Massachusetts Employment Law Letter

Call me a taxi! Were Cambridge can drivers employees?

In September 2014, the U.S. Department of Labor (DOL) announced that it had awarded $10.2 million to individual states to fund enforcement activities focused on worker misclassification detection. Here in Massachusetts, the state received a $499,800 grant for worker classification enforcement.

Massachusetts employers should be very wary of potential misclassification issues because the state’s independent contractor statute makes it nearly impossible to classify a worker as an independent contractor. Plus, triple damages under the state’s wage and hour law make this an incredibly costly mistake. This case illustrates the difficulties that can arise from misclassification

You’re a taxi!

Ambassador is a Massachusetts taxi dispatch services company that operates in the greater Boston area, including Cambridge. The city of Cambridge issues taxi “medallions,” which are permits for the lawful operation of taxicabs. Ambassador doesn’t own medallions or operate any taxis. Instead, it provides dispatch services to medallion owners and leaseholders. Ambassador installs GPS, radio, and credit card readers in taxis that have signed up for its services. The GPS directs taxi drivers to passengers that have contacted Ambassador to request a pickup. Services are provided on a subscription fee basis. Corporate customers can purchase vouchers from Ambassador and use those vouchers to pay for taxi services, which Ambassador arranges for the corporate customer upon request.

In addition to using its equipment, taxicabs using Ambassador’s dispatch service must be painted according to a uniform color scheme, maintain appearance standards, and honor certain forms of payment, including Ambassador’s corporate vouchers. Other than following those conditions, taxicab drivers are free to drive where they want, set their own schedules and shifts, and pick up passengers by any means, not just via Ambassador’s GPS.

Yogendra Sagar has driven a taxi in Cambridge since September 2010. He started using Ambassador’s dispatch service in January 2011 while he was driving for Checker Cab Company. He filed a class action lawsuit on behalf of himself and other similarly-situated cab drivers against Ambassador and its owner, George Fiorenza. Sagar claimed that he and other cab drivers were wrongly classified as independent contractors and were in fact Ambassador employees. He also claimed that Ambassador should have been paying him minimum wages and overtime pay and that it made illegal deductions from the cabbies’ wages in violation of Massachusetts law.

Independent contractor standard nearly impossible to meet

In Massachusetts, the law presumes that a worker who provides services to a company is an employee unless the company can show that the worker meets the test for independent contractor status under the state statute. This is an important distinction because a business entity is obligated to follow state and federal wage and hour laws for its employees, including minimum wage and overtime pay, but state and federal wage and hour laws do not apply to independent contractors.

If an employer violates the wage and hour laws by misclassifying its workers as independent contractors rather than employees, the employer will be subject to monetary penalties in the form of fines to the government, and any lost wages or other damages owed to the misclassified employee are tripled under state law. So companies need to be very careful when they classify a worker as an independent contractor.

The Massachusetts independent contractor statute states that to prove a worker is an independent contractor and not an employee, the company must prove that:

  1. The worker is free from the company’s control and direction in connection with the performance of the service;
  2. The service performed by the worker is outside the usual course of the company’s business; and
  3. The worker is customarily engaged in an independently established trade, occupation, profession, or business of the same nature as that involved in the service performed.

Dispatch or taxi service?

Both Ambassador and Sagar asked the trial court to rule in their favor before trial. The court ruled that Ambassador could prove the first and third elements of the independent contractor test, but concluded that there was a dispute of fact over whether Sagar’s services were outside its usual course of business.

Ambassador argued that it was in the dispatch business. Sagar claimed that in addition to dispatch, Ambassador also provided taxi services through its dealings with its corporate customers. Those corporate customers maintained accounts with Ambassador and dispatched taxis specifically for those customers upon request. The court found that the record showed that Ambassador provided both dispatch services and taxi services, meaning that Ambassador could be considered to provide the same type of service Sagar and the other class members provided.

But merely performing the same services as the purported independent contractor is not enough to fail the independent contractor test. Rather, the worker’s service must be the same as the company’s “usual course of business.” The court interpreted that phrase to mean that the relevant question is whether the employer provides the service in question “most of the time, or at least regularly, in the course of its business.” Therefore, the case would be determined based on whether the facts showed that Ambassador provided taxi services most of the time or regularly in the course of its business. The court ruled that was a question of fact that had to be decided by a jury. Sagar v. Fiorenza, et al. (Mass. Sup. Ct. 2014).

Takeaway

Massachusetts law creates the strong presumption that every worker providing any service for anyone is an employee. This incredibly broad presumption makes it very difficult for an employer to properly classify its workers as independent contractors. The presumption also makes it difficult for employers to have misclassification lawsuits dismissed early in the legal process – any dispute over any of the three statutory factors will likely prevent the courts from dismissing the case in favor of the employer.

Any employer that is using or thinking of using independent contractors should consult with its labor and employment counsel to ensure it’s in compliance with the law and evaluate the risks of taking on new workers as independent contractors.