Massachusetts Independent Contractor (IC) Advisory: Client Control May Nullify Independent Contractor Status

Massachusetts business owners who wish to utilize independent contractors should be mindful of the amount of control exercised over these workers by clients of the business, as it is now clear that such control can be imparted to the employing unit for the purposes of determining IC status.

The Massachusetts independent contractor statute sets forth a tripartite test for examining whether an individual shall be classified as an “employee” or a “contractor.” The determination of “employee versus contractor” bears on several important matters, including (1) the employer’s responsibility for paying or providing certain employment benefits, (2) whether or not overtime must be paid to the workers in question, (3) whether withholding taxes must be taken from workers’ paychecks and (4) worker eligibility for unemployment benefits.

            Businesses who utilize independent contractors in Massachusetts are likely familiar with the three factors examined in determining employment status, that is:

  1. the degree of freedom from control or direction of the employing enterprise afforded to the worker(s) in question;
  2. whether the services in question are part of the employer’s usual course of business, and
  3. whether the relationship between employer and worker compels the worker to provide services exclusively to that employer.

What many business owners may not be aware of is that, with respect to prong (a) above, “control or direction” may be inferred from instructions or policies provided to the worker by clients of the employing business unit, and not directly by the business itself. 

Take, for example, a recent decision by the Massachusetts Appeals Court upholding the award of unemployment insurance benefits to a former driver at Subcontracting Concepts, Inc., (“SCI”) which operates a “temp agency” for professional courier companies, supplying additional drivers when necessary.   SCI had hired the driver in question under the terms of an independent contractor agreement that explicitly stated:  “No employer/employee relationship is created under this agreement or otherwise.”  And, in reality, SCI exercised little formal control over the driver in question, beyond prohibiting him from traveling with “non-essential” personnel on board during deliveries and requiring that he utilize company insurance and report any accidents to SCI. 

The difference-maker for the Appeals Court, however, was the degree of control and direction provided to the driver by SCI’s client, Ace Expediters.  The SCI contract obligated the driver to perform his work through whatever means or methods Ace required; he was also required to follow Ace’s routes for delivery, wear a T-shirt bearing the Ace logo, and ensure that anyone working with him do the same.  Based on these details, the Appeals Court concluded that SCI failed to meet its burden of establishing the driver in question as an independent contractor under the IC statute.

If you or your business have questions regarding employee classification, please contact us at (508) 381-0499.

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Massachusetts Retaliation Statute Protects Complaints Regarding Harassment of Co-Workers

In an important decision for employers, the Massachusetts Commission Against Discrimination recently clarified the scope and purpose of its anti-retaliation statute, and awarded damages to an employee who was terminated for submitting an internal complaint of sexual harassment directed by one of her co-workers towards another co-worker.The material facts of the case are as follows:  Complainant worked as a housekeeper for the Respondent nursing home, and reported a sexually explicit comment made by one of Complainant’s male co-workers towards another co-worker to the nursing home management.   Although her male co-worker was disciplined (but not terminated) for his act of harassment, the Complainant was thereafter singled out for minor performance-related issues, and eventually terminated within two months of reporting the incident. 

At the Complainant’s hearing before the MCAD, evidence was presented that suggested the Complainant had upset some of the nursing home staff by complaining about her male co-worker, and that the Respondent’s alleged concerns with the Complainant’s performance and interaction with patients had been greatly exaggerated.

The case, MCAD et al. v. Sea View Retreat, Inc., is an important reminder that M.G.L. c. 151B (the Massachusetts Fair Employment Practices Act) is a broad, remedial statute meant to eradicate retaliation against employees for engaging in “protected activity” within the workplace.  Complaints of discrimination or sexual harassment in the workplace constitute “protected activity” regardless of whether the person being subjected to the discrimination or harassment is (1) the complaining employee, (2) a fellow employee, or presumably even (3) a non-employee – for example, a contractor or outside representative of the employer.

 If you or your business have questions relating to harassment or discrimination in the workplace, please contact us at 508-381-0499.

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Commercial Property Owners: Ensure Your “Insured” Status

A recent personal injury case demonstrates that commercial property owners simply cannot be too cautious when it comes to ensuring their status as an additional insured on certificates issued to their tenants and contractors.  Specifically, owners should not rely on representations made by tenants and contractors as to communications that the latter may have had with their insurance agents and brokers regarding coverage. 

