The Commonwealth of Massachusetts has attracted national attention by its very demanding “ABC” test for establishing an independent-contractor relationship. The current test provides that:
an individual performing any service, except as authorized under this chapter, shall be considered to be an employee under those chapters unless:—
(1) the individual is free from control and direction in connection with the performance of the service, both under his contract for the performance of service and in fact; and
(2) the service is performed outside the usual course of the business of the employer; and
(3) the individual is customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the service performed.
The current version of the “ABC” test requires that all three factors of the test be satisfied, and courts have interpreted the factors in a manner that make them difficult to satisfy.
Several bills were recently introduced to change this test. Such bills are summarized below. Firms that do business with independent contractors in Massachusetts should consider becoming engaged in this process.
I. H. 1681 Would Provide an Alternative to the ABC Test for Freelancers
State Representative Jennifer Benson (D) introduced H.B. 1681, which would create an alternative to the ABC test to determine whether freelancers are independent contractors.
The bill would amend the provision of the Labor law containing the ABC test. The amended provision would provide (new language reflected in bold italics):
(a) For the purpose of this chapter and chapter 151, an individual performing any service, except as authorized under this chapter, shall be considered to be an employee under those chapters unless:–
(i) the individual annually certifies in writing to the department that he is a freelancer and should not be classified as an employee because:
(1) he is an independent contractor providing services as a visual artist, writer, photographer or designer; and
(2) he contracts with multiple entities; and
(3) he has not been coerced, threatened or intimidated into signing the certification; or
(ii)
(1) the individual is free from control and direction in connection with the performance of the service, both under his contract for the performance of service and in fact; and
(2) the service is performed outside the usual course of the business of the employer; and,
(3) the individual is customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the service performed.
https://malegislature.gov/Bills/189/House/H1681
II. H. 1725 and H. 1727 Would Make the ABC Test Less Restrictive
Republican Representative Bradley Jones Jr. introduced H.B. 1725 and H.B. 1727, which would make the ABC test less restrictive. Currently, a taxpayer must establish all three elements of the ABC test. These proposals would only require a taxpayer to satisfy element A and either element B or C.
The proposed ABC test would read as follows:
(a) For the purpose of this chapter and chapter 151, an individual performing any service, except as authorized under this chapter, shall be considered to be an employee under those chapters unless:-
(1) the individual is free from control and direction in connection with the performance of the service, both under his contract for the performance of service and in fact; and
(2) the service is performed outside the usual course of the business of the employer; or,
(3) the individual is customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the service performed.
https://malegislature.gov/Bills/189/House/H1725
https://malegislature.gov/Bills/189/House/H1727
III. H. 1755 Would Add an Alternative to the ABC Test for Establishing an Independent Contractor Relationship
State Representative Shaunna O’Connell (R) introduced H.B. 1755, which would create an alternative to the state’s current ABC test for establishing an independent contractor relationship.
The bill would amend the Labor law by replacing the current ABC test with the following:
(a) (1) any person performing services for a contractor shall be classified as an employee unless the person is a separate business entity under subparagraph (2) of this section or all of the following criteria are met, in which case the person shall be an independent contractor:
(a) the person is free from control and direction in performing the job, both under the contract and in fact;
(b) the service is performed outside the usual course of business of the contractor for which the service is performed; and
(c) the person is customarily engaged in an independently established trade, occupation, profession, or business that is similar to the service at issue.
(2) a business entity, including any sole proprietor, partnership, corporation or entity that may be a contractor under this section shall be considered a separate business entity from the contractor where all the following criteria are met:
(a) the business entity is performing the service free from the direction or control over the means and manner of providing the service, subject only to the right of the contractor for whom the service is provided to specify the desired result;
(b) the business entity is not subject to cancellation or destruction upon severance of the relationship with the contractor;
(c) the business entity has a substantial investment of capital or education or experience or knowledge in the business entity beyond ordinary tools and equipment and a personal vehicle;
(d) the business entity owns the capital goods and gains the profits and bears the losses of the business entity;
(e) the business entity makes its services available to the general public or the business community on a continuing basis;
(f) the business entity includes services rendered on a federal income tax schedule as an independent business or profession;
(g) the business entity performs services for the contractor under the business entity’s name;
(h) when the services being provided require a license or permit, the business entity obtains and pays for the license or permit in the business entity’s name;
(i) the business entity furnishes the tools and equipment necessary to provide the service;
(j) if necessary, the business entity hires its own employees without contractor approval, pays the employees without reimbursement from the contractor and reports the employees’ income to the internal revenue service;
(k) the contractor does not represent the business entity as an employee of the contractor to its customers; and
(l) the business entity has the right to perform similar services for others on whatever basis and whenever it chooses.
https://malegislature.gov/Bills/189/House/H1755
IV. H. 1776 Would Create an Exception to the ABC Test for Certain Intellectual Property Holders
Democrat Representative Chris Walsh introduced H.B. 1776, which would create an exemption to the state’s ABC test for certain intellectual property holders.
The bill would amend the Labor law by adding the following immediately after the ABC test:
(4) or if an individual who is engaged in a profession, trade, or occupation that creates intellectual property that is or is not protected under federal copyright law, federal patent law, federal licensing laws or any other applicable federal, state or international law or treaty governing intellectual property is exempt from section 148B of chapter 149 if they meet the following:
(i) The individual identifies, markets, or promotes themselves as a freelancer, as self-employed, as a sole proprietor or as an independent business.
(ii) The individual controls and regularly negotiates the use of their intellectual property.
(iii) The individual meets the federal standards on independent contractors such, as but not limited to, the Internal Revenue Service 20 Factor Test and any Internal Revenue Service or federal industry specific independent contractor test that may exist.
The exception shall not apply to an individual who has been coerced, threatened or intimidated into establishing an independent business.
https://malegislature.gov/Bills/189/House/H1776
V. H. 1763 Would Add Alternatives to the ABC Test to Determine Worker Status for Minimum Wage and Overtime Purposes
State Representative Jeffrey Roy (D) introduced H.B. 1763 which would provide alternatives to the ABC test to determine whether a worker is an employee or independent contractor for minimum wage and overtime purposes.
The bill would amend the labor laws by adding the following additional test:
(e) Notwithstanding the foregoing, an employer (as defined in Chapter 149, Section 148) shall not be in violation of this Section 149(d) to an individual for any claim for wages as provided for in Chapter 151, Section 1, or overtime as provided in Chapter 151, Section 1A, and will not be considered an employee pursuant to Chapter 151A Section 1(h) provided that:
(1) Such individual receives compensation equal to at least 3.5 times the minimum wage for all hours worked, as provided for in Chapter 151 Sections 1 and 1A;
(2) Such individual is engaged by an employer for no more than six months in the preceding 12 month period as anything other than an employee as defined by Subsections (a)(1-3) of this Section;
(3) The employer issues a Form-1099 for all income provided to the individual, and provides a copy of the report to the Department of Revenue; and
(4) Such employer does not use successive contractors for the same assignment as a subterfuge to avoid obligations that otherwise would be imposed on it should such individuals be deemed employees.
Additionally, the bill would provide that an individual is not the employee of an employer for minimum wage or overtime purposes, “provided that the individual is treated as an employee by another employer including, without limitation, any temporary or other staffing firm.”
https://malegislature.gov/Bills/189/House/H1763
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