Independent Contractors and the Gig Economy: Massachusetts Court Finds Employment Status
We’ve written a number of posts on how strict the test is in Massachusetts regarding the classification of independent contractors. The test, known as the "ABC test," heavily leans in favor of someone being an employee, not an independent contractor. We get 2-3 calls per week from individuals who know they are misclassified as independent contractors. Employers continue to misclassify employees as independent contractors, however, because they think the cost savings of not having to comply with employment laws outweighs the risk of a misclassification lawsuit. On January 11, 2021, a Massachusetts federal court reminded us how difficult it is for employers to defend those type of claims in the case of Hogan et al. v. The InStore Group, LLC, Civil Action No. 17-10027-DPW (D.Mass. Jan. 11, 2021). (Read on for our summary. Click here to read the entire opinion).
Hogan et al. v. The Instore Group, LLC — The Facts
InStore runs a placement business of sorts. Essentially, InStore contracts with retailers/manufacturers to provide vendor associates for certain projects. Retailers come to InStore with a need, InStore bids on the project, and, if it gets the contract, InStore provides the labor (vendor associates) for the project. Vendor associates are free to take jobs they want and refuse ones they don’t. InStore treats the vendor associates like independent contractors.
Mr. Hogan began working for InStore in 2015. He signed an Independent Contractor Agreement when he started and was treated as such by InStore. Mr. Hogan filed a class action lawsuit, claiming he was misclassified as an independent contractor. InStore asked the Court to dismiss the action at summary judgment, arguing that Mr. Hogan was an independent contractor.
Prong 1 of the Massachusetts Independent Contractor “ABC Test”: Freedom from Direction and Control
The Court began its Prong 1 analysis by clarifying that prong of the Massachusetts independent contractor test has two parts and “requires that the putative employer demonstrate that vendor associates, like Mr. Hogan, were “free from control and direction . . . both under [their] contract[s] for the performance of service and in fact.” Mass. Gen. Laws ch. 149 § 148B(a).”
As to the contractual right to control, the Court rejected InStore’s reliance on the provisions of the Independent Contractor Agreement that recited contractor status, stating:
That Mr. Hogan signed an Agreement classifying him as an independent contractor does not dictate the outcome of my legal analysis. See Ruggiero, 137 F. Supp. 3d at 114 (looking past the face of the contract to “the actual relationship between the parties”). “[M]isclassification does not turn on how the parties contractually label their relationship.” DaSilva v. Border Transfer of MA, Inc., 377 F. Supp. 3d 74, 94 (D. Mass. 2019) (DaSilva III).
As to the right to control as a matter of fact, the Court held that there were facts that helped both parties. InStore did control vendor associates by imposing a dress code, banning use of personal technology devices on the job, and by requiring that associates wear name tags. On the other hand, the Court noted that the vendor associates essentially set their own hours and that it was unclear if InStore required certain tools or gave specific instructions on how to complete a project. In short, the Court decided that it did not have enough evidence to rule as to Prong 1. In doing so, however, the Court reminded us of two important things: (1) case law is clear that why an entity controls the individual is irrelevant to the Prong 1 analysis and (2) it is the right to control, not whether that right is exercised, that is relevant to the Prong 1 analysis.
Prong 2 of the Massachusetts Independent Contractor “ABC Test”: Usual Course of Business
As to Prong 2, the Court reminded us that prong asks whether “the service is performed outside the usual course of the business of the employer. “
InStore claimed that Mr. Hogan was in the business of providing retail services whereas it was involved in the business of coordinating the provision of retail services. One provides the service, one coordinates. According to InStore, this satisfied Prong 2 that Mr. Hogan be performing duties outside its course of business. The Court rejected this argument using InStore’s own words:
InStore’s website says it is an “On-Demand . . . nationwide full-service retail merchandising organization.” (Nothing in there about coordinating).
InStore’s website says it achieves its “retail mission . . . [by] deploy[ing] [its] retail associates in stores across America, to execute merchandising initiatives that grow our customers’ sales, profits, and independent market share.”
InStore’s corporate filings describe its business as “retail services.”
The Court went on to address the distinction between the coordination and provision of services, something it noted was becoming increasingly more frequent in the gig economy. In doing so, the Court called coordination and provision “two sides of the same coin” and quoted from a previous decision concerning Lyft drivers:
“[t]he ‘realities’ of Lyft’s [carpool] business are no more merely ‘connecting’ riders and drivers than a grocery store’s business is merely connecting shoppers and food producers, or a car repair shop’s business is merely connecting car owners and mechanics”)
The Court concluded its Prong 2 analysis by finding that Mr. Hogan’s services were necessary to InStore’s operations and entered judgment in his favor.
Prong 3 of the Massachusetts Independent Contractor “ABC Test”: Independently Established Business
The Court went on to analyze Prong 3, although it didn’t need to as its Prong 2 analysis defeated InStore’s defense, holding that InStore did satisfy Prong 3 because Mr. Hogan had the right to contract with other companies like InStore to engage in merchandising services.
Employment lawyer Benjamin Steffans has extensive experience representing misclassified independent contractors in claims against their employers. If you believe that you are misclassified as an independent contractor contact us today for a free consultation.