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SJC-11757
BERNARD SEBAGO & others1 vs. BOSTON CAB DISPATCH, INC.,
& others2 (and a consolidated case3).
Suffolk. January 8, 2015. - April 21, 2015.
Present: Gants, C.J., Spina, Cordy, Botsford, Duffly, & Hines,
JJ.
Taxicab. Independent Contractor Act. Massachusetts Wage Act.
Minimum Wage. Tips. Labor, Wages, Minimum wage, Overtime
compensation.
Civil actions commenced in the Superior Court Department on
March 6 and September 14, 2012.
After consolidation, the case was heard by Linda E. Giles,
J., on motions for summary judgment, and the case was reported
by her to the Appeals Court.
The Supreme Judicial Court granted an application for
direct appellate review.
1
Pierre Duchemin and Ahmed Farah. The plaintiffs sued
individually and on behalf of all others similarly situated.
2
USA Taxi Association, Inc.; Independent Taxi Owners
Association; George Summers; and John Byda.
3
Ahmed Farah & another vs. Edward J. Tutunjian & another.
2
Shannon Liss-Riordan (Adelaide Pagano with her) for Bernard
Sebago.
Andrew Good (Philip G. Cormier with him) for Edward J.
Tutunjian.
Albert A. DeNapoli (Emily C. Shanahan with him) for USA
Taxi Association, Inc.
Nathan L. Kaitz, for John Byda, was present but did not
argue.
The following submitted briefs for amici curiae:
Norman M. Leon, of Illinois, & Matthew Iverson for
International Franchise Association.
Nicole Horberg Decter & Don Siegel for Massachusetts AFL-
CIO.
Stevan Johnson, pro se.
Helen G. Litsas, Special Assistant Corporation Counsel, for
city of Boston.
CORDY, J. In this case, we must determine whether licensed
taxicab drivers in the city of Boston (city) may be classified
properly as independent contractors, see G. L. c. 149, § 148B
(independent contractor statute), in accordance with Boston
Police Department Rule 403, Hackney Carriage Rules and Flat Rate
Handbook (2008) (Rule 403). Rule 403 is a comprehensive set of
regulations for the Boston taxicab industry, promulgated by the
city's police commissioner (commissioner) pursuant to an express
delegation of authority by the Legislature. St. 1930, c. 392,
as amended by St. 