Beware of Choice of Law When Drafting Independent Contractor Agreements

more+
less-

As we have previously posted in Choice of Law in a Contract Can Be Critical, Ensuring Your Dispute Is Resolved in the Forum You Want Is Not Always Easy, and Selection of Forum Other Than Massachusetts May Not Avoid Wage Act Enforcement, choice of law and forum selection provisions should be conscious decisions made in the context of each specific contract.  If in-house counsel do not carefully draft these provisions in their independent contractor or consulting agreements, they may be overlooking a possible means of avoiding or minimizing liability in Massachusetts under the so-called Massachusetts Independent Contractor Law (M.G.L. c. 149, §148B), the Massachusetts Weekly Payment of Wages Act (M.G.L. c. 149, §148) and/or the Massachusetts minimum wage and overtime laws.  Because these statutes do not contain any explicit geographic restriction on their application, their applicability to non-Massachusetts residents performing work outside of Massachusetts for Massachusetts companies has been unsettled.  (I have previously posted here and here on the staggering ramifications of misclassifying a worker as an independent contractor in Massachusetts.) 

In Taylor v. Eastern Connection Operating, Inc., the Massachusetts Supreme Judicial Court took up the issue of whether New York residents who perform package pickup and delivery services exclusively in New York could avail themselves of the protections of the Massachusetts Independent Contractor Law, Massachusetts Wage Act and Massachusetts minimum wage and overtime laws.  In that case, all of the plaintiffs executed contracts with Eastern Connection Operating, Inc. to act as couriers exclusively in New York, where each of them lived.  Eastern Connection, which is in the business of delivering packages in various states on the east coast of the United States, is headquartered in Massachusetts.  The plaintiffs’ contracts classified each of them as “independent contractors” and also stated:

This Contract and all rights and obligations of the parties shall be construed in accordance with the laws where [Eastern Connection] is headquartered and any action shall be commenced in that jurisdiction in the closest state court.

Plaintiffs sued Eastern Connection in a purported class action in Massachusetts Superior Court, claiming that they had been misclassified as independent contractors and were owed unpaid wages under the applicable Massachusetts statutes.  The Superior Court dismissed those claims for lack of subject matter jurisdiction and for failure to state a claim upon which relief can be granted because the Massachusetts Independent Contractor law does not apply to non-Massachusetts residents working outside of Massachusetts.  As a result, the plaintiffs could not be reclassified as employees under that law and had no viable claim for a violation of the Massachusetts Wage Act (which only applies to employees).  

The Supreme Judicial Court in Taylor overturned the lower court’s dismissal, however, holding:

Insofar as the written contract between the parties contains an enforceable clause requiring both that actions be brought in Massachusetts and that the ‘Contract and all rights and obligations of the parties’ be determined under Massachusetts law, and where application of Massachusetts law is not contrary to a fundamental policy of jurisdiction where the individuals live and work, we conclude that it was error to dismiss the plaintiffs’ complaint.

Companies are often tempted to require that their contracts be governed by their home state’s laws and that all disputes be heard in their home states.  As the Taylor case shows, at least for independent contractor agreements, in-house counsel should carefully consider the risks of giving into such temptation.

Topics:  Choice-of-Law, Contract Drafting, Independent Contractors, Wage Act

Published In: Civil Procedure Updates, General Business Updates, Labor & Employment Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Burns & Levinson LLP | Attorney Advertising

Don't miss a thing! Build a custom news brief:

Read fresh new writing on compliance, cybersecurity, Dodd-Frank, whistleblowers, social media, hiring & firing, patent reform, the NLRB, Obamacare, the SEC…

…or whatever matters the most to you. Follow authors, firms, and topics on JD Supra.

Create your news brief now - it's free and easy »