On May 17, 2013, the Massachusetts Supreme Judicial Court ruled that out-of-state individuals working as independent contractors for Massachusetts-based companies are protected by the Massachusetts independent contractor statute and wage act. In Taylor v. Eastern Connection Operating, Inc., 465 Mass. 191 (2013), the plaintiffs lived in New York and worked there as couriers for Eastern, which is headquartered in Woburn, Massachusetts. The plaintiffs entered into identical independent contractor agreements with Eastern, which contained a Massachusetts choice-of-law and forum selection clause. In 2010, the plaintiffs sued Eastern in Massachusetts Superior Court, claiming that they were misclassified as independent contractors in violation of the independent contractor statute and that, as employees, they were owed unpaid wages and overtime under the wage act. The Massachusetts independent contractor statute contains a very strict three-part test for determining whether a worker is an independent contractor or an employee. The test is so strict that it is virtually impossible for a Massachusetts employer to lawfully classify a worker as an independent contractor under the statute. Workers who should properly be classified as employees are entitled to the protections of the Massachusetts wage act, which provides for mandatory treble damages and the award of reasonable attorneys’ fees to prevailing plaintiffs. The Superior Court dismissed the plaintiffs’ suit, ruling that the independent contractor statute did not apply to non-Massachusetts residents working outside of Massachusetts. Consequently, it determined that the plaintiffs were not entitled to the protections of the wage act.
On the plaintiffs’ appeal to the SJC, Eastern argued that the choice-of-law clause in its independent contractor agreement “cannot imbue the [independent contractor] statute with extraterritorial effect it otherwise lacks.” In rejecting Eastern’s argument, the Court relied on established case law to hold that “where no explicit limitation is placed on a statute’s geographic reach, there is no presumption against its extraterritorial application in appropriate circumstances.” The Massachusetts independent contractor statute is silent as to its extraterritorial application. Accordingly, the Court looked to the particular circumstances, finding that the parties had agreed that the independent contractor agreement would be construed in accordance with Massachusetts law and that application of the independent contractor statute did not offend the fundamental public policy of New York. It therefore concluded that there was no apparent reason to disregard the parties’ choice of law and held that the independent contractor statute governed the plaintiffs even though they were out of state.
The practical implication of the Taylor decision for Massachusetts-based companies is that they now face even greater exposure under the independent contractor statute and the wage act. With mandatory treble damages and the award of attorneys’ fees, the penalties for misclassifying employees as independent contractors are severe. Massachusetts-based companies with out-of-state independent contractors should examine whether those individuals truly meet the strict three-part test set forth in the independent contractor statute. Where the test is not met, those workers should be reclassified as employees and paid in accordance with the wage act.