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Massachusetts Appeals Court Clarifies the A’s and C’s of Independent Contractor Status

On July 13, 2022, the Massachusetts Appeals Court signaled a victory for Massachusetts employers who rely upon independent contractors.  In Tiger Home Inspection, Inc. v. Dir. of the Dep’t of Unemployment, the Appeals Court reversed decisions from the Department of Unemployment (“DUA”) and trial court, concluding that the inspectors were independent contractors under Massachusetts’s Unemployment Insurance statute (“Unemployment Law”) and, thus, ineligible for unemployment benefits.  Focusing on Prongs A and C of the Unemployment Law’s “ABC” test for classifying independent contractors, the Appeals Court provided employers with excellent precedent and concrete guidance for navigating those elements of the test.  Notably, the Unemployment Law’s ABC language largely tracks the Massachusetts Wage Act’s “ABC” test, with Prongs A and C using identical language.  As a result, Tiger Home Inspection arguably provides employers with much-needed clarity for navigating both statutes.

Background & Decision

In Tiger Home Inspection, Tiger provided inspectional services for real properties, relying on inspectors with whom it contracted as independent contractors.  Nevertheless, in 2008, a licensed home inspector filed for unemployment benefits when Tiger discontinued his services.  In response, Tiger asserted that the inspector was not eligible for unemployment benefits based on his independent contractor status.  Disagreeing, the DUA concluded that the inspector and “all similarly employed inspectors” were employees under the “ABC” test, and the district court affirmed.  Reversing the lower court on appeal, the Massachusetts Appeals Court objected to the DUA’s analyses under Prongs A and C and held that Tiger properly characterized the inspector and those “similarly employed” as independent contractors.

The “ABC” Test

Massachusetts’s Unemployment Law presumes that workers are employees unless the employer can rebut this presumption by satisfying the “ABC” test.  Specifically, employers must show:

  1. “Such individual has been and will continue to be free from control and direction in connection with the performance of such services, both under his contract and for the performance of service and in fact;
  2. Such service is performed either outside the usual course of the business for which the service is performed or is performed outside all of the places of business of the enterprise for which the service is performed; and
  3. Such individual is customarily engaged in an independently established trade, occupation, profession, or business of the same nature as that involved in the service performed.”

Prong A: Direction and Control

As to Prong A, the Appeals Court clarified that the proper inquiry is “did the person performing services: (1) have the right to control the details of how the services were performed; and (2) have the freedom from supervision not only as the result to be accomplished but also to the means and methods that are to be utilized in the performance of the work.”  In Tiger Home Inspection, the Appeals Court held the evidence “firmly” answered both questions with a “yes.”

The Appeals Court also clarified that the essential inquiry focuses on “the extent of direction and control over . . . [the inspector’s] work.”  For its part, the DUA had relied on the following Prong A factors: (1) customers scheduled inspections through Tiger’s office; (2) customers paid Tiger directly for services provided; (3) Tiger provided inspectors with branded shirts and Tiger’s website featured them wearing those shirts; (4) Tiger employed a manager to field customer complaints; and (5) Tiger maintained purchased errors and omissions insurance for the inspectors.  Critiquing the DUA, the Appeals Court noted that many of these factors were entirely consistent with Tiger’s efforts to generate revenue through branding, not necessarily direction and control.  The Appeals Court also critiqued the DUA’s emphasis on Tiger’s requiring inspectors to provide written reports after each inspection, a statutory requirement, reasoning that agencies and courts reviewing for “control” should not fault companies for complying with Massachusetts law.

Next, the Appeals Court emphasized the facts dispositive to its holding that Tiger did not control or direct the inspectors’ work.  Specifically, the Appeals Court noted that “inspectors could work as little as much as they wanted for Tiger”; “inspectors worked at their own pace”; and “inspectors . . . could refuse any assignment offered by Tiger without penalty.”  Beyond that, the Appeals Court underscored the unbridled discretion which inspectors enjoyed – so long as they complied with state standards: Tiger left “the means and methods of performance” entirely to the inspectors.  This discretion included: (1) having no communication with Tiger upon accepting a job; (2) contacting customers directly; (3) traveling to the inspection sites in their own vehicles and at their own expense; (4) performing the inspections with their own tools and equipment; (5) issuing inspection reports to customers without involving Tiger; and (6) having the discretion to “hire helpers at their own cost without having to obtain approval from Tiger.”  Taken together, the Appeals Court held Tiger left the inspectors “free” to carry out inspections as independent contractors would, and therefore Tiger prevailed on Prong A.

Prong C: Independent Trade or Business

Likewise, the Appeals Court clarified the critical inquiry under Prong C.  Specifically, the Appeals Court held that the question “is not whether the inspectors, in fact, operated their own businesses, but whether they were free to do so.”  In finding that the record supported a “yes” to that question, the Appeals Court criticized the DUA’s reliance on the “absence of credible evidence indicating the inspectors were actually engaged in independent enterprises” and thus forced to rely on Tiger for work.  While inspectors approached directly by customers to schedule a Tiger inspection “were to refer the request to the Tiger office for central scheduling,” no evidence showed that Tiger required inspectors to refer all potential customers to Tiger.  Rather, the evidence established that inspectors could advertise their own services and maintain their own customers.  Given that the inspectors worked as little or as much as they liked, Tiger did not interfere with the inspectors’ ability to operate their own businesses.  As such, the Appeals Court held that Tiger prevailed on Prong C.

Takeaways

Tiger Home Inspection is a positive development for Massachusetts employers who rely on independent contractors because it provides guidance as to how such employers may establish that they do not “control” their workers under Prong A and that their workers are in fact “independent” under Prong C, for purposes of Massachusetts’s Unemployment Law.  While the “ABC” test remains highly fact-intensive, Tiger Home Inspection clarifies that the Prong A inquiry centers on factors implying control, not the parties’ relationship; that a company’s regulatory compliance does not trigger control; and that the Prong C inquiry is whether workers are free to operate their own business, not whether they operate their own business.  Significantly, the Appeals Court noted that because the state’s Unemployment Law and Wage Act share verbatim language under Prongs A and C, its Tiger Home Inspection analysis is instructive as to future Wage Act claims to face the same questions.

But one vexing wrinkle that Tiger Home Inspection leaves untouched is the elusive Prong B, which differs markedly between the Unemployment Law and the Wage Act.  For instance, the Wage Act’s Prong B employs a more rigorous standard.  A worker is an independent contractor under Prong B only if “the service is performed outside the usual course of the business of the employer.”  To date, Massachusetts courts have provided no practical guidance on what this language means.  The only other advice available comes from a single Massachusetts Attorney General advisory which states that workers who go into offices to move furniture perform work outside the usual course of business, but does not otherwise provide any meaningful insight into the issue.   While this Prong B challenge may still exist for employers, Tiger Home Inspection provides much-needed clarity for establishing the other two elements under the Unemployment Law and provides helpful guidance for navigating similar prongs of the Wage Act.

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Ashley Krezmien, a Law Clerk – Admission Pending (not admitted to the practice of law) in the firm’s Boston office, contributed to the preparation of this post.