Courier companies sue to overturn state restrictions on independent contractors

The lawsuit, filed yesterday in US District Court, is aimed at letting delivery companies hire independent contractors to deliver packages, but if successful could affect industries from construction to accounting - and let them replace salaried employees with contractors who receive no benefits and for whom the companies do not have to pay unemployment, payroll or Social Security taxes.

The Massachusetts Delivery Association says current state law violates both the interstate-commerce clause of the US Constitution and FAA regulations that limit interference with the "price, route, or service" of motor carriers engaged in interstate commerce. The law puts them at an unfair advantage compared to national delivery companies and robs them of the flexibility and cost savings they need to compete.

Along with 18 other states, Massachusetts has long sought to restrict the definition of "independent contractor" to protect fulltime workers - and provide for payments into the state unemployment system. Massachusetts, however, is the only state to tie its definition to its wage and unemployment-compensation laws and to bar companies from hiring independent contractors who do the same basic work as the companies, i.e., a courier company cannot hire a contractor whose main job is to deliver packages. The law provides for significant penalties for companies found misclassifying workers as contractors.

In 2008, Attorney General Martha Coakley's office issued an advisory on the law:

The need for proper classification of individuals in the workplace is of paramount importance to the Commonwealth.2 Entities that misclassify individuals are in many cases committing insurance fraud and deprive individuals of the many protections and benefits, both public and private, that employees enjoy. Misclassified individuals are often left without unemployment insurance and workers' compensation benefits. In addition, misclassified individuals do not have access to employer-provided health care and may be paid reduced wages or cash as wage payments.

Similarly, entities that misclassify individuals deprive the Commonwealth of tax revenue that the state would otherwise receive from payroll taxes. In addition, as a result of misclassification, the Commonwealth often incurs additional costs, such as providing health care coverage for uninsured workers. Other potential costs for the Commonwealth include providing workers' compensation benefits paid by the Workers' Compensation Trust Fund, and unemployment assistance without employer contribution into the Division of Unemployment Assistance fund, among other indirect costs.

Complete Massachusetts Delivery Association complaint.