Independent Contractors and Workers Comp: MA Court Ruling a Game Changer
For a number of years, the definition of an independent contractor under workers comp in MA has been governed by a 2008 directive from the Attorney General. Under the directive, there is a simple, three pronged test for independence: the individual must: (1) Be free from control of the Employer (2) Provide services outside the usual course of the employer's business (3) Be engaged in an independent trade, occupation, profession or business. The advisory does not go into detail on these criteria, but all three must be met. The burden of proof is clearly on the GC/employer to demonstrate that any independent contractors meet the three criteria. The way people are paid (e.g.via 1099s) is not to be considered. If the employer cannot prove the independence of their contractors, they become employees for the purposes of workers comp.
Under the AG's stringent rules, insurance auditors have routinely added the payrolls of sole proprietor/independent contractors to the employer's workers compensation premium calculation. Well, folks, those days appear to be over.
Camargo Ruling Changes the Game
The MA Supreme Judicial Court recently issued the Camargo ruling, which has profound implications for the workers comp system. In a word, the ruling renders the Attorney General's 2008 Advisory irrelevant when determining whether, for the purposes of workers comp, a person is an employee or an independent contractor. Instead of a three-pronged criteria, there are now twelve prongs, derived from rulings in two comp cases,"MacTavish-Whitman." The MacTavish-Whitman criteria are less rigid and more nuanced than the AG's advisory. While there is significant overlap, there are a few new prongs:
- the skill required in the particular occupation
- the length of time for which the person is employed
- the tax treatment applied to payment (1099s do matter)
- the right of the insured to terminate the relationship without liability
Most important for insurance audit purposes, the burden of proof has been reversed: instead of the employer proving a sole proprietor/independent contractor is not an employee, sole proprietor/independent contractors must prove that they are employees. Absent a catastrophic loss, sole proprietors generally have no interest in trying to prove that they are employees; they take pride in their independence. In my reading, reversal of the burden of proof (as outlined in Judge Gants's concurrence) may well end the practice of adding 1099 billings to the employer's payrolls.
We await guidance from the Commonwealth on the practical implications of this new ruling, including the loaded key question: whether or not this ruling is retroactive.
All of which proves, yet again, that workers compensation is by far the most interesting line of insurance.
Senior Workers Compensation Consultant