Independent contractors are typically not eligible for employee benefits, so employers often pay them hourly rates that are substantially higher than the hourly rates paid to employees performing similar work.  This disparity in pay can result in enhanced damages when an employer misclassifies a worker as an independent contractor, as illustrated in a recent decision handed down by the Supreme Judicial Court of Massachusetts.

In Somers v. Converged Access, Inc., a worker agreed to work for an employer on a temporary basis as an “independent contractor” after the employer rejected his application for employment in a vacant quality assurance engineer position.  The worker performed the functions of a quality assurance engineer at the employer’s facility, where the employer provided the tools and equipment necessary to perform those functions and closely supervised and controlled all of the worker’s services.  The worker was paid an hourly rate of $65, but because the worker was classified as an independent contractor rather than as an employee, he did not receive employee benefits, paid holidays, vacation pay, or premium pay for overtime work.

After the employer terminated the worker’s position, the worker sued the employer under Massachusetts law claiming, among other things, that he was entitled to unpaid overtime compensation and benefits because he had been misclassified as an independent contractor when he was, in fact, an employee for purposes of the Massachusetts wage and hour law.  The trial court rejected this claim, reasoning that even if the worker had been misclassified (an issue the trial court did not resolve), he had no damages because he earned more at the $65-an-hour contractor rate than he would have received in wages and benefits had he been hired as an employee.

On appeal, the Supreme Judicial Court of Massachusetts rejected the lower court’s measure of damages and held that workers misclassified as independent contractors are entitled to recover damages based on the hourly rate they were actually paid for their services rather than the lower rate the employer paid employees performing the same services.  Thus, if the claimant in Somers prevailed on his claim that he had been misclassified as an independent contractor, he would be entitled to recover unpaid overtime compensation at the rate of one and one-half times the $65 hourly rate that he received for his services, even though that rate was substantially higher than the rate the employer paid employees in the quality assurance engineer position.  The court also noted that Massachusetts law provides for treble damages to misclassified “independent contractors,” thus boosting the Somers claimant’s potential damages even higher.  The court sent the case back to the trial court for a determination of whether the claimant had, in fact, been misclassified.

The Somers decision underscores the fact that misclassifying workers as independent contractors can expose employers to hefty damage awards, even when the classification was made in good faith and the workers received higher pay than they would have received as employees.  Although the Somers case was brought under Massachusetts law, a court applying federal law could easily reach the same basic conclusion (although the federal  Fair Labor Standards Act provides for the recovery of double damages rather than the treble damages available under Massachusetts law).  Employers considering the use of independent contractors should tread with caution and should seek legal advice about the propriety of an independent contractor classification when there is any room for doubt.