Massachusetts Independent Contractor Law Update:

Background, Issues, and a New Legislative Solution

After a year of discussion, debate, negotiation, and drafting, AGC and the Massachusetts construction industry have finally developed a recommendation that corrects the problem created by a 2004 change in the Independent Contractor Law. The problem created by the change is that the law could be very broadly interpreted to mean that general contractors and subcontractors could be prohibited from hiring legitimate subs and sub-subs to perform the same type of work on the same project.

I. Background

The Massachusetts Independent Contractor Law, Chapter 149, Section 148B was amended in July 2004 as part of the 2004 Construction Reform Legislation. The intent was to allow for more effective enforcement by the Attorney General with increased fines and penalties for intentional misclassification of workers as independent contractors. Since the Attorney General issued an advisory on the issue in early 2005, a great deal of confusion has resulted over the interpretation of the new language (actually, the absence of the old language) with both construction and non-construction industry employers.

II. Issues

The reform law amended one of the three criteria used to determine whether a worker can be considered an independent contractor:

Affected Section:
M.G.L. Chapter 149, Section 148B

(a) For the purpose of this chapter and chapter 151, an individual performing any service, except as authorized under this chapter, shall be considered an employee under those chapters unless:

1. The individual is free from control and direction in connection with the performance of such service

2. The service is performed outside the usual course of business for which the service is performed or is performed outside of all places of business of the enterprise

3. The individual is customarily engaged in an independently established occupation or business of the same nature as the service

III. Interpretation of Above

Bullet #1 Self explanatory

Bullet #2. Under the new legislation, the last 12 words in the second bullet “or is performed outside of all places of business of the enterprise” were deleted. Under the old law, to qualify as an independent contractor an individual must have performed work that was different from the employer’s usual work or, could perform the same type of work, but must do the work “off premises.” Under the new law, an independent contractor must essentially do work that is different from that performed by the employer, period.

Bullet #3. Even before the law was changed with the removal of the 12 words in 2004, the third bullet suggests that in order for an individual who is not classified as an employee yet performs the same type of work at the same location must somehow be independently established - in order to be classified as an Independent Contractor.

In addition, a lack of consistent enforcement combined with a vague interpretation (what does “outside all places of business” and “independently established occupation” actually mean?) allowed employers across all occupations to interpret the law as they saw fit.

IV. Attorney General’s Advisory

In response to the change in the Independent Contractor law, the Attorney General issued an Advisory in 2005 that seemed to indicate that the term “individual” could be interpreted to mean another business entity. The reason: Massachusetts law is based on IRS standards that identify an individual as someone who may hire other individuals, hence, the stretched interpretation. This meant that general contractors and subcontractors could be prohibited from hiring legitimate subs and sub-subs to perform the same type of work on the same project.

V. Industry Dilemma

As a result, AGC and the allied industry associations (ABC, ASM, CIM, UCANE) spent a year trying to craft language to correct this defect. Meetings were held between the associations and with public owners, legislators, the Attorney General’s office, and labor to develop a solution.

To complicate matters, 1.) The legislature was holding hostage the important Construction Reform Technical Corrections bill – and would not release it for passage – unless the Independent Contractor issue was solved to the satisfaction of all parties. 2.) Key legislative leaders told the associations that adding back the 12 deleted words was not an option. 3.) There must be a sign-off from labor on any changes in order to get a legislative remedy. 4.) There was a proposal circulated to make the changes in the Independent Contractor law apply only to the construction industry.

VI. Industry Remedy

In Spring 2006, a simple one-sentence fix to the problem that had been considered for several months was proposed. A new section (f) was added to the law “The term individual as used in this section shall mean a natural person.” The legislature and labor agreed that it fixed our problem without weakening the intent of the law. In addition, the circulated language that would apply the law solely to the construction industry was dropped. Although the industry fix is not a perfect solution, the new sentence does solve for AGC and the other employer associations, our main issue of one business entity being prohibited from subcontracting with another business entity.

In June, 2006, the new one-sentence "natural person" language was forwarded to the legislature for inclusion in the Construction Reform Technical Corrections Bill and was subsequently released by the Joint Committee on State Administration and sent to Ways and Means. Later in June, The Construction Reform Commission was convened to pledge passage of the Construction Reform Technical Corrections bill with the Independent Contractor "natural person" corrective language.

Unfortunately, the Technical Corrections bill with the corrective Independent Contractor language failed to pass the legislature by the July 31 deadline, due in part to the fact that legislators were trying to add messy immigration reform provisions onto the bill.

VII. Next Steps

The Technical Corrections bill was re-filed by Rep. Antonio Cabral, House Chair of the Committee on State Administration on January 10, 2007 in its original form without any of the compromise or corrective Independent Contractor language. AGC and allied industry groups will be working diligently in 2007 to successfully insert the "natural person" corrective language agreed upon by major construction employer groups and the state building trades.

The biggest stumbling block in 2007 is oppostion by the major state non-construction industry groups that want the new changes to the Independent Contractor language to apply solely to the construction industry. Labor opposed the exclusion. It remains to be seen if a new compromise between all the parties can be accomplished in a timely manner.

For further information, please contact Bob Petrucelli at petrucelli@agcmass.org or at 781-235-2680, ext. 14.