Employer Can’t Deduct Workers’ Compensation Insurance Premiums from Employees’ Pay

A business owner with an eye on the bottom line may attempt to pass along the costs of doing business to either customers or employees. Customers won’t appreciate higher costs, however, and in the current economy, a business owner may feel safer passing business expenses on to employees, in the form of lower wages or deductions.

In a recent case, multiple plaintiffs filed a class action lawsuit claiming that their employer, 3PD, Inc., misclassified them as independent contractors and forced them to pay for many of the company’s costs of doing business by making improper deductions from their pay.

The workers sued under the Massachusetts Wage Act, Mass. Gen. Laws ch. 149, sections 148 and 150 (Massachusetts independent contractor statute). One of the questionable deductions was the company’s premiums for its workers’ compensation insurance.

3PD provides home delivery services for such big-box stores as The Home Depot and Lowe’s. The plaintiffs were licensed truckers, who provided transportation, delivery, and installation of the big-box retailers’ products under contract to 3PD.

3PD classified the drivers as independent contractors, its first mistake. In line with this misclassification, it took deductions from its payments to the drivers for costs such as:

• truck lease payments (the drivers were required to lease their trucks from 3PD),
• liability insurance,
• administrative fees,
• uniforms,
• chargebacks for physical damage to goods delivered, and
• premiums for workers’ compensation insurance.

The U.S. District Court for the District of Massachusetts had previously granted summary judgment for the plaintiffs that 3PD had misclassified them as independent contractors, when they were in fact employees under section 148B, because they performed services for 3PD in the usual course of its business.

The court, in the most recent proceeding in this case, granted summary judgment for plaintiffs that there was no genuine dispute that plaintiffs should be certified to pursue their claims as a class, that their claims under Massachusetts law were not preempted by federal law, and that they were entitled as a matter of law to receive compensation from 3PD for certain damages.

The federal court conceded that Massachusetts state law has been unclear, and the Massachusetts Supreme Judicial Court has yet to decide which types of deductions employees should be able to recover from their employer as damages under the Wage Act.

The provisions of the Wage Act and the Workers’ Compensation Act that define a worker as an “employee” are not identical. The federal court dismissed this distinction as not relevant to the controversy before the court.

The court held that, even if the drivers were not employees under the Workers’ Compensation Act, once 3PD decided to obtain workers’ compensation insurance coverage, the company was not permitted to transfer the cost of premiums to the drivers. The drivers were entitled not only to a refund of the wrongly deducted premiums, but to an award of three times the amount for those and all the other costs wrongly deducted by 3PD.

The federal court expressed both confidence and clarity in ruling that an employer like 3PD can’t cut its own costs by shifting business costs, including workers’ compensation insurance premiums, to employees like the plaintiffs, thereby reducing their wages.

The federal court ruled that all the deductions plaintiffs objected to in this motion were invalid, and that the deductions should be repaid by 3PD. Under provisions of the Wage Act, the drivers were also entitled to triple damages, as a deterrent to 3PD and other like-minded employers, and were also entitled to have 3PD pay their attorney fees.

If you are hurt at work, you may be entitled to workers’ compensation benefits. You should also not be required to pay your employer’s premiums for workers’ compensation insurance coverage. An experienced Massachusetts workers’ compensation attorney can evaluate whether you have a sound claim and fight to make sure that your employer and its insurer follow the rules or give you guidance if there is no insurance available. Contact us by calling 800-367-0871 or using our online contact form.