39. Worker Misclassification Issues

The UI law carries a strong presumption that workers performing services are employees, and places the burden on employers to show otherwise. Often, employers unlawfully misclassify their employees as “independent contractors” in order to reduce payouts for unemployment, workers’ compensation, and other employee costs. The UI law uses a three-prong "ABC test" under which any individual performing services will be presumed to be an employee unless the alleged employer can prove all 3 of the following prongs:

1. The worker has been and continues to be free from control and direction in performance of the service;
2. The work is performed either outside the usual course of business or outside all of the enterprise’s places of business; and
3. The worker is customarily engaged in an independently established business of the same nature as the service performed. G.L. c. 151A, § 2.

The employer bears the burden of proof on all 3 prongs. If a contract exists that gives the employer the right to control and direct the employee’s performance, the employer fails prong A, even if the employer does not exercise this right. AH c. 3, § 4A.2. The employer’s failure to withhold federal and state income taxes or pay workers compensation premiums does not affect this status determination. G.L. 151A, § 2.

Cases and Board Decisions on Independent Contractor vs. Employee Issue

• Subcontracting Concepts, Inc. v. Comm'r of the Div. of Unemployment Assistance, 86 Mass. App. Ct. 644, 19 N.E.3d 464 (2014) (courier who drove his own vehicle, but was not allowed to have nonessential passengers and was required to report accidents, was an employee, even though claimant’s agreement with the employer stated that “no employer/employee relationship is created under this agreement or otherwise,” no taxes were deducted from claimant’s pay, and he received no benefits from the employer).
• Driscoll v. Worcester Telegram & Gazette, 72 Mass. App. Ct. 709, 893 N.E.2d 1239 (2008) (news carriers were employees where newspaper retained control over order in which newspapers were delivered and retained authority to discharge carriers because of customer complaints). 
• Comm'r of the Div. of Unemployment Assistance v. Town Taxi of Cape Cod, 68 Mass. App. Ct. 426, 862 N.E.2d 430 (2007) (taxi drivers who had discretion to choose which shifts they worked and which customers to accept from company dispatch were independent contractors).
• Delivery drivers for a bakery were not independent contractors because they were not permitted to carry competitors’ products without the employer’s prior approval.  BR-108261-XA (3/10/10) (Key).
• Pedicab drivers who were contractually prohibited from using their pedicabs for other purposes and from operating a similar business within the employer’s area of business and for 12 months following their lease were employees.  BR-117473-XA (1/24/12) (Key).
• Claimant who worked for delivery company under a three-year non-compete clause was an employee.  BR-120513-XA (4/13/12) (Key);
• Truck drivers who determined their own routes, hours, truck-repair/service providers, and insurance providers were not independent contractors because: (1) the truckers could not sublease or hire others to drive their vehicle without the employer’s approval; (2) the truckers could not refuse an assignment unless another trucker was available to take it; and (3) the truckers could not use their trucks to transport goods for other carriers without cancelling their lease agreement with the employer. BR-112274XA (2/09/12).
• Coverall N. America, Inc. v. Comm'r of the Div. of Unemployment Assistance, 447 Mass. 852, 857 N.E.2d 1083 (2006) (although employer claimed individual was a franchisee and not an employee, the court held the employer did not meet the third prong of the test where claimant performed janitorial services as an employee and where the nature of the business effectively compelled her to accept work solely from the employer); 
• BR-0021 5645 27 (7/19/18) A managing editor for an advertising company who worked at home was nonetheless an employee where the employing unit failed to show that it had not “directed [the claimant] in how he performed his services").
• BR-0033 0693 47 (9/28/20) (graphic designer working in marketing department of food and beverage company was “employee” subject to employer’s control under Prong A where claimant worked a set schedule, was required to report to the employer’s worksite, used materials and equipment provided by the employer, reported to a supervisor, and was required to attend employer meetings).
• BR-0031 4060 69 (3/26/20) (Claimant hired to captain a fishing vessel was employee under Prong B, as he performed services in the usual course of the employer’s business of commercial fishing. The claimant performed services at the company’s “place of business” because the company owned the fishing vessels, and the fishing services were necessarily performed on the  vessels).
• BR-SEC2-19-001 (4/24/19) (holding that the employing unit failed to show that golf lesson services performed at the employing unit’s driving range and golf course were not employment where the services were done at the employing unit’s place of business, and the services were similar to those already provided by another employee).
• BR-SEC2-18-002 (2/7/19) (Key) (Personal trainers and group exercise class instructors were held to be employees of the employer fitness club. Employer failed to sustain its burden that these services were outside the usual course of the business for which the services are performed where the services at issue were offered on a regular and continuing basis, and the employer scheduled exercise class for the instructors, provided equipment for trainers and exercise classes, and advertised for the services and portrayed many of its trainers and instructors as members of the staff).
• BR-0019 6946 15 (9/25/17) (Key & affirmed by D. Ct.) (holding that employer failed to show that internet video production services were not employment where claimant spent time every day working at premises leased or owned by employer, services were not performed outside of the places of the employing unit’s enterprise, and requiring the claimant to produce hundreds of videos took so much time that claimant was incapable of offering his services to other clients).
• BR-1919023 (1/14/15) (A person in a “talent” position was an employee where she was not “free from the direction and control of the employing unit when she performed her services.” The claimant relied on the employing unit’s instructions on where and how to perform the assigned marketing services; the employing unit, not the client, directly paid the claimant, and claimant had to accept the rate of pay that the employing unit offered to her).
• BR - 0002 4356 65 (6/20/14) (holding a worker who worked at a law firm that exercised a reasonable degree of control over her work was an employee, not an independent contractor); BR-106002-XA (6/23/08) (Key); similarly, mortgage originators who work under a broker’s license are employees. BR-102711-XA (11/21/07) (Key).
• BR-121929-XA (6/26/12) (Key & affirmed by D. Ct.) (tutors, who were required to meet extensive reporting and performance requirements, were subject to so much direction and control by the employing unit within the meaning of G.L. c. 151A, § 2(a), as to be employees, notwithstanding the tutors’ high level of skill and the fact that several tutors held themselves out as independent contractors).
• BR-110709-XA (1/13/11) (Key) (where a carpenter performing services in customers’ homes for the employer’s remodeling company was not a registered home improvement contractor under G.L. c. 152, § 14, he was incapable of performing services as an independent contractor as a matter of law).

