Unemployment Benefits for Out-of-Work Consultants

by Brett W. F. Randolph

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In the Nov/Dec 1992 issue of the Broadside, I noted in this column that some unemployed consultants may be entitled to unemployment compensation. Since that issue generated considerable interest, I have done some additional research to provide more details.

If you have been paid as independent contractor for work you have performed, you might assume that you are ineligible for unemployment compensation when a client or a temporary agency can no longer keep you busy. The client has no more work, so you think you're on your own to look for work, without the benefit of unemployment compensation. But what if a client or temporary agency should have paid you as an employee, instead of treating you as an independent contractor? In many cases, you would be entitled to collect unemployment compensation, even if you had signed a contract stipulating that you would not be eligible for benefits.

Determining Your Status

State unemployment offices use their own guidelines to determine whether or not a worker should be treated as an employee or an independent contractor. The guidelines are similar to, but not exactly the same as, the guidelines used by the IRS for employment tax purposes, and by state and federal Departments of Labor regarding wage and overtime issues.

In Massachusetts, unemployment compensation is administered by the Department of Employment and Training (DET). The Mass. DET maintains a "Status Unit" to investigate situations in which a person may have been misclassified as an independent contractor. If you file a claim for unemployment benefits and there is a reasonable expectation that you should have been treated as an employee, the Status Unit will investigate the company that paid you. If the DET determines that unemployment taxes should have been paid on your earnings, and you are otherwise eligible to collect unemployment compensation, your claim will be approved.

Filing a Claim

How do you file an unemployment claim when you believe you should have been paid as an employee but you know that unemployment taxes have not been paid on your earnings? I spoke to Vida K. Berkowitz, an attorney in Cambridge, Mass. who concentrates her practice in unemployment law. "The only way to find out if you are eligible for benefits is to file an unemployment claim," Ms. Berkowitz says. "However, in such a complicated situation, it is advisable to seek the advice of an attorney before you file your claim. There may be tax and career issues, as well as the benefit issues at stake."

All parties are entitled to representation by an attorney throughout the claim process. To obtain the name of an attorney who is familiar with unemployment laws, call your local Bar Association. In Massachusetts, the Lawyer Referral Service of the Bar Association will provide you with the name of an attorney who will charge you fifteen dollars for an initial one-half hour consultation to discuss your case. They will also refer you to another attorney if you are not satisfied with the first referral.

When you file your claim, if there is no record that unemployment taxes have been paid on your income, you will be required to fill out forms that include questions about recent employers. Be sure to include any companies that paid you as a consultant as "employers"; the unemployment office will make an initial determination as to whether you had employee or independent contractor status.

Eligibility Factors

In Massachusetts, the DET looks primarily at three factors to determine whether earnings should be included toward your eligibility. Any single one of these three factors can result in a determination that you are eligible for unemployment benefits:

Direction and Control.

Were your working hours established by the company that paid you or by the company's client? Was your method of work established by you or by the company you worked for? Were you part of a company team? The answers to these questions will help determine whether or not you are an employee under state law.An employee would be subject to the direction and control of a client. An independent contractor would be responsible for his end work product, but free from control as to when, where and how to accomplish the result.

Ordinary Course of Business.

If you are the only person performing the type of work you do for a company, and your work is done entirely at your own home or office, you are probably an independent contractor. On the other hand, if you regularly work at a company's offices along side employees who do exactly the same work you are doing, you are probably an employee for the purposes of unemployment compensation, not an independent contractor.

Independent Business.

If you worked for several businesses simultaneously, and regularly offer your services to others in the general business community, then it is more likely that you are an independent contractor. Independent contractors are usually paid by the task to complete individual projects or deliverables. If you were paid by the hour, week or month, then chances are good that you should not have been treated as an independent contractor, especially if you had a long-term relationship with a single business. Again, if you should have been paid as an employee, unemployment benefits may be due.

What Happens Next?

When a company that has paid you as an independent contractor is contacted by the unemployment office about your unemployment claim, chances are good that the company will contest your claim. An adjuster from the unemployment office will investigate your claim, working with you and the company that paid you. If your claim is determined to be valid, and you are otherwise eligible, you will be paid unemployment benefits.

If the adjuster does not approve your claim, you will be sent a disqualification notice. If you disagree with that finding, return the appeal form that is part of the disqualification notice. This will begin the appeal process.

A hearing will be scheduled at the DET office. You and the company that paid you will both have the opportunity to present your case and any witnesses. If you are denied benefits after the hearing, you may request an appeal to the DET Board of Review. If the board denies your claim, you can take your case to District Court.

Unemployed consultants are not entitled to collect unemployment compensation in cases where a legitimate independent contractor relationship existed. But employees who have been misclassified as independent contractors by companies that simply want to evade unemployment taxes and other costs of employment have the right to receive unemployment benefits, even in the face of a contract that states otherwise.

Brett Randolph, who has been marketing contract technical communications services since 1973, is a partner in Randolph Associates, Inc. in Boston, Mass.

© 2002 by STC Boston, Boston, Massachusetts, USA
Originally published May/June 1993 in the Boston Broadside.