From JDSupra, Danielle Dillon and Tom Pagliarini discuss the recent decision by the Massachusetts Supreme Judicial Court to adopt the Fair Labor Standards Act standard for determining joint employer status instead of the Massachusetts independent contractor statute standard. Danielle and Tom write:
In a recent decision, the Massachusetts Supreme Judicial Court (SJC) confirmed that the framework used in federal Fair Labor Standards Act (FLSA) cases, not the ABC classification test set forth in Massachusetts’ independent contractor statute, M.G.L. c. 149 § 148B, provides the appropriate test for evaluating whether an entity is a joint employer for Massachusetts wage law cases.
In Jinks v. Credico, SJC-13106, a client broker for independent direct marketing companies engaged a consulting entity to provide regional direct sales services for its national clients. The consulting entity then engaged a group of salespeople as independent contractors to perform the sales support services on behalf of the broker company.
The salespeople sued both the consulting entity which had hired them directly and the company for whom they provided the consulting services, alleging that they were improperly classified as independent contractors instead of employees and thereby deprived of minimum wage and overtime. Because the consulting entity and not the company hired them directly, the plaintiff salespeople sought to hold the company liable by arguing that the entities were joint employers.
The SJC Rejects the ABC Test in Favor of the FLSA Test
The SJC first noted that none of the applicable Massachusetts wage statutes define “employer” or expressly provide for “joint employers.” Still, the SJC held that the concept of joint employment was nevertheless embodied in the statutes. The question remained, however, what standard was to be used in determining whether there was a joint employment relationship here.
The plaintiffs urged the SJC to adopt the test set forth in the Massachusetts’ independent contractor statute, also known as the “ABC” test, in making that determination. The ABC test has a broad presumption favoring employee status. That statute provides that “an individual performing any service … shall be considered an employee,” unless each of the following three prongs are satisfied:
- 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
- the service is performed outside the usual course of the business of the employer; and,
- 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.
In rejecting application of the ABC test, the SJC distinguished the function of the ABC test (i.e., to determine whether an individual’s work is controlled by an entity or individual other than the worker him or herself) and the function of the joint employer test (i.e., to determine whether an individual, already controlled by one entity, is also deemed to be subject to the control of another entity).
Rather, in examining the text, history, and purpose of the Massachusetts wage laws, which were modelled after the FLSA, the SJC opined that the analytical framework used in determining joint employer status in FLSA cases was more appropriate. In making joint employer determinations under the FLSA, courts deploy a totality of the circumstances analysis, which requires them to analyze four factors:
- whether the entity had the power to hire and fire the individual;
- whether the entity supervised and controlled the individual’s work schedules or conditions of employment;
- whether the entity determined the rate and method of payment; and finally
- whether the entity maintained employment records.
The SJC noted that these factors are not to be “blindly applied” in making a “mechanical determination” and that no one factor is dispositive. Rather, the SJC stressed that the factors are intended to generally (and broadly) capture the nature of the working relationship at issue so that a court can appropriately assess whether an entity is, in fact, a joint employer. Further, the SJC confirmed courts who have previously applied a similar, “right to control” test in making joint employer determinations, should now use this standard instead.
Applying the four-factor test to the facts presented, the SJC determined that the company did not jointly employ the plaintiff salespeople. Guided in substantial part by an analysis of the two key governing service agreements in place between the consulting entity and the company, the SJC determined that plaintiffs presented insufficient evidence to demonstrate that the company had the power to hire and fire them. Further, the SJC found that plaintiffs failed to demonstrate that the company had the ability to control their conduct, making clear that contractual rights to ensure quality control (such as training, fraud prevention, background checks, etc.) do not constitute the sort of supervision and control contemplated by the FLSA test. Additionally, the SJC concluded that the record lacked evidence to support a conclusion that the company, not the consulting entity, determined the rate and method of payment or maintenance of employment records.
Practical Takeaways for Employers
The SJC’s decision adopting the FLSA’s narrower joint employer test and rejecting applicability of the broad ABC test may cause some employer to breathe a sigh of relief. However, given the significant liabilities and penalties associated with improper classification, Massachusetts employers should continue to review their independent contractor arrangements and external staffing agreements carefully. The SJC’s analysis also highlighted the critical role that contractual language plays in the classification determination. Such agreements should make clear the parties’ understandings as to the independent contractor relationship including, for example, memorializing the lack of control over the other entity’s workers. But employers should also make sure that in practice, the relationship demonstrates a lack of control over the subcontracted-for workers. In addition, and where appropriate, such agreements should also provide for indemnification or other contractual protections in the event that a dispute arises over such classification.