Coppelman: The MA 180 on Independent Contractors

Going back to 2008, Massachusetts thought it had resolved the thorny issue of who exactly is an independent contractor and who is an employee. The state has been guided by a directive from the MA Attorney General, which offers a relatively simple, three pronged test for independence: the individual must: (1) Be free from control of the employer (2) Provide services outside the usual course of the employer's business (3) Be engaged in an independent trade, occupation or business. The advisory does not go into detail on these criteria, but all three must be met.

The burden of proof is clearly on the GC/employer to demonstrate that their independent contractors meet the three criteria. The way people are paid (e.g. via 1099s) is not to be considered. If the employer cannot prove the independence of their contractors, they become employees for the purposes of workers comp. Insurance auditors have routinely added the payrolls of sole proprietor/independent contractors to the employer's workers comp premium calculation.

The Game Changer

The MA Supreme Judicial Court recently issued the Ives Camargo ruling, which has profound implications for the workers comp system. The ruling confronts the definition of independent contractor used in the Attorney General's 2008 Advisory;  it concludes that the advisory improperly drew upon a potpourri of sources external to work comp law, including unemployment insurance, the independent contractor law, and even federal tax law. Instead of the simple, three-pronged criteria, there are now twelve prongs, derived from rulings in two workers comp cases.

The “MacTavish-Whitman” criteria are less rigid and more nuanced than those in the AG's advisory. While there is significant overlap, there are a few new considerations:

- the skill required in the particular occupation;

- the length of time for which the person is employed;

- the tax treatment applied to payment (now 1099s do matter);

- the right of the insured to terminate the relationship without liability

180 on Burden of Proof

Most important for insurance audit purposes, the burden of proof has been reversed: instead of the employer proving a sole proprietor/independent contractor is not an employee, sole proprietor/independent contractors must prove that they are employees. If a sole proprietor/independent contractor suffers a catastrophic loss, he or she may well try to access workers comp by claiming employment status. But in the vast majority of cases, sole proprietor/independent contractors generally have no interest in proving that they are employees: the cost of their labor, absent comp and other benefits, is far less expensive. And they take pride in their independent status. In my reading, reversal of the burden of proof (outlined in Judge Gants's concurrence) may well end the practice of adding 1099 billings to the employer's workers’ comp payrolls. And to really complicate things, it could be retroactive!

The Ives Camargo ruling was issued in May of this year, but so far there has been no guidance from the state regarding workers comp audits. The ruling does point out that the legislature could decide to clarify — and simplify — the definition of employee in the workers comp statute. In other words, they could do a 180 on the 180. Makes my head spin, but there’s nothing new in that!

ABOUT THE AUTHOR

Since 1990 Jon Coppelman has trained thousands of business owners from Main Street to Fortune 500 on the fundamentals of workers’ compensation cost control. From 2006 to 2012 he was a principal writer for the Workers’ Comp Insider, LynchRyan’s first-in-the-nation blog dedicated to risk management issues. He currently divides his time between his consulting businesses and his role as Senior Workers’ Compensation Consultant for the Renaissance Alliance, an aggregator based in Wellesley, MA serving more than 90 local agencies across New England.

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