Employers are required to “keep true and accurate records of all individuals employed” G.L. c. 151A, § 45, and to pay contributions based on the wages of those employees. 430 CMR 5.03(3). If the alleged employer raises a question about employee status, the case is sent to the Status Department, where the DUA Adjuster conducts a “status determination,” asking a series of questions of both parties to get at the facts relevant to the three-prong test. An advocate may intervene and provide the Status Department with information. Both the alleged employer and the claimant are interested parties to this determination and may appeal an adverse determination. Advocates should note, however, that this determination should not delay DUA’s payment of benefits. Services performed by claimants must be considered “employment” subject to the UI statute “unless and until” the employer demonstrates otherwise. G.L. c. 151A, § 2 (emphasis supplied); 430 CMR 5.03(6) (“The individual performing the service shall be deemed an employee until and unless the Commissioner determines otherwise”).

Employers who misclassify their workers have almost certainly not provided wage records to DUA. The result is that claimants who apply for UI after separation from those companies are often issued a monetary disqualification reflecting no wages on record for the claimant (or, if the claimant had other base period employment, they may receive a reduced benefit amount as a result of missing wages). Currently, to challenge their misclassification, claimants must appeal their monetary determination and provide DUA evidence of their earnings. However, this process is cumbersome, and often leads to significant delays in claim payments due to the complexity of adjudicating employment status. Despite this procedure, DUA is in fact required by its regulations to establish monetary eligibility based on a claimant’s own statement of wages in the absence of employer-provided wage information. 430 CMR 5.04(3). Recent federal case law suggests that the delays in payment which result from an unemployment agency’s failure to establish monetary eligibility based on a claimant’s own evidence of their wages where an employer has failed to report wages violates the “when due” requirement for timely payment of UI benefits. See Islam v. Cuomo, 475 F.Supp.3d 144, 161 (E.D.N.Y. 2020).

In 2008, Governor Patrick signed Executive Order #499 establishing the Joint Employment Task Force on the Underground Economy and Employee Misclassification, later codified in the General Laws. St. 2014, c. 144, §§ 23, 24, adding § 25 to G.L. c. 23 and amending G.L. c. 62, § 21. The Task Force has since been replaced by a permanent Council on the Underground Economy (CUE). More than 17 state agencies participate in CUE, whose mission is to ensure business compliance with applicable state labor, licensing, and tax laws. A toll-free referral line ((877) 96-LABOR) and email address (CUETIPS@Mass.gov) are available to provide information and to receive complaints about suspected cases of misclassification.  See https://www.mass.gov/orgs/the council-on-the-underground-economy-cue. Annual reports issued by the CUE are available at https://www.mass.gov/cue- annual-reports . In 2020 (the most recent report published to date), DUA reported recovery of just over six million dollars in CUE-related cases, down from a high of just under $16 million in 2014.