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Employee vs. Independent Contractor: Ignore This at Your Peril!

Guest post by: Marijo McCarthy

Article Overview: It's been almost two years since I wrote to warn you about the perils of hiring "independent contractors" under the 2004 amendments to the Massachusetts law. Since then, the status has not improved and litigation has begun to shape its future. Let's review the current rules in Massachusetts.

Employee vs. Independent Contractor: Ignore This at Your Peril!

It's been almost two years since I wrote to warn you about the perils of hiring "independent contractors" under the 2004 amendments to the Massachusetts law. Since then, the status has not improved and litigation has begun to shape its future. Let's review the current rules in Massachusetts.

Your "consultant hire" is deemed an employee unless:

• the consultant is free of your control and direction in the performance of services; and

• the service your consultant provides is "outside of your company's usual business;" and

• the consultant is engaged in a legitimate independent business, also providing the same service for other companies.

All three elements must exist in order for you to make a risk-free hire of a consultant or independent contractor.

The fall-out from these revisions to Massachusetts' independent contractor law is starting to show up in our Courts [with most rulings going against the employer] and in the popular press [see Boston Globe, April 7, 2010].

In the current economic environment, this rigid state government rule is generating many complaints and the Massachusetts State Legislature has been asked to consider amendments which will reflect the reality of the truly independent contractor market.

In the meantime, here are some suggestions to help you comply with the law and avoid civil and criminal liability [that's right, criminal liability… not only is your company potentially responsible, so too, is the President, Treasurer and any officer or agent having management responsibility of the corporation or entity!]:

• Investigate the status of the person you are hiring as a consultant. Determine whether you are hiring an individual [consider this a red flag, which requires more in-depth inquiry] or a company [you can check for the legal existence of a corporation or a limited liability company on-line at the Secretary of State's office].

• Ask whether the consultant has other clients. The Attorney General's office has made it very clear that they will consider whether the entity is a "sham," formed simply for purposes of hiring as an independent contractor what otherwise might be classified as an employee. Do your due diligence before the hire, not after.

• Determine that the services you are hiring are outside your own business services. If your services are the same as those of the contractor, you are in danger of making an illegal hire. For instance, if you provide graphic design services, hiring a graphic designer as an independent contractor for the occasional large project may violate the law. However, if you are a PR firm, hiring a graphic designer as an independent contractor to provide graphic design services on a project by project basis, may not violate the law.

• If the consultant passes these tests, be sure you use a written contract which clearly states the status [that of independent contractor]; includes terms and conditions which you and the consultant have negotiated, including a beginning and end date [in other words, this is not "employment-at-will," but a contract which cannot be terminated other than within its terms]; and clearly states your company's business and the consultant's business [it should be different from yours to satisfy the law].

So, the battle wages on. The Attorney General's Office is tasked with enforcing this complicated law and has published an advisory aimed at providing real life examples to guide businesses as they do their best to comply. You can read the 2008 Advisory on the Massachusetts government website.

Remember, all it takes is one complaint from one disgruntled contractor to bring the prying eyes of the government into what you thought was your private workplace. There is no easy answer to this dilemma… just a lot of caution in your hiring practices.

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Article Tags: consultant, employee, hiring, independent contractor, massachusetts law



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