In the Superior Court case of Smith v. Roche Bros., et al. v. Perdoni, the Court rejected the claim filed by Roche Bros., supermarket chain and property owner, against the insurance agent of its snowplowing subcontractor, Perdoni, whose failure to perform its plowing services allegedly caused to the plaintiff’s personal injuries. The Court found no evidence to support Roche Bros. contention that Perdoni’s insurance agent had been made aware of Perdoni’s agreement to add Roche Bros. as an additional insured on its general liability policy (in fact, Perdoni disputed his assent to this contractual condition, which both parties admitted had been made orally and not in writing).

Ensuring adequate insurance coverage is of critical importance to commercial property owners, who will usually be named in any suit for personal injuries or property damage caused by one or more of their tenants, employees, contractors and subcontractors. But too often, commercial property owners do not perform the due diligence necessary to confirm their status as an additional insured.  Worse yet, owners will sometimes assume that their insurance agents (or those of their tenants or contractors) will perform such “risk management” functions based simply on a generalized knowledge of the parties’ business operations (e.g. knowledge that the client has several commercial tenants, or that the client is performing significant construction renovations on its property).  

When a tenant or contractor fails to add the property owner as an additional insured for purposes of coverage or liability, as required under the parties’ lease or contract, it is easy enough for the owner to bring suit for breach of contract.  However, the tenant or subcontractor will often be unable to satisfy a full judgment for serious personal injury or property damage.  Owners will then sometimes attempt to shift the responsibility for ensuring adequate coverage on to the tenant or contractor’s insurance agency.  As the Smith case demonstrates, however,  insurance brokers do not owe their clients any special legal or ethical duty in this respect, and have only a duty of care with respect to required insurance coverage of which they have been made aware. 

Owners should therefore demand a copy of any amended insurance certificates naming them as an additional insured from their tenants or contractors, and communicate the need for such amendments directly to the insurance agents of their tenants and contractors. 

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Property Trespass/Nuisance: When the Ends Don’t Justify the Means

Recently, our office won another significant jury trial in Worcester Superior Court that demonstrates our experience and expertise in local land use and construction disputes.  Our office represented the Plaintiff homeowners, whose back yard was consistently flooded after an abutting property owner blocked an opening under his barn, through which surface water historically drained.  The defendant abutter’s actions caused water to back up onto the Plaintiffs’ land. The defendant also raised the elevation of his yard along the parties’ property line effectively creating an artificial dam.

The Defendant’s defense for trespass and nuisance was that his objective, in blocking the opening and stopping the flow of surface water under his barn, was reasonable and necessary to prevent water from causing damage to home’s basement.  The defendant asserted the reasonable use doctrine, which allows a property owner to use their property in a reasonable manner even if such use causes flooding to one’s neighbor.  The evidence at trial, however, established that the defendant made, little if, no effort to come up with an alternative solution, knowing his actions would in turn cause substantial flooding to plaintiff’s land.  It should also be noted; defendant’s action had little impact on actually reducing the amount of water coming into his basement and barn.

The jury while acknowledging, the protection of one’s property was certainly reasonable, found defendant’s method was unreasonable under the circumstances. The Jury awarded plaintiffs’ the diminished value of their property due to the flooding.  Plaintiffs’ were also entitled to 12% statutory interest from the date of filing the complaint, or approximately 36% of the judgment.  Perhaps most importantly, due to a careful analysis of the claims and questions presented to the jury for decision, all potential appellate issues were disposed of prior to, or during trial, allowing for a “speedy draft” to be tendered to the client within days of the verdict.  In the end, preparation by this office and its experience in land use and construction paid off.

One final aspect of this case that should be of interest to past, present and future clients, is how the defendant’s homeowners’ policy came into play in such a case.  The defendant was found liable for creating a nuisance that damaged plaintiffs’ property, The defendant was not found liable for intentional trespass, as a result of water backing up and flooding plaintiffs’ land.  Given the defendant’s conduct was found not to be intentional; the defendant’s carrier had no basis to deny coverage under defendants homeowners liability provision. The insurance carrier paid the full judgment plus interest (leading to the “speedy draft” previously mentioned).

If you or your business requires assistance with a land use or residential construction project, please contact us at 508-381-0499.

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The “Who, What, When, Where and How” of Claims for Code-Related Injuries

 

Significant legal precedent has developed in Massachusetts recently concerning liability for personal injuries resulting from defective or unsafe conditions found on commercial and residential properties.  This issue holds significant implications for owners, landlords, tenants and property managers.

The easiest way to analyze liability for defective conditions on commercial and residential property is to conduct a simple “Who, What, Where When, and How” with respect to the events leading to those injuries sustained.  More specifically:

Who was in control of the building at the time of the injury; owner?  The landlord (if different from the owner)?  A property management company?  A commercial tenant?  The issue of control is typically determined by analyzing the various contractual arrangements in place at the time of injury, and the obligations assigned thereunder.  More than one party may be liable for the failure to make a premises safe.

