One tried and true strategy for the young lawyer trying to stand
out among the crowd of eager new attorneys is by providing existing
clients with value-added services. Any attorney, including those
fresh out of law school, can provide value by delivering services
that go above and beyond the traditional scope of practice or what
is generally expected of an inexperienced lawyer. This will not
only improve your standing with supervising attorneys, but also
serve to increase the perceived value of your services received by
the client. Clients who receive un-billed, value-added services are
more likely to remain loyal to the firm or to the attorney whose
services they believe to be "more bang-for-the-buck." (Providing
additional services that are billed without the client's consent
could result in bar, or, in the least, firm discipline.) And loyal
clients, of course, are more likely to serve as a valuable referral
source for future business.
An easy way for a junior associate who enjoys direct contact with
business clients to provide value-added services is to educate the
client on the substantial risks their businesses face from
potential wage and salary liability. This area of law is a great
place for a new attorney to provide value to business clients for
several reasons: (1) many employers are unaware of the stiff
penalties associated with the Massachusetts Wage Act; (2) wage and
salary issues are common for businesses with employees (especially
those utilizing independent contractors or interns); (3)
Massachusetts case law has been rapidly evolving in favor of
workers over the past few years; and (4) the law's straightforward
application to facts is not so complex as to require a deep
reservoir of experience or legal knowledge.
Massachusetts businesses that regularly utilize the services of
independent contractors, consultants or interns, or are engaged in
any business that brokers personnel services to outside businesses,
risk devastating consequences for the misclassification of workers
as independent contractors or interns as opposed to employees. Such
consequences may come in the form of class action lawsuits brought
by current and former workers for Wage Act violations (which
mandate treble damages), civil and criminal penalties levied by the
Massachusetts Attorney General's Office, and/or audits by the IRS,
U.S. Department of Labor (DOL) and/or the Massachusetts Office of
Labor and Workforce Development. Many Massachusetts business owners
are unaware that their independent contractor relationships (even
when undertaken in good faith and agreed to in writing) could
threaten the existence of their business. Yet even more shocking to
most is the fact that the Wage Act authorizes personal liability of
officers, owners and managers of the business, placing their
personal assets on the chopping block, as well.
The Massachusetts independent contractor statute creates a
presumption that a worker is an employee, unless the employer can
prove each of the three prongs as set forth in §148B (a/k/a, the
"ABC Test"). The three prong test states that an individual
performing any services for or on behalf of a business is
considered to be an employee unless the employer can show
that:
- The individual is free from control and direction in connection
with the performance of the service, both under his contract for
the performance of service and in fact;
- he service is performed outside the usual course of the
business of the employer; and
- The individual is customarily engaged in an independently
established trade, occupation, profession or business of the same
nature as that involved in the service performed.
This test is strictly applied regardless of whether the worker
incorporated his or her own legal entity or performed the services
through an intermediary entity. Therefore, even if the employer
files 1099s in a corporate name with an employer identification
number, the workers performing the service - even those hired by
the independent contractor - can all be deemed employees. It can
also apply to out-of-state workers who performed the work outside
the commonwealth if the court finds that Massachusetts has the most
substantial connection to the work performed. It even applies when
both parties acknowledge that the worker was an independent
contractor responsible for his own taxes, insurance, and was not
entitled to any employment benefits from the business, because the
courts in Massachusetts have found that workers cannot waive their
rights under the independent contractor law, Wage Act, or to
workers' compensation and unemployment insurance benefits.
The test also applies to interns, who are required to be paid at
least minimum wage unless they perform services while undergoing
"training" in a charitable, educational or religious institution.
The definition of "training" adopted by the Massachusetts
Department of Labor Standards is the same six-part test used by the
DOL. This includes the requirement that "the employer … derives no
immediate advantages from the activities of the trainees or
students, and on occasion the employer's operations may actually be
impeded." Of special note, even when an employer has followed the
federal guidelines for independent contractor and intern
classifications to the letter, they may still violate the more
stringent state laws and regulations.
Recent Massachusetts case law reveals a clear preference for
establishing workers as employees and enforcing drastic penalties
against businesses and their owners/managers for misclassification
that results in Wage Act violations. In addition, a marked increase
in enforcement of wage-and-hour laws by state and federal agencies,
an increased willingness of plaintiffs' attorneys to bring
misclassification class actions, and a growing use of paid and
unpaid interns and trainees in the workplace have coalesced to
create an extremely risky environment for employers who utilize
independent contractors or interns.
The reasons for enacting the stringent independent contractor and
intern tests, however, are numerous and evident. The rules protect
workers by ensuring they receive the fair wages, unemployment
insurance, workers' compensation benefits, employer-provided health
care and any other mandated benefits to which they are entitled to
under the law. Further, the statute discourages practices that
deprive the commonwealth of tax revenues and unemployment premiums
it would otherwise receive from employers. Lastly, enforcement
rewards businesses that follow the rules by punishing those that
gain a distinct competitive advantage from misclassifying
employees.
Nevertheless, because the rules are aimed at punishing businesses
that attempt to evade tax, insurance and employment-benefit
responsibilities, many small business owners incorrectly believe
that by operating in good faith, with established long-standing
employment policies aimed at benefiting both the worker and the
business, that they are safe from litigation or governmental
inquiry. Further still, a decision by the Department of
Unemployment Assistance that a worker is not an employee, does not
absolve the employer from civil liability.
A hypothetical may be illustrative: Imagine a Massachusetts company
in the business of brokering personnel to outside companies to
provide a limited service on an as-needed basis. For several
decades, entering into written agreements with independent
contractors and independently owned and operated business entities.
The parties agreed that in exchange for a percentage of revenue
brought in through the brokered relationship, the independent
contractor/entity received the autonomy of hiring, training and
directing its own personnel, dictating its own hours, working when,
where, and how it chose, and, in some cases requiring its own
workers to wear uniforms of the independent contractor's company.
In some cases the independent contractors even hired their own W-2
employees and maintained their own payroll. Although it had
operated its business in this manner for many years, and despite
numerous DOL, IRS and state agency investigations, which all
cleared the company's business practices, the company is sued by a
class of former independent contractors for nonpayment of overtime
wages. On summary judgment, the court, citing to the shift in
recent case law, finds that the workers - even the individuals who
incorporated a separate business with their own employees and with
complete autonomy - are misclassified and are, in fact, employees.
At this point the business has no choice but to settle the claims
at the barrel of a gun, because the only other option is to face a
trial on damages, with mandatory tripled damages.
Had the company been educated as to the changing landscape of
independent contractor law working against it earlier, all (or
most) of the troubles could have been avoided. This is where an
attorney, who embodies the notion that an advocate does not simply
represent a specific matter but represents the client and all its
interests as a whole, could have truly stood out.
Although it may seem presumptuous, a young attorney spending a
little extra time inquiring into a business client's employment
practices can produce big dividends in the form of repeat business
and referrals. Even if the client came to your firm for help on a
different matter, the typical risk-averse business owner will
greatly appreciate receiving free advice related to an area of
great potential liability that the owner was not previously aware
of. This type of value-added service, going above and beyond the
expectations of a client, is one of the best ways for the newly
minted attorney to stand out and make a name for him or
herself.