Angiulo: Independent Contractors, Employers, and Unemployment Benefits in Massachusetts

Monday, November 17, 2014

Leonardo Angiulo, GoLocalWorcester Legal Contributor

One of the major functions of the legal world is to put labels on things. In the context of businesses, the label applied to the people doing work for a company is supposed to identify the nature of the relationship between them. Take, for example, the distinction between an employee and an independent contractor. In Massachusetts, employers must contribute to the unemployment compensation fund for employees, but not for independent contractors.

The November 12, 2014 case of Subcontracting Concepts, Inc. v. Commissioner of the Division of Unemployment Assistance takes a practical look at when the independent contractor label might not stick. In that case, the plaintiff was a business from New York who made couriers available to companies in need of a speedy messenger. The couriers had their own cars, did not negotiate their own fees for services, and had to report any accidents to the plaintiff among other restrictions. The couriers also signed a contract that, according to the decision, stated “no employer/employee relationship” existed between the plaintiff and their drivers.

The plaintiff's position was that the couriers were not employees, only independent contractors. This became an issue when one of their drivers filed for unemployment benefits in Massachusetts. Upon that filing, one of the questions became who should have to contribute to the benefits being paid to that driver. According to the Department of Unemployment Assistance, as well as the Appeals Court of Massachusetts, the plaintiff was on the hook.

Chapter 151A of the Massachusetts General Laws lays out the legislative structure for unemployment benefits in the Commonwealth. The various sections include topics as varied as seasonal employees, the suspension of liquor licenses for failure to pay monies owed, as well as punishments for businesses and employees who try to game the system.

Section 2 of Chapter 151A also provides a three part test for whether, or not, a service provided by an individual is an employee for the purposes of this law. In the Subcontracting Concepts decision, this is referred to as the “ABC” test and shows how the statutory requirements will be applied by the court to the specific facts of a case. The three parts to the test are: a) whether the actor was free from the control of the business in question during the performance of services; b) whether the services were outside the usual course of business for the employer; and c) were part of an independently established “trade, occupation, profession, or business” that was separate from the employer.

When the judges applied this test, they found that Subcontracting Concepts was obligated to pay into the unemployment assistance fund. This was partially based on finding that even though the employee had signed an agreement stating that he was an independent contractor, he was functioning as an employee. Part (c) of the three part test requires a showing that the actor in question was engaging the employer as an “entrepreneur.” In the Subcontracting Concepts case, the court found that the couriers relied on the employer for their pay as many as 45 hours a week, required prior approval by the employer to perform work for other clients, and worked for no one else due to the lack of additional available time. This, in the court's opinion, was inconsistent with a claim that this courier was able to conduct an enterprise independent from the services provided to Subcontracting Concepts, Inc. and was, therefore, an employee for the purposes of chapter 151A.

It should be noted that some people, and business owners, might object to the idea of a court making a ruling that was different from what the parties contracted for between them. The argument might be made that the courier wanted the job and signed up for the terms offered by the employer. A respondent to such arguments would likely point to the terms of MGL c. 151A,Section 2, that says a service provider is an employee as defined by this chapter unless the “ABC” test applies. They might also say that statute is unambiguous and under section 12 any employer who isn't sure whether they are subject to unemployment assistance obligations can ask for a finding from the Commonwealth to clear up any confusion.

Certainly, anything that increases the cost of doing business only makes things harder for employers. That being said, unemployment benefits make a meaningful difference for millions of Americans and their families when times are tough.

Leonardo Angiulo is an Attorney with the firm of Glickman, Sugarman, Kneeland & Gribouski in Worcester handling legal matters across the Commonwealth. He can be reached by email at [email protected].

Related Slideshow: Reaction to Millionaires Receiving Unemployment Benefits

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Massachusetts AFL-CIO

John Drinkwater, Chief of Staff

"For the system as a whole, it is better to have a universal program based on work, rather than needs-based, as it will be better funded and benefit workers at all levels of income. Additionally, with the cap on payments, millionaires would be receiving a very low percentage of replacement wage."

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Massachusetts Jobs with Justice

Russ Davis, Executive Director

“I think that anyone who works should be able to collect unemployment. A million dollars may be a lot of money but as long as they are paying into the unemployment system then I don’t see a problem.”

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Dept. of Labor and Workforce Development

Ann Dufresne, Communications Director

"Unemployment insurance is not an entitlement program so earnings, race, gender etc are not factors for eligibility. Anyone who has lost their job through no fault of their own can apply for unemployment benefits."

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Massachusetts Republican Party

Bill McCarthy, State Committee - Worcester Representative

"The take that I have is that if a person is eligible than a person is eligible, regardless of how much they make. I think we need to look at this as an issue of whether unemployment is a system that serves the poor or an issue that serves the unemployed. I think that it is definitely something that warrants further attention.”

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Carpenter's Union Local 107

James Turner, Business Representative

“I think that if you are employed and if all of your filings are correct, then you should be entitled to unemployment. I don’t think that someone with $1 million needs unemployment, but I support their right to it.”