What type of building – commercial or residential?  Strict liability will be imposed on any person in control of a commercial property as a result of any personal injuries sustained on the property due to building code violations.  With respect to mixed-use buildings, residential areas can be distinguished from areas open to public; if the injury takes places on a residential area, the next question is:

When did injury occur – before or after notice to the person or entity in control of the property?  With respect to residential properties, damages will be awarded for injuries sustained as a result of known defects that the person in control has failed to repair within a reasonable amount of time.

Where on the premises was the unsafe or defective condition causing the injuries found?  Somewhere vital to the use of the leased premises?  Not every building code violation amounts to a material danger to the health and safety of occupants.  With respect to injuries taking place on commercial properties, this question is important for purposes of analyzing the foreseeability of whatever injury has occurred.  With respect to residential properties, this question is of utmost importance, because defects found on an area vital to the tenants’ enjoyment of the property will constitute a “breach of the implied warranty of habitability” if not timely repaired; any injured party can subsequently seek 3X the amount of their actual damages in Court.

How – for any personal injury action, the building code violation must be the proximate cause of the injury in question; that is, the injured party must prove that there was greater probability that the injury complained of was more likely due to the defect or code violation in question than any other cause.

If you have any question concerning liability for conditions discovered on a piece of commercial or residential real estate you own, please contact the attorneys at The Law Office of Peter M. Mirageas.

 

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Five Types of Wage Deductions that Employers Should Always Avoid

The question of what deductions can be permissibly taken from employee earnings presents a legal minefield for many employers. Often, this issue arises within the context of a broader dispute as to whether workers have been properly classified as employees or “independent contractors.” Massachusetts has one of the strictest tests in the country for lawfully classifying workers as independent contractors. However, I continue to see cases of improper wage deductions being taken from both misclassified “contractors” and recognized company employees.

The general test is that an employer may not transfer its ordinary costs of doing business – in other words, its overhead – to an employee. Replacing stolen and damaged equipment, insuring against the risk of personal injury to workers and third parties, and the costs of complying with state or federal regulatory requirements are among those that must be borne by employers. Here are five specific deductions from employee earnings that are nearly certain to result in future claims for unpaid wages:

1.   Workers’ Compensation/CGL/Automotive Liability: perhaps the most obvious on this list, many companies still attempt to pass the costs of insuring against work-related injuries on to their employees. Both the Massachusetts Supreme Judicial Court and the First Circuit Court of Appeals have explicitly rejected such cost-shifting schemes. Delivery and transportation companies are also barred from assessing drivers a liquidated “penalty” for any accidents in which they are involved, as these are usually just veiled attempts to offset the increase of insurance premiums.

2.   Deductions to Offset Cashier Shortages, Inventory Shortages and Dishonored Checks. The overriding goal of any such deduction is to offset risk and liability associated with employee negligence. Replace bad employees – don’t dock their pay for hours worked, no matter how productive or unproductive they have proven.

3.   Pre-hiring medical screening or drug testing. When required as a condition of employment, these costs must be borne by employers. This is regulated by statute in Massachusetts, G.L. c. 149 § 159B.

4.   Maintenance and replacement costs of company owned-equipment. So long as the equipment being repaired, maintained or replaced is company-owned, these deductions are impermissible, regardless of whether (a) the damage was caused by employee negligence, or (b) a specific employee is the only person to use the equipment in question from day-to-day.

5.   Deductions for meals and lodging may not reduce the employee’s hourly wage below the state minimum wage. While not entirely impermissible, employers must ensure that weekly or bi-weekly deductions for employee uniforms and lodging do not reduce the applicable hourly wage received below the Massachusetts minimum wage (set to increase to $11.00 per hour by 2017).

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Trade Secrets Part II: Does “Non-Disclosure” Ever Mean “Non-Compete”?

