractor law.  In the case of cab drivers, the SJC found that the dispatch services provided by radio associations, which don’t actually own or operate any taxis themselves, are distinct from the transportation services provided by the cab drivers.

In addition, employers covered by the Federal Aviation Authorization Act of 1994 get a small break from the statute.  Because the court has found prong 2 of the independent contractor statute to be preempted by the FAAA, motor carrier companies only have to meet the criteria set out in prongs 1 and 3 to legally use independent contractors rather than hire employees.

These exceptions are very limited, however, and employers need to be careful when classifying individuals as independent contractors.  One misstep can lead to years of litigation over unpaid wages, which will be costly in the long run.