Massachusetts has one of the most—if not most—restrictive independent contractor statutes in the United States. The statute was passed in an effort to drastically reduce the number of individuals who can be properly classified as independent contractors. It creates a framework that requires employers to treat the vast majority of their workers as employees entitled to the benefits and rights of employment.

Not surprisingly, businesses that have traditionally relied on the independent contractor model to deliver their services have found that the statute presents a serious problem. Unfortunately, various challenges to the law, including a recent effort described below, have been unsuccessful.

Presumed to Be Employees

Under the independent contractor law, workers are presumed to be employees unless the business for which they work can meet all three prongs of the following test:

1. The individual is free from the business's control and direction in the performance of the service, both under a contract and in fact.
2. The service being performed lies outside the usual course of the company's business.
3. The individual is customarily engaged in an independently established trade, occupation, profession, or business of the same nature as the service being performed for the company.

If any of those statements about an individual's work are not true, he 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.

Aviation Attack?

Over time, courts have grappled with whether the Federal Aviation Administration Authorization Act of 1994 (FAAAA), which applies to employers in the motor carrier industry, preempts the Massachusetts independent contractor law. If the law is preempted by the FAAAA, motor carrier employers would be able to disregard the independent contractor requirements for certain workers. Recently, the Supreme Judicial Court (SJC), which is the highest state court in Massachusetts, weighed in on the issue.

Generally, a state law that conflicts with a federal law may be preempted by the federal law, and when that occurs, the federal law will be deemed to control. In the various challenges to the Massachusetts independent contractor law, motor carrier companies have claimed that the independent contractor law is preempted by the FAAAA because the federal law, which was enacted in an attempt to deregulate the trucking industry, prohibits states from enacting or enforcing laws regarding the "price, route, or service of any motor carrier . . . with respect to the transportation of property."

The recent case before the SJC involved RDI Logistics, Inc., a company that provides delivery services for furniture retailers. RDI contracts with truck drivers to provide its delivery services. The truck drivers filed a lawsuit against RDI alleging they were misclassified as independent contractors and were entitled to overtime pay. RDI responded that the independent contractor law couldn't apply to it because the state law was preempted by the FAAAA.

RDI claimed that the second prong of the independent contractor test is invalid under the FAAAA because requiring trucking companies to use employees rather than independent contractors to perform their services imposes a "significant impact" on motor carriers. The trial court agreed with RDI and dismissed the drivers' claims.

The drivers then appealed, and instead of the case heading to the Massachusetts Appeals Court, which is the typical route for appeals of trial court decisions, the SJC granted direct appellate review, which means the case went straight to the highest court in the state.

The SJC agreed with RDI's argument that the second prong of the independent contractor test has an impermissible impact on transportation services under the FAAAA and is therefore preempted by federal law.

However, the court concluded that the FAAAA does not preempt the entirety of the independent contractor statute; rather, it supersedes only the second prong of the test. Instead of declaring the entire law preempted, as the lower court had done, the SJC decided that prongs one and three still apply to motor carriers, which therefore are not free to disregard those parts of the law. Chambers, et al. v. RDI Logistics, Inc., et al. (SJC 2016).

Bottom Line

So, what does all of that mean? Employers covered by the FAAAA get a small break from the independent contractor statute because of this decision. Specifically, motor carrier companies have to meet only the criteria set out in prongs one and three of the independent contractor test in order to deem their workers independent contractors instead of employees. Although the test is still difficult to meet, it isn't as difficult, or nearly as impossible, as it was when motor carriers had to consider prong two of the test.

You still need to be careful when classifying individuals as independent contractors. One misstep can lead to years of litigation over unpaid wages, which can be tripled under Massachusetts law, meaning a lawsuit could be incredibly costly in the long run. As a result, consult with labor and employment counsel whenever you are considering treating workers as independent contractors instead of hiring them as regular employees.

Amelia Holstrom is an associate at the firm of Skoler, Abbott & Presser, P.C. and an editor of Massachusetts Employment Law Letter. Amelia can be reached at 413-737-4753 or aholstrom@skoler-abbott.com.