 

Assuming that an employer has taken reasonable security measures to protect its bona fide trade secrets, what can be done after a former employee breaches the parties’ confidential relationship and begins working for a competitor? In Boston Scientific Corp. v. Lee, the United States District Court in Massachusetts provided several considerations that weigh against restricting an employee’s right to work for competitors solely because the terms of a confidentiality or “non-disclosure” agreement have been breached.Boston Scientific, a medical device manufacturer, had filed suit and moved for a preliminary injunction ordering the immediate return of all confidential information that its former scientist, Dr. Lee, had transferred to his personal e-mail account and external hard drive prior to resigning from the company.  Boston Scientific also requested that the Court prohibit Dr. Lee from working for “Nevro,” a competitor that hired Dr. Lee following his resignation, arguing that Dr. Lee would inevitably disclose the trade secrets in his possession to Nevro.As part of the Court’s decision, Dr. Lee was ordered to return all confidential information obtained from Boston Scientific, the transfer of which had clearly violated the parties’ non-disclosure agreement.  However, the Court refused to block Dr. Lee’s continuing employment with Nevro, finding it unlikely that any “irreparable harm” to Boston Scientific would occur.  The Court first noted that Dr. Lee’s employment contract with Nevro contained an explicit non-disclosure clause with respect to any confidential information of Boston Scientific in Dr. Lee’s possession.  Second, the Court pointed out that Dr. Lee was hired to perform scientific research at Nevro, which differed from his product development responsibilities at Boston Scientific.

Even if Boston Scientific had demonstrated that the disclosure of its confidential information was more likely than not, its request to block Dr. Lee’s continuing employment with Nevro seemed to be a Hail Mary throw.  That’s because Dr. Lee had never agreed to any future restrictions on his options for employment following separation from Boston Scientific.  In Massachusetts, agreements to restrict an employee’s future employment (“non-competes” must be (1) reasonable in time and scope and (2) bargained for between the parties.   But Boston Scientific’s request had no geographic or temporal limitations, nor had the company ever requested Dr. Lee to sign off on any restrictions regarding his future employment.

In conclusion, employers who would seek to restrict the future employment of individuals who are found to be in breach of company policy regarding confidential information should notify and obtain the agreement of employees to such restrictions at the outset of their employment.

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“Guilty by Association”: Understanding Indirect Employment Discrimination

 

Employers of all sizes should understand the difference between direct and indirect claims for employment discrimination.  As a result of the Supreme Judicial Court’s decision in Flagg v. AliMed, Inc. last year, both forms of discrimination are now explicitly recognized in Massachusetts, and can result in monetary damages and other sanctions being assessed against employers.   The Flagg case is significant, as indirect discrimination or “associational bias” claims typically arise in factually complex situations that may not be obvious to managers and other HR decision maker.

Indirect discrimination claims are based on the aggrieved employee’s association with a third party who is a member of the group that is alleged to be looked upon unfavorably by the employer.  For example, the following scenarios may present questions of “associational bias” before the state and federal of Massachusetts:

1)  A female employee’s husband is partially disabled and, within a year of his accident, she is terminated.   She believes her termination has been motivated by the employer’s desire to avoid paying her husband’s medical expenses (this issue was in fact litigated, and decided in the employee’s favor in Flagg).

2)  The Director of a local youth camp is terminated for having a gay son or   daughter participating in the state chapter of a well-known LGBT group.

3)   Two males, a fourth generation Irishman and a first generation Iraqi, are cousins through marriage and work together at ABC Engineering Corp. in Boston.  A new supervisor terminates the Iraqi’s employment within six months of assuming his position, and subsequently demotes the Irish engineer based on his relation, friendship and vocal opposition to the Iraqi cousin’s termination.

4)   Shelly works for a local office supply company owned by a state representative known for his pacifist views, with whom Shelly grew up with.  Shelly is now married to an active-duty member of the United States armed forces, and both she and her husband are active participants in a state-wide campaign for veterans’ preference legislation.  Shelly is transferred to another office 60 miles away from her hometown because of her marriage and advocacy.

As you can see, the “association” in question can arise out of both familial relationships and civic affiliations.  Employers may justifiably argue in many associational bias claims that the facts presented do not suggest any outright hostility or animosity towards the protected class, but instead reflect a simple cost-benefit analysis – “financial bias,” if you will – or protected political speech.

The United States District Court in Massachusetts has highlighted two critical factors in analyzing associational bias cases.  First, whether the employee in question is subject to the same harassment, stereotyping or intimidation as that commonly experienced by actual members of the protected class; for example, the Court would be interested in whether homophobic or anti-Arabic slurs had been used around the youth camp Director, or the Irish engineer in the examples above.  Second, the courts will analyze whether the alleged association is with a specific individual or discrete group of individuals, as opposed to general advocacy on behalf of an entire class.  In Perez v. Greater New Bedford Vocational Technical, the District Court recently dismissed a claim for associational discrimination based upon a teacher’s advocacy for the high school’s disabled student population, holding that such a relationship was too attenuated to trigger protection under the applicable discrimination laws.

