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June 28, 2021

How to avoid misclassifying your employees under the Maine Workers’ Compensation Act

The financial burden of carrying workers’ compensation insurance and unemployment insurance may tempt some individuals and employers to be overly broad in their classification of independent contractors.

John Cronan, an attorney at Preti Flaherty in Portland, focuses on regional, national and international antitrust matters, including commercial and antitrust litigation.

However, The law creates a uniform definition of independent contractor for the Workers’ Compensation Act and the Maine Department of Labor (MDOL). This definition is quite limited, and very clearly laid out. By law, all workers are presumed to be employees for purposes of workers’ compensation.

Independent contractors are individuals who perform services for remuneration (pay or some other form of consideration) under a verbal or written contract, but who are not under the essential control or superintendence of the other person, both under the contract and in fact. The employing entity is responsible for proving an individual performing services for remuneration is not an employee. In other words, if you are paying someone to work for you, it’s most likely that person is an employee, and the burden is on you to prove otherwise.

The following are the general criteria to determine if someone might be accurately classified as an independent contractor. Under this test, the following criteria must be met:

  • The person has control of the means and progress of the work;
  • The person is operating in an independently established trade, occupation, profession or business;
  • The person has the opportunity for profit and loss as a result of the services being performed ;
  • The person hires and pays their own assistants and supervises them independently;
  • The person’s services are (or could be) available to a larger customer community;

Also, at least three of the following criteria must be met:

  • The person has a substantive investment in the facilities, tools, instruments, materials and knowledge used by the person to complete the work;
  • The person is not required to work exclusively for the other individual or entity;
  • The person is responsible for satisfactory completion of the work and may be held contractually responsible for failure to complete the work;
  • The parties have a contract that defines the relationship and termination;
  • Payment is based on factors directly related to the work performed and not solely on the amount of time expended by the person;
  • The work is outside the usual course of business for which the service is performed; or
  • The person has been determined to be an independent contractor by the federal Internal Revenue Service.

The Workers’ Compensation Board can pre-determine independent or sub-contractor status. If approval is granted by the board this creates a presumption, if litigation results, that the individual or entity was in fact an independent contractor. However, in most cases, predeterminations (except for landowners who hire wood harvesters) are “rebuttable.” Thus, the board can still find that the person is an employee in a later proceeding even if there is an initial finding that the person is an independent contractor.
So, while the criteria for determining status are clear, applying the criteria in real-world situations is not often as simple. Therefore, it is wise to review your definitions with an experienced workers’ compensation attorney, as misclassification can end up costing a lot of time, money, and stress.

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