Important Clauses in Employment and Independent Contractor Agreements

Many Massachusetts employers and business owners are now turning to at-will employment contracts and independent contractor agreements to protect their interests and govern its relationship with employees and contractors. These types of employment agreements are commonplace in most management and professional job positions, as well as for skilled outside, independent contractors.  In all likelihood, if a business provides a lucrative job position to an employee, an employment agreement may become a condition prior to commencement of employment. 

What are the types of clauses that businesses, employees, and contractors can expect to see in a well-drafted employment agreement? 

Term of Service or At Will or Terminable Status - Typically, most employment agreements or independent contractor agreements are "at will." In other words, you are not provided to any continuing right to employment or payment for a certain term. In most cases, a business can terminate its relationship with employees according to the terms of the contract; the company's own policies; and within the bounds of Federal and State laws. So long, as businesses are compliant with these covenants, policies and laws, then the business can terminate employment for any reason. Some employment or independent contractor agreements do contain a set term of service.  If you are drafting an agreement or signing one, and you contemplated a term of service, make sure that this is clearly reflected in the document. 

Confidentiality - Most businesses and employers will take measures to put their employees and contractors on notice that its considers its data, systems, processes, lists, diagrams, and other information as confidential.  The Employer will restrict the employee or contractor's use of that information by setting terms on how such information may be used, and set limitations on that person's authority to use that information.  These clauses typically contain a continuing duty in perpetuity for an employee or contractor to maintain the confidentiality of information. 

Non-Compete / Non-Competition - Most businesses and employers will restrict an employee or contractors' ability to work or sell information to its competition or set up a competing enterprise.  Any non-compete must be reasonable.  It cannot impose draconian conditions that eliminate a person's ability to work for a different employer. Non-compete agreements are reviewed on a case by case basis, and a well-drafted and reasonable agreement will be enforced by a Court. In other words, the business or former employer may obtain an injunction that legally prohibits you from working for a competitor.  Most, if not all, employers now ask whether you are subject to a non-compete agreement prior to commencement of work.  The reason is that a potential employer can also incur liability by hiring an individual who is subject to this type of restriction.  

If you are a business that desires to set out the terms of your engagement with employees or contractors, or have questions about an agreement, please contact the Law Office of Stefan Cencarik, PLLC at 617-669-9780. We represent clients in the Boston and North Shore areas, including Boston, Cambridge, Lynnfield, Woburn, Burlington, Andover, Saugus, Peabody, and the surrounding towns and communities.  

Independent Contractor vs. Employees in Massachusetts

Employers beware that the Commonwealth of Massachusetts treats nearly all workers as employees through strict interpretation of the characteristics that qualify a worker as an independent contractor. Equally important is the fact that the State treats enforcement of the independent contractor laws  as priority, and both civil and criminal penalties can be levied against businesses, in addition to injunctions and other orders for compliance. Massachusetts targets employers who fail to properly classify workers as independent contractors.  The State is well aware that businesses often improperly classify employees as "independent contractors" in an effort to avoid paying for or providing benefits to the worker, and/or avoiding tax and other witholdings, as well as payment of unemployment and worker's compensation insurance premiums. 

M.G.L. ch. 149 s. 148B, declares that all workers are to be considered employees, unless the circumstances and nature of that individual's employment meet all of the following criteria:

 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." In other words, your business cannot retain management control or authority over the manner and means of the worker's performance of their duties and tasks.  The worker must be free to perform any work at their own control, discretion, professional standards, and time frames. 

2. "The service is performed outside the usual course of the business of the employer." If the worker performs work that relates to or provides support for the nature of your business, that individual is an employee.  For example, a computer engineering firm cannot classify a software  analyst as an independent contractor, however, it can hire an attorney or certified public accountant at another firm to perform those specific professional services.  This is the strictest factor of the Massachusetts independent contractor statute, and most businesses fail to meet this criteria.  

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 worker must perform a service that is distinguishable and separate from the business, and that service is customarily provided in that worker's profession or business.  

If your classification of workers fails to meet one of the above three criteria, then your worker must be classified and treated as an employee.

Failure to properly classify and treat workers as employees can result in a significant amount of liability for an employer. If you fail any of the above criteria, and then do not provide vacation, sick, and leave benefits; fail to pay tax and witholdings; fail to pay worker's and unemployment insurance premiums; and allow other benefits (such as Maternity Leave or Family Medical Leave Act (FMLA)), you will be subject to both civil and criminal liability.  For example, an aggrieved employee who has been misclassified as an "independent contractor" may file a complaint with the Massachusetts Attorney General's Office, and then may be provided with a private right to initiate a civil action against your business.  This lawsuit may enable an employee to recover lost wages, plus the monetary value of the lost benefits, plus treble damages and legal fees.  If a business has misclassified employees in a widespread basis, it could be exposed to numerous claims involving substantial damages and penalties for failing to comply with Massachusetts independent contractor law.  This scenario could potentially end in disaster for a business.