Independent Contractors: The Massachusetts Three Part Test
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Massachusetts defines independent contractors more strictly than many other states. There are three prongs to the test and all of them must be satisfied to distinguish between an employee or independent contractor. This should not be confused with the IRS test for independent contractors, which is not as strict. Damages for employee misclassification may be more substantial than you think, so it is important to understand the rules and separate them from the most common myths.
Definition of Contractor: The Three Part Test ExplainedThe three part test, or ABC test as it is sometimes called, requires the following to be true:
A. Absence of Control Over the Independent ContractorEven a true independent contractor gets some direction. For example, if you hire someone to fix the plumbing in your bathroom you are going to give them some guidance about what you want done. You will probably tell them what hours they can be in your home, or how to lock the door behind them.
This is different from the kind of "control and direction" that makes someone an employee under Massachusetts law rather than an independent contractor. You are not telling them how to get the job done, or what tools to use. This worker is free to use his or her own judgment and experience to accomplish the task. Compare this to someone providing services who is given instructions on how to do the thing they are hired to do, rules about hours of work, dress code, or other procedures. They are then held accountable to those methods and rules by some kind of review process. This second person is given specific instructions in connection with the performance of their duties. That means they are most likely not properly classified as a 1099 employee because they are not "free from control and direction." |
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B. 1099 Employee and the Business of the Employer
Massachusetts law requires that the work done by the contractor be outside the core business of the employer. This is the part of the test that has proven to be the most problematic for businesses who use independent contractors.
In reality, a great deal of the services actually provided by contractors do relate to the core business of their employers. Even if the business meets the other two factors, if what that person does is part of the ordinary operations of the business, the employer could be breaking the law by classifying that person as an independent contractor.
For example, if I hire someone to paint my office, or plow the parking lot, those activities are not part of the usual course of my business as a law firm. The nature of the work performed is simply not part of the operations of a law firm.
If, however, I hire someone for 10 hours a week to do legal research, even on a temporary basis, that person is performing a core function of my business. That means this person likely should not be classified as an independent contractor, no matter how few hours he or she works, or how temporary the assignment.
Ancillary support services (IT consultants, payroll or accounting services) are generally permissible to engage on a contracted services basis under this part of the test. Remember that they need to meet the other two tests as well. They must have actual independence and offer similar services to others. You should also look closely at this part of the test if your core business activities are IT consulting, payroll or accounting.
Gray areas abound. If you operate a restaurant, it is likely that you can hire a webmaster as an independent contractor. If you operate an online store, an argument could be made that the website is part of your usual course of business, and therefore should be managed and staffed by employees under the law.
In reality, a great deal of the services actually provided by contractors do relate to the core business of their employers. Even if the business meets the other two factors, if what that person does is part of the ordinary operations of the business, the employer could be breaking the law by classifying that person as an independent contractor.
For example, if I hire someone to paint my office, or plow the parking lot, those activities are not part of the usual course of my business as a law firm. The nature of the work performed is simply not part of the operations of a law firm.
If, however, I hire someone for 10 hours a week to do legal research, even on a temporary basis, that person is performing a core function of my business. That means this person likely should not be classified as an independent contractor, no matter how few hours he or she works, or how temporary the assignment.
Ancillary support services (IT consultants, payroll or accounting services) are generally permissible to engage on a contracted services basis under this part of the test. Remember that they need to meet the other two tests as well. They must have actual independence and offer similar services to others. You should also look closely at this part of the test if your core business activities are IT consulting, payroll or accounting.
Gray areas abound. If you operate a restaurant, it is likely that you can hire a webmaster as an independent contractor. If you operate an online store, an argument could be made that the website is part of your usual course of business, and therefore should be managed and staffed by employees under the law.
C. Customarily Engaged in Independent Business
In addition to the first two criteria, the true independent contractor must be engaged in an independent established trade, occupation or business that provides services to others.
This test, too, is often misunderstood. What it means is that the contractor should not be exclusively providing services to one business. They do not always have to have other "gigs" going on at the same time, but they have to be available for other work in a business of the same nature as the services they are providing to you.
This does not mean that the contractor needs to have their own LLC or corporation. Some businesses require their 1099 workers to form a corporation. This is probably based on a belief that having a separate corporation makes the independent contractor status more legitimate.
The truth is it doesn't make a difference. If you have corporation but only provide services to one employer, you still may not meet this test. Similarly, if a worker is operating without a corporation but that worker is customarily engaged in providing services to multiple businesses, they probably do meet this test.
This test, too, is often misunderstood. What it means is that the contractor should not be exclusively providing services to one business. They do not always have to have other "gigs" going on at the same time, but they have to be available for other work in a business of the same nature as the services they are providing to you.
This does not mean that the contractor needs to have their own LLC or corporation. Some businesses require their 1099 workers to form a corporation. This is probably based on a belief that having a separate corporation makes the independent contractor status more legitimate.
The truth is it doesn't make a difference. If you have corporation but only provide services to one employer, you still may not meet this test. Similarly, if a worker is operating without a corporation but that worker is customarily engaged in providing services to multiple businesses, they probably do meet this test.
Misclassification: Limited Exceptions
There are a few exceptions to the strict application of the three part test.
Drivers of large trucks in interstate commerce. The federal Motor Carrier Act regulates drivers of trucks over 10,000 pounds in interstate commerce. Massachusetts courts have held that the Motor Carrier Act preempts the second prong of the Independent Contractor Law.
Simply put, if you drive a large truck in more than one state, your employer does not have to prove that your work is outside of their core business. They must still meet the other two parts of the test.
Licensed real estate agents. Massachusetts courts have held that the licensing statute for real estate agents takes them outside of the Independent Contractor Law. This means the common practice of employing real estate agents as independent contractors has been held lawful in spite of the three part test.
Drivers of large trucks in interstate commerce. The federal Motor Carrier Act regulates drivers of trucks over 10,000 pounds in interstate commerce. Massachusetts courts have held that the Motor Carrier Act preempts the second prong of the Independent Contractor Law.
Simply put, if you drive a large truck in more than one state, your employer does not have to prove that your work is outside of their core business. They must still meet the other two parts of the test.
Licensed real estate agents. Massachusetts courts have held that the licensing statute for real estate agents takes them outside of the Independent Contractor Law. This means the common practice of employing real estate agents as independent contractors has been held lawful in spite of the three part test.
How We Can Help
We have helped many individuals and business owners understand the Massachusetts independent contractor law. We would love to help you get clarity on your rights and obligations, and take the steps you need to take to protect your rights. You can use the button below to schedule a call back from a member of our team, or give us a call at 781-784-2322.
