In Jinks v. Credico, an opinion issued on December 13, the Massachusetts Supreme Judicial Court declined to extend the application of the state’s highly restrictive independent-contractor statute.  The SJC held that the statute does not establish the standard for determining whether one company should be deemed the “joint employer” with another, and jointly liable for the other company’s misclassification of its employees.  Rather, the SJC ruled that a less rigid test should be applied to determine joint-employer status.   

The Massachusetts independent-contractor law, found at Section 148B of Chapter 149 of the Massachusetts General Laws, sets forth the so-called “ABC” test for determining whether a worker may be treated as an independent contractor rather than an employee.  The distinction is critical, as independent contractors need not be provided with all the rights and benefits to which employees may be entitled, such as:  minimum wage and overtime pay, income tax withholding, social security and unemployment contributions, health insurance, workers compensation, and more.  Claims by employees for unpaid wages (including overtime) resulting from misclassification can result in awards of treble damages plus attorneys’ fees.  And, of course, government agencies may look to impose additional penalties for failure to withhold taxes or provide mandatory benefits.

The ABC test states that “an individual performing any service” must be treated as an employee unless:

A – the individual is free from control and direction in connection with the performance of the service;

B - the service being performed is outside the usual course of the business of the employer; and

C - 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 defendant in the Jinks case, Credico, was a client broker for independent marketing companies.  Credico contracted with another company, DFW Consultants, to provide regional door-to-door sales services for Credico’s national clients.  DFW, in turn, treated several of its salespersons, including Ms. Jinks, as independent contractors rather than employees.  Credico did not supervise Jinks or any of the other salespersons, nor did it exercise control over their working conditions.  Credico had a contract with DFW under which DFW retained exclusive control over its own labor policies and the manner in which it provided services to Credico. 

Jinks and others sued DFW and Credico for misclassification in violation of Section 148B.  The plaintiffs argued that Credico should be considered their employer under the language of the statute because they were “performing any service” for which Credico derived an economic benefit.  The SJC, however, ruled that DFW, and not Credico, was the employer of the Jinks plaintiffs, reasoning that “the entity for whom the individual directly performs services is ordinarily the individual’s employer responsible for compliance with the wage laws.” 

The plaintiffs further argued that the ABC test set forth in Section 148B should be applied to determine that Credico was liable for the misclassification as a “joint employer” with DFW.  Again, the SJC rejected the plaintiffs’ attempt to extend the application of Section 148B.  The ABC test, the court explained, establishes whether an individual should be deemed an employee or independent contractor, but was not intended to determine joint-employer status.  Instead, the SJC ruled that the question of whether an entity is a joint employer is to be determined by “examining the totality of the circumstances of the parties' working relationship.”  The court listed four factors to be considered in this analysis:  whether the entity (1) had the power to hire and fire the individual, (2) supervised and controlled the individual’s work schedules or conditions of employment, (3) determined the rate and method of payment, and (4) maintained employment records.  Applying these standards, the SJC held that Credico could not be held liable to the Jinks plaintiffs as a joint employer.

The SJC did state that an entity can be held liable for misclassification of another company’s employees where the other company is an “alter ego” of the entity.  Moreover, the court noted, an entity can be held liable if it sets up another company for purposes of circumventing the state’s wage laws.  However, the SJC ruled that Credico was not the alter ego of DFW and that there was not sufficient evidence to find that Credico had set up DFW in order to evade the law.

The Jinks decision provides helpful guidance to businesses who contract with other entities for service providers, and generally clarifies the parameters for determining joint employer status and potential exposure under the independent contractor law.