Massachusetts Employers May Be Liable to Out-of-State Employees Misclassified as Independent Contractors

Massachusetts employers have long labored under the strictures of the Massachusetts independent contractor statute, General Laws c. 149, §148B, which makes it exceptionally difficult to engage workers in Massachusetts as independent contractors rather than employees. A misclassification, coupled with a failure to pay overtime, can result in liability for treble damages plus attorneys' fees. But can employers also be held liable under Massachusetts law even when the misclassified employees do not live or work in the state? Yes, they can, says a recent opinion from the Massachusetts Supreme Judicial Court.

In Taylor v. Eastern Connecticut Operating, Inc., a decision issued May 17, 2013, the court directly answered the question of whether "individuals who live and work outside of Massachusetts for a corporation headquartered in Massachusetts may bring an action in a Massachusetts court to enforce certain Massachusetts independent contractor, wage and overtime pay statutes." The plaintiffs lived and worked in New York as couriers for the defendant company, which was headquartered in Massachusetts. The plaintiffs contracted with the company to provide courier services as independent contractors. Their agreement stipulated that Massachusetts law governed the relationship. When the couriers filed suit alleging that they were misclassified and are owed overtime pay, the company argued that the Massachusetts independent contractor statute should not apply to work performed in other states by non-Massachusetts residents. The court disagreed, finding no limitation on the statute's geographic reach. The court held similarly that the couriers' claim for overtime wages could proceed as well.

Choice of Law Provision Is Key

The critical inquiry, therefore, is not whether these Massachusetts statutes can apply to work performed in other states — they can — but whether Massachusetts law or the law of another state should apply to the particular circumstances of each case. In Taylor, the court upheld the choice of law provision drafted by the employer. Absent such a contract provision, Massachusetts courts will apply a functional choice of law analysis, which looks at several factors including competing public policy implications and which state has the more substantial relationship to the dispute.

There are at least three lessons for Massachusetts employers to draw from the Taylor decision:

1. The Massachusetts independent contractor and overtime pay statutes may apply to non-residents working outside the state.
2. Independent contractor classifications and overtime pay procedures should be audited regularly, and the audits should include work performed in other states.
3. Employers should consider designating the laws of other states to govern agreements with independent contractors who provide services outside Massachusetts.

For more information about these and other employment issues, please contact the authors of this alert or your Holland & Knight Labor and Employment lawyer.