Foreign manufacturer misclassifies Mass. sales rep as contractor

From Massachusetts Lawyers Weekly, Eric T. Berkman discusses a recent Massachusetts case in which a sales representative was determined to be an employee under Massachusetts’ ABC test. Eric writes:

A Massachusetts resident who provided outside sales services to a Taiwanese manufacturer was misclassified as an independent contractor and entitled to Wage Act protections, a U.S. District Court judge has found.
In a 2002 contract, defendant Powertech Industrial Co. agreed to pay plaintiff William Valle on a commission-only basis to generate orders for its products from U.S. companies.
They entered a new contract in 2009 that did not specify Valle’s commission rates. Instead, Powertech informally relied on a spreadsheet of commission rates from the prior contract, and Valle generally accepted payment at those rates.
A dispute later arose over Powertech’s attempt to lower Valle’s rates unilaterally and he brought a misclassification claim, alleging that he was an employee entitled to Wage Act protections for commissions he claimed had not been paid in full.
Powertech argued that Valle was not an employee because his sales services fell outside the usual course of the company’s manufacturing business.
Judge Denise J. Casper disagreed.
“Although Powertech’s ‘Core Competence’ as described on its website does not include ‘sales,’ Powertech has a sales division with seven employees that makes direct sales to customers or commercial resellers,” Casper wrote, denying the defendant’s motion for summary judgment. “[T]he differences between Valle and the employees in the sales division are that Valle, unlike the others, could not provide quotations to customers, could choose which customers to pursue …, was expected to work ‘quicker’ in forming customer relationships and sometimes travelled with customers. … He was also paid through commissions.”
Casper also rejected Powertech’s argument that the 2009 contract was unenforceable to begin with because it was missing a material term — namely Valle’s commission rates.
“The Massachusetts Uniform Commercial Code … permits a court to consider the course of dealings between parties to the extent such dealings explain or supplement existing contractual terms,” Casper wrote. “Although Powertech did not formally incorporate the spreadsheets as an addendum to the [2009] agreement, it is undisputed that both parties continuously relied on the rates listed in the spreadsheets for at least six years.”
The 28-page decision is Valle v. Powertech Industrial Co. Ltd., et al., Lawyers Weekly No. 02-231-19. The full text of the ruling can be found here.
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Core business?
Casper found that under the Massachusetts independent contractor statute, G.L.c. 149, §148B, Valle was, in fact, an employee.
The judge noted that the statute requires an employer that has classified a worker as an independent contractor to show that the worker is free from control over the performance of the service; that the service falls outside the “usual course” of its business; and that the worker is engaged in an independently established trade of the same nature as that service.
Specifically, Casper determined that Powertech could not show that Valle’s sales services fell outside its usual course of business. For example, she noted, the “Customer Care” section of its website and its sales catalog touted its “prompt replies” to customer requests.
Additionally, she said, Powertech had an internal sales division responsible for most of its sales, and Valle’s role did not significantly differ from that division’s employees.
“Here … Powertech’s sales were not merely incidental to its business,” Casper said, finding that because Valle was an employee, he was eligible for Wage Act protection.