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The Massachusetts Supreme Judicial Court Recently Issued Key Decisions Concerning the Commonwealth’s Tips Act and Independent Contractor Statute

Two Massachusetts Supreme Judicial Court (SJC) opinions issued last month provide guidance for employers on two important, yet complex, Massachusetts employment statutes: the Tips Act and the independent contractor statute.

The Tips Act

In Meshna v. Scrivanos (SJC-11618, April 10, 2015), Massachusetts’ highest court held that the Tips Act (M.G.L. c. 149, § 152A) does not prohibit an employer from instituting a no-tipping policy.

The plaintiffs, Dunkin Donuts employees at stores owned by the same franchisee, claimed that their employers’ enforcement of a no-tipping policy violated the Tips Act (“Act”). The Act prevents an employer from deducting or retaining any tips given to a wait staff, bartender, or other qualifying employee.

In Meshna, the employees were not permitted to accept tips from customers and were required to inform customers who attempted to leave tips of this policy. If a customer left a tip despite the policy, the employer initially required that the tip be put into the register, and the employer later changed its policy whereby employees were to place any tips in “abandoned change” for employees to use, similar to a “take-a-penny, leave-a-penny” container.

The SJC held that nothing in the Act prohibits employers from establishing a no-tipping policy. The SJC went on to hold that employers can have a no-tipping policy so long as it is clearly communicated to customers. The SJC reasoned that where an employer has clearly communicated its no-tipping policy to customers, the customer has no expectation that the money will go to the employee and it therefore does not qualify as a tip under the law. However, if an employer has not clearly communicated its policy to customers, any tips belong to the employees.

In a footnote, the SJC described how employers could clearly communicate a no-tipping policy, suggesting that employers may post signs stating that employees may not accept tips, instruct wait staff employees to convey the no-tipping policy orally to customers, or provide training to employees on the content of the no-tipping policy.

In light of this ruling, employers should no longer fear that implementing a no-tipping policy will run afoul of the Act, provided that such a policy is clearly communicated to customers.

Independent Contractor Statute

In Sebago, et al. v. Boston Cab Dispatch, et al. (SJC-11757, April 21, 2015), the SJC held that taxicab drivers in Boston may be classified as independent contractors under the state independent contract statute (M.G.L. c. 149, § 148B, or “148B”).

The plaintiffs, drivers that leased taxicabs at a flat rate from taxicab and medallion owners, contended that they were misclassified as independent contractors and in fact were employees entitled to, among other things, minimum wage and overtime pay.

In ruling against the drivers, the SJC applied 148B’s three-prong independent contractor test to taxicab drivers in Boston. Under the statute, workers are presumed to be employees, and the employer must satisfy all three prongs to correctly classify workers as independent contractors. Here, the defendant employers were found by the SJC to satisfy all three prongs. Under the first prong, the SJC found that the drivers were free from control and direction because they were free to use their taxicabs as they wished during the lease period, set their own schedules, and choose whether to accept passengers. Under the third prong, the court found that taxicab drivers were “customarily engaged in an independently established trade, occupation. . . ” because they were free to lease their taxis from whomever they chose and to advertise their own services.

Under the second prong, which was the core of the dispute, the SJC found that the drivers’ services were “outside the usual course of the business of the employer.” The SJC held that the defendant employers are not in the business of transporting passengers; instead they are in the business of providing dispatch services and leasing arrangements. Therefore, the drivers’ service of transporting passengers was deemed outside their employers’ “usual course of business.”

Employers should take notice of this landmark 148B decision. Admittedly, the SJC’s decision rested heavily on the City of Boston’s taxicab regulatory framework, but time will tell how narrowly interpreted this case will be. 148B’s second prong makes it one of the most anti-independent contractor statutes in the country, if not the foremost such statute. The second prong precludes employers from engaging independent contractors to perform services in the employers’ “usual course of business.” The SJC’s decision could breathe life into the second prong of the independent contractor test and provide a mechanism for employers to classify workers as independent contractors. Employers, however, are strongly encouraged to consult with counsel in making Massachusetts independent contractor determinations.

If you have questions about this topic, or any other employer related issues,  please contact one of the Labor & Employment practice attorneys.