Small businesses, start-ups and even established companies often engage the services of contract staffing firms to provide the personnel needed for operations. That is a simple and efficient way to acquire the necessary staff without making the commitment to hire new employees. Also, there is no expense for health insurance, paid vacations and sick leave, or payroll taxes. And most important of all from the perspective of the employer, there would be no union problem.
A new ruling by the National Labor Relations Board might render that business model very restricted. The NLRB ruled that when an employer exercises considerable control and direction over a so-called contractor, then the employer is held to be a joint employer with the staffing company.
This ruling offends some contractors who like to view themselves as independent business owners and are unhappy to be suddenly considered as mere employees. If this ruling is upheld on appeal, it will undermine the business model of staffing companies. Also, franchises that exercise great control over the employees of their franchisees will be in jeopardy of becoming co-employers.
An emerging firm, whose sales are primarily as a contractor with one employer, will have resolved the problem of marketing and sales. However, this status as an independent contractor might be in jeopardy in Massachusetts now, unless three criteria are satisfied.
First, there must be a written contract that specifies the terms of the relationship. Second, the work performed must not be essentially identical to the employer’s primary work product. Third, the contractor must be available to perform similar work for others. When all the contractor’s work is for one employer over an extended period of time, there may be a challenge that the independent contractor is actually an employee.
With the dissolution of the purported contractor relationship, the emerging entrepreneur might suddenly be without any customers. That is not an enviable position. The other alternative would be to become employees. Those with a strong drive to be in business for themselves would not find employee status to be acceptable.
Entrepreneurs must beware in Massachusetts if those three criteria are not met.
