From Lexology, Anthony S. Califano and Barry J. Miller discuss recent Massachusetts appellate decisions relating to to the application of Massachusetts’ independent contractor statute. While previous posts have discussed the 7-Eleven decision, Anthony and Barry also discuss a case in which a software developer provided services through his S-corporation and was found to be an independent contractor. Anthony and Barry write:
In Weiss, the plaintiff was a software engineer who established a business entity, specifically an S-Corporation, which the plaintiff owned and controlled. Weiss, 104 Mass. App. Ct. at 2. The plaintiff formed his business entity one year before he did any work for the defendant, an investment firm. Id. at 3. The defendant contracted with a third-party staffing company for software-related services, and the staffing company in turn contracted with the plaintiff’s business entity to perform the services. Id. at 2-3. The defendant paid the third-party staffing company for the services, and the staffing company paid a portion to the plaintiff’s business entity, from which the plaintiff drew a salary. Id. at 3.
The Weiss case went to a jury trial. After the presentation of evidence, the court submitted a special verdict form to the jury, asking the jury to evaluate the plaintiff’s claim of independent contractor classification. As in Patel, the court acknowledged the importance of the threshold “service” question before reaching the ABC test. See id. at 2-6. Specifically, the court asked the jury, based on all the evidence, whether the plaintiff established that he provided service to the defendant “through legitimate business-to-business relationships with either [the staffing company or his S-Corporation], or were those businesses created and maintained for purposes of misclassification” of the plaintiff. Id. at 6 n.6. The jury answered this question in favor of the defendant, finding that the plaintiff provided service through legitimate business-to-business relationships. Because the jury answered this question in favor of the defendant, finding that the plaintiff failed to meet his threshold burden, the trial court held that the ABC test did not apply and entered judgment in favor of the defendant. Id. at 6.
The Massachusetts Appeals Court affirmed the trial court’s judgment. In its decision, the Appeals Court observed the distinction between an independent contractor relationship where an individual provides a service directly to a business and one where an individual provides service through an intermediary business entity. Id. at 2-3. To be clear, the Appeals Court stated:
Where individuals provide services directly to the employer, the application of the [independent contractor] statute is relatively straightforward: they are presumptively considered employees unless the employer – carrying the burden of proof – proves that three separate [ABC] prongs are all satisfied. However, the situation becomes murkier where the individual provides services to the employer through an intermediary entity. In such circumstances, the individual may not have standing to pursue a misclassification claim, because the statute was not intended to bar legitimate business-to-business relationships. The question is whether the corporate form of the intervening firm presents such a relationship or instead is one whose raison d’etre is to prevent the classification of workers as employees.
Id. at 2-3 (internal quotation marks and citations omitted). This reasoning was a logical extension of the SJC’s decision in Jinks v. Credico (USA) LLC, 488 Mass. 691 (2021), which rejected a plaintiff’s effort to invoke the ABC test to argue that she was an employee of a national broker of sales services that entered into a contract with the smaller company that actually hired, supervised, and paid the worker. The Court noted that “using the independent-contractor test exclusively to answer the joint-employer question would be rather like using a hammer to drive in a screw: it only roughly assists the task because the hammer is designed for a different purpose.” 488 Mass. at 703 (quoting Browning-Ferris Indus. of Cal., Inc. v. National Labor Relations Bd., 911 F.3d 1195, 1215 (D.C. Cir. 2018)).
The Appeals Court in Weiss acknowledged that plaintiff as an individual performed work for the defendant but that, alone, did not mean the plaintiff was an individual who provided “service” to the defendant, such that the relationship was subject to the ABC test. The perhaps subtle yet critical distinction is that the plaintiff did not provide service via a direct engagement between himself, as an individual worker, and the defendant. Instead, the plaintiff established a business entity and provided service through that business entity. Stated differently, for legal purposes, the plaintiff did not individually provide service to the defendant. Rather, the business entity that the plaintiff created provided service, while the plaintiff was merely an instrument for doing so. Had the defendant required the plaintiff to create or maintain his business, the outcome may have been different. In Weiss, however, the plaintiff established his business entity a year before working for the defendant, and he declined the defendant’s invitation to hire him directly, choosing instead to operate as an independent contractor. Id. at 11 n.13.
Key Takeaways from Patel and Weiss
Both decisions reflect that a worker who has been classified as an independent contractor asserts a claim for misclassification, the worker is not entitled to invoke the ABC test until the worker proves by a preponderance of the evidence that he or she performed “service” for the alleged employer.
The Weiss case, in particular, reflects that the detailed and particular facts of each relationship will determine whether a worker is deemed to have performed “service” for a given organization. In light of that fact-intensive legal standard, immunization from the ABC test cannot be assured. However, several practical points of advice can be gleaned from the Patel and Weiss decisions, including:
- Engage independent contractor businesses—not individuals—even if a business is wholly owned, operated, and staffed by one person.
- Pay the business entity—not an individual.
- Do not force an individual contractor to establish or incorporate a business, but rather work with individual contractors who have pre-existing business entities.
- Engage with contractors on a non-exclusive basis.
- Engage with contractors who do work for other clients.
- Engage with contractors who provide services distinct from those of your business.
- Enter a comprehensive service agreement that outlines the independent contractor relationship.
- Include in the contract, among other things, an acknowledgement by the parties that the business is providing service—not the individual worker.
An independent contractor relationship may be difficult to establish or maintain in Massachusetts, but it is not impossible. Caution and attention to detail, however, are crucial. The Patel and Weiss decisions underscore these facts.
