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Employment Law: Payment of Wages and Employee Misclassification
Payment of Wages
Both Massachusetts law (M.G.L. c. 149 § 148-150) and federal laws (The Fair Labor Standards Act or “FLSA”, 29 U.S.C. § 201-219) govern the payment of employee wages, including payment of minimum wage and overtime; record keeping requirements for Massachusetts employers; and the proper classification of workers as employees or independent contractors.

The Massachusetts Payment of Wages Act (“the Wage Act”) requires employers to promptly pay wages to their employees. M.G.L. c. 149 § 148. The term "wages" includes regular salary (or hourly pay) and earned commissions; as well as earned vacation time, holiday pay, and other earned time (such as time earned pursuant to a paid time off “PTO” policy). Interestingly, in this rapidly developing area of law, certain non-discretionary bonuses may be characterized as compensation subject to the protections of the Wage Act.

Employers who violate the Wage Act are exposed to paying treble (triple) damages, and attorneys’ fees to an employee. Importantly, the Wage Act also provides that certain corporate officers are individually liable for wage violations. Pursuant to the Wage Act, a corporation’s president, treasurer, and any officers or agents “having the management of such corporation," face individual liability. M.G.L. c. 149 § 148. The threat of multiple damages and individual liability for a company’s failure to properly pay wages increases the stakes in the litigation of wage and hour claims. Employers who violate the Wage Act also face civil enforcement actions or lawsuits from both the Attorney General of Massachusetts, from an individual employee or as collective, or class, action. Additionally, there is the potential of criminal liability for Wage Act violations.

Often, Wage Act violations arise only after an employee leaves a business. When an employee is terminated involuntarily, all wages due and owing must be paid immediately. However, it is not always clear if/when wages are “due and owing.” For example, when an employee is compensated in whole or in part by commission, and the employee performed some work towards earning the commission prior to termination, a dispute may arise over the issue of when or if these wages are, in fact, earned. The most common illustration of this is when a commission-based employee performs a substantial amount of work towards closing a deal or making a sale, but the deal is closed (and the employer is paid) after the employee separates from the employer. The company might argue that the commissions are not “due and owing” because there are ongoing obligations relative to the account, like maintaining the customer relationship or training, that other employees must address.

Misclassification of Workers
A hotly litigated area of Wage Act disputes relates to whether (or not) a worker is actually an employee or, rather, an independent contractor, notwithstanding how the employer has classified the worker for purposes of tax withholdings or worker’s compensation insurance.

Massachusetts law presumes that a worker should be classified as an employee, not an independent contractor. Thus, it will be an employer’s obligation to prove otherwise – showing a lack of control among other factors discussed below. Employers must properly classify workers in order to avoid a multitude of legal problems, as well as to avoid potential tax liability. The improper classification of a worker as an “independent contractor” versus an “employee” can lead to violations of the Wage Act, violations of the Fair Labor Standards Act, criminal liability, and tax liability, including enforcement by the Department of Revenue and/or the Internal Revenue Service – among other problems.

Frequently, workers are considered to be employees even in circumstances where the usual custom and practice in a particular industry has always been to treat a worker as an independent contractor. Recently, there has been a strong move by the Massachusetts Attorney General’s Office and Department of Revenue to more strictly enforce these laws.

While this area of law is evolving, Massachusetts currently relies upon a strict, three part test to determine whether an individual should be classified as an employee or an independent contractor. In Massachusetts, an individual is presumed to be an employee unless the individual (i) is free from the employer's actual control and direction; AND (ii) performs a service that is "outside the usual course of business of the employer"; AND (iii) is "customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the service performed." M.G.L. c. 149, § 148B. Importantly, all three elements must be met to qualify as a bona fide independent contractor. Thus, if an individual “fails” any one part of the three part test, they are presently considered to be an employee under Massachusetts law.

For example, if a worker is hired by an information technology (IT) business only a few hours a week in order to help out with a single project by providing IT-related services, the worker should probably be treated as an employee under the above test. This is because the worker “failed” part (ii) of the three part test since s/he is performing a service (IT services) that is NOT “outside the usual course of business of the employer.” The fact that the services rendered by the worker were only on a very limited basis or may be done remotely on the employees own equipment (e.g. computer) does not matter.

On the other hand, if a plumber is retained on an as needed basis by the IT firm to fix the company’s toilets and s/he provides similar services to other businesses, then the worker may well be properly classified as an independent contractor. Each case must be carefully examined in order to properly evaluate the facts and current status of the law.

The penalties that employers face for violating wage-related laws and regulations are severe. The Massachusetts Payment of Wages Act currently provides for mandatory treble (triple) damages, attorney’s fees, and litigation costs against employers who violate the law. Many wage-related disputes are not clear cut and require a careful analysis of the facts as applied to this developing area of law.

The attorneys at Bennett & Belfort, P.C., work with individuals and businesses to navigate the often confusing maze of wage related laws. Our team of employment attorneys have prosecuted and defended wage and hour issues before state and federal courts, including matters involving sizable claims by the Massachusetts Attorney General’s Office.

If you have an issue relating to any aspect of employment law please contact our office at (617) 577-8800 or email dbelfort@bennettandbelfort.com or tbennett@bennettandbelfort.com.