Over the last two years, the Benesch Transportation & Logistics Team has written in various installments of the FLASH about the Massachusetts Independent Contractor Law, Mass. Gen. Laws ch. 149, 148B (the "Massachusetts `ABC' Test"). The Massachusetts "ABC" Test provides that a worker is properly classified as an independent contractor if the employer can show that: (A) 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 (B) the service is performed 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. As we reported in FLASH Nos. 53 and 54,1 the First Circuit Court of Appeals held that Prong B of the Massachusetts "ABC" Test was preempted for motor carriers under the Federal Aviation and Administration Authorization Act of 1994 ("FAAAA").2 Nevertheless, Prongs A and C of the Massachusetts "ABC" Test remain in play. The preemption of Prong B does not equal a free pass.
Late last month, the Massachusetts Supreme Court considered the relationship between drivers and a provider of "last mile" delivery services for retail furniture companies in Chambers v. RDI Logistics, Inc. In its opinion, the court reversed the trial court's judgment in favor of RDI on the grounds that Prongs A and C of the Massachusetts "ABC" Test were not preempted under FAAAA, and that issues of material fact existed as to whether plaintiffs had standing as individuals to assert their misclassification claims. While there is certainly nothing overwhelmingly earth-shattering about the court's decision, the facts of the case (which were construed in a light most favorable to the plaintiffs) reemphasize the importance of treating your independent contractors like any other vendor with which you do business. In addition, the opinion highlights the potential minefield when you are too clever by half.
According to the court's decision, RDI only did business with corporate entities (i.e., not individuals), and that policy extended to RDI's independent contractor drivers. The service agreements entered into between RDI and its ICs contained a nonsolicitation provision (which is not unusual) and also an onerous noncompete agreement with a three-year tail. RDI, through its managers, allegedly told drivers they would be terminated if they performed services for any company other than RDI. Moreover, the court noted that RDI regulated how its drivers loaded furniture onto their trucks, required drivers to follow prescribed routes, and mandated the use of GPS devices to make certain drivers followed the prescribed routes.
As we begin a new year, audit the relationships between your businesses and your independent contractor fleets and/or drivers, particularly your service agreements. Recognize the importance of treating independent contractors like customers or vendors. They are not employees. If you have a noncompete provision in a service agreement with an independent contractor, like RDI, ask your attorney to help you revise that agreement. Employers can restrict the ability of an employee to perform work for another employer, but independent contractors are free to perform services for others while performing services for you.
If you control the manner and means of your independent contractors' performance of services to your business, through the service agreement or through your managers or operations, like RDI did, ask your attorney to help you revise that agreement and audit your operations to make certain your operational conduct mirrors the terms and provisions of your service agreement. Employers dictate employees' routines and hours worked. Employers direct the means and methods by which tasks and assignments are performed by their employees. Employers generally control the way an employee's tasks are performed. Independent contractors, on the other hand, determine their own routines and when to work, they determine the way accepted tasks and assignments will be performed, and they are responsible only for the results or final product.
The other important takeaway from the RDI Logistics decision is to avoid the temptation in your business to act overconfidently or cutely based upon a misguided understanding or interpretation of the legal landscape. The court does not say, but the opinion suggests, that RDI was so insistent that its independent contractors be business entities as opposed to individuals because RDI, or perhaps its attorneys, mistakenly believed that corporate entities were barred from asserting misclassification claims under the Massachusetts Independent Contractor Law, which refers only to individuals. Applicable case law cited by the court demonstrates that the statute's reference to individuals does not preclude individuals providing services through a corporate entity from asserting a misclassification claim if the worker was forced to incorporate so the "employer" could misclassify the worker as an independent contractor. The court precluded summary judgment on this point because "the allegations raise the question whether the plaintiffs incorporated for their own benefit, as the defendants suggest, or whether RDI required them to incorporate in order to misclassify them as independent contractors."
The treatment of independent contractors/ owner-operators in your business is important to profitability, sustainability, and the mitigation of potentially costly misclassification litigation. It is missioncritical that your service agreements and business operations are consistent. The Benesch Transportation & Logistics Team is happy to help your business review its independent contractor program at the operational level, through an audit of your service agreements, or both. Happy New Year!