The CFO RoundTable recently hosted a program on Law School for the CFO, a half-day session which highlighted recent updates in employment law, 401(k)s, email communications, and more. To read our recap post and download the presentations, we invite you to click here.
As part of our ongoing commitment to CFO education, we’d like to highlight an article from our sponsor, Goodwin Procter, who recently published an alert on the Massachusetts Supreme Judicial Court’s decision in Somers v. Converged Access, Inc., which highlights the perils of misclassifying workers as independent contractors.
Converged Access hired the plaintiff, Robert Somers, to perform electrical engineering work at its Billerica, Massachusetts facility as an independent contractor. Because he was not classified as a regular employee, he was ineligible for fringe benefits and did not receive overtime premiums for hours worked in excess of 40 in a workweek. However, he was paid a higher hourly rate than he would have received had he been classified as a regular employee, and his monetary compensation exceeded the combined value of wages (including overtime premiums) and benefits received by employees performing similar work. After the company cancelled funding for his position and his contract ended, Somers brought suit for, among other things, unpaid overtime compensation and other benefits he would have received had he been considered an employee.
The employer in Somers raised a defense against liability on the basis that Somers had not suffered any damage as a result of the misclassification since he would have received less had he been properly classified. The SJC rejected this defense and held that, for damages calculation purposes, his wage rate was the hourly rate at which he was hired – not what Converged Access claimed it would have paid him had he been properly classified. In remanding the case to the Superior Court for trial, the SJC also indicated that the company could be liable to Somers for unpaid vacation pay, holiday pay and other benefits received by regular employees. In addition, the plaintiff’s damages for unpaid overtime, vacation and holiday pay would be trebled under the provisions of the Massachusetts wage payment law, and the company would be liable for the plaintiff’s attorneys’ fees.
Recent legislative, judicial and regulatory activity at both the federal and state levels have increased concern and enhanced employers’ potential liability for misclassification of workers, especially in Massachusetts. While standards and definitions differ based on legal context, at the federal level the applicable test generally is whether the contracting entity retains the right to control the manner in which work is performed. In Massachusetts, the applicable test is more stringent.