Often, the final decision makers on personnel changes do not have day-to-day contact with company managers, let alone the employees that they have been advised to demote, transfer or terminate.  The best way to avoid associational discrimination claims is for these decision makers to meet with both their lower-level managers and employees prior to making any significant change with respect to one’s terms of employment. This is especially true if such a change has been advised on the basis of standardized performance reviews or improvement plans.   Any previously “unspoken issues” should be weeded out and addressed before they appear in a future claim for employment discrimination.

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“Make No Bones” About Protecting Confidential Business Information

Companies in Massachusetts must take proactive steps to prevent the improper use of confidential business information by their employees and associates, or risk losing protection of that information under the law.A claim for the misappropriation of confidential business information, or “trade secrets,” often develops after a company learns that its former associate (e.g. employee, contractor, consultant) is utilizing documents, know-how or other information in direct competition with its business.  The aggrieved company will typically seek a court injunction ordering the immediate return or destruction of this information, and seek assurances from the former associate that he or she will immediately cease and desist from using or disclosing such information in the future.

But not so fast.  Assuming that the company can prove the former employee’s possession and use of the information for which it seeks protection, it must also prove that the information is in fact a bona fide “trade secret.”  Furthermore, companies cannot simply expect employees and contractors to presume the confidentiality of trade secrets in the absence of a clear policy or agreement.

Trade secrets are based on information not known to others which, if disclosed to a competitor, would provide the competitor with some sort of competitive advantage.  In “misappropriation” cases, trade secrets should be described with specificity:  demonstrating that a former consultant “received a detailed corporate profit margin analysis on August 1, 2013” is far better than a vague reference to the consultant’s “exposure to multiple e-mails containing confidential sales information.”

The intention to restrict use or disclosure of trade secrets must be communicated to employees in clear terms, desirably in writing within employee contracts and handbooks.  Language attached to corporate e-mails and electronic password fields may also suffice.   The protection of trade secrets will not be assumed or implied through vague language or behavior.  For example, in a recent Massachusetts case  (C.R.T.R., Inc. v. Lao), a corporation’s claim for misappropriation was thrown out despite deposition testimony from two corporate employees, one who was told “not to take work out of the office,” and another who stated that she “just knew” that employer customer lists were confidential.  The result in this case was that the defendant – an independent contractor who had managed the plaintiff’s business for a number of months – was free to utilize the plaintiff’s records concerning pricing, billing, sales, supply costs and marketing, with which he had allegedly absconded.

In short, ­­­­employers should “make no bones” about notifying their employees and business associates as to the existence and allowable use of any confidential information with which they may come across.  Informal discussions or “mutual understandings” on this subject are likely to create more headaches than they prevent.

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Bad Faith Representations to Pay Architect for Design Services Land Building Owner in Hot Water

Subcontractors, suppliers and design professionals:  when a general contractor or developer falsely promises payment in order to induce you to do additional work or supply additional materials, the consequences for the general contractor can be steep. This is especially true if your bargaining power with the developer or general contractor is relatively weak, and your business is relying heavily on the unpaid contract in question.

These lessons were recently reinforced by the Massachusetts Appeals Court in the matter of Kelleher v. Truran, a case involving the renovation of New Bedford’s historic Bristol Building. The project required continuing review and approval from the building owners’ architect.  The architect, Mr. Kelleher, worked on the project for months without payment due to his firm’s financial dependency on the project and representations made to him regarding future payment of outstanding invoices. Mr. Kelleher eventually sued, prevailed at trial, and received a judgment for twice the amount of his unpaid invoices, plus his legal fees. The Appeals Court upheld the decision and found that the building owners’ conduct in “stringing along” Mr. Kelleher constituted not only a breach of contract, but unfair and intentional misrepresentation, thus the additional damages.

The Kelleher case should deter developers and contractors from making misleading representations as to when and how outstanding invoices for additional services or materials will be paid.

Subcontractors, suppliers and design professionals can often avoid litigation similar to that in Kelleher altogether by simply protecting their rights on a project prior to performing work or supplying materials.  The security measures necessary to protect yourself differ between public projects, which are secured by payment bonds, and private projects, on which construction professionals have rights under the Massachusetts mechanic’s lien statute.

If you have any question about protecting your rights, you should contact a lawyer who is experienced in advising subcontractors, suppliers and design professionals about contractor payment and security.   A full discussion of the Kelleher case, and other construction law issues, can be found at our blog, http://www.mirageaslaw.com/blog/.

Posted in Breach of Contract, Civil Litigation, Construction, Mechanic's Liens, Payment Bonds | Leave a comment