The court reviewed the allegations in light of statute that allowed the police commissioner in Boston to regulate the taxicab industry and the independent contractor statute. The court said that both the regulation of taxicab industry and the independent contractor statute could co-exist and that the regulation of the taxicab industry “neither precludes taxicab owners from entering into employer-employee relationships with drivers nor recasts drivers as independent contractors where they would otherwise be considered employees.”
The court then turned to the question of whether the drivers were employees or independent contractors. Many states have adopted the ABC test to determine if a worker is an employee or independent contractor, but Massachusetts modified the ABC test and the change makes it harder to qualify as an independent contractor. Massachusetts General Laws chapter 149, section 148B provides:
an individual performing any service, except as authorized under this chapter, shall be considered to be an employee under those chapters unless:—
(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; and
(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.
The second prong, “the service is performed outside the usual course of business of the employer”, is often considered the most difficult standard to meet. Most other statutes provide that “performs work outside the usual course of the company’s business or outside the company’s place of business” (italics added) which allows workers who otherwise meet the first and third prong to qualify if they are not performing the services on the company’s premises. In Massachusetts, to qualify as an independent contractor, the services must be performed outside the usual course of business of the employer. The court in Sebago offers more guidance on what is “outside the usual course of business.”
In Sebago, there were three main parties whose “usual course of business” was separate but related.
- The Medallion and taxicab owners leased taxicabs to drivers. The court said that the owners were in the business of leasing taxicabs and that their success was not directly dependent on the success of the drivers efforts and therefore transporting passengers by taxi was not part of their “usual course of business”. The court compared the situation with taxicab drivers with limousine drivers who were required to remit a percentage of their fares to the lessors of the limousines.
- The radio associations who provided dispatch services to the Medallion owners. According to the rule governing the taxicab industry, Mediallion owners were required to purchase dispatch services from the radio associations. Drivers, on the other hand, were not required to use the dispatch services. The usual course of business for the radio association was to provide dispatch services and transporting passengers by taxi was not part of their “usual course of business.”
- Taxicab drivers leased the taxis from the owners. Taxicab drivers may have engaged in the business of transporting passengers for a fee.
The court narrowly construed the usual course of business for both the owners and dispatchers. The usual course of business for the owners was leasing taxicabs; the usual course of business for the radio associations was providing dispatch services to the owners. Both owners and dispatchers business relied on the taxi business (if no one was transported by taxi, there would be no need for either taxicab leasing or dispatch services) but the court said that they did not directly rely on the taxi business. The court said that they were separate and transporting passengers was outside the “usual course of business” for taxicab owners and dispatchers.
The court also reviewed the first and third prongs of the test and concluded that the drivers were independent contractors. With respect to the first prong, freedom from control or direction, the court noted:
- Drivers received minimal direction
- Drivers chose the shifts they worked
- Drivers were free to transport as many or as few passengers as they wanted during those shifts
- Drivers were free to operate his/her business in exchange for fares and tips
- Drivers were free to lease vehicles from a different medallion owner
- Drivers could decline to accept dispatches
The driver’s appearance, ability to smoke, procedures, rates and standards were all governed by the taxicab industry regulations.
With respect to the 3rd prong, whether the drivers were customarily engaged in an independently established occupation, the court noted that “the critical inquiry under this prong is whether ‘the worker is capable of performing the service to anyone wishing to avail themselves of the services, or conversely, whether the nature the business compels the worker to depend on a single employer’…” In this case, the drivers could lease taxicabs from whomever they wished and could lease from a different owner each day of the week.
The court recognized that ” ‘[m]isclassificaation not only hurts the individual employee; it also imposes significant financial burdens on the Federal government and the Commonwealth in lost tax and insurance revenues,’ and ‘gives an employer who misclassifies employees as independent contractors an unfair competitive advantage over employers who correctly classsify their employees and bear the concomitant financial burden.'” These concerns were not applicable to taxicab drivers because the drivers were not included in the definition of “employees” under the workers compensation, unemployment or income tax withholding statues.
Sebago is significant because it provides more guidance on the interpretation of the independent contractor statute. As the Attorney General noted in its advisory opinion, courts have had few opportunities to interpret the statute and there is a lack of judicial precedent. The challenge that Sebago presents is that it involves the taxicab industry which is highly regulated — taxi drivers appearance, ability to smoke, rates and standards are all set forth in the regulations. This leaves open the question of how the court will interpret the statute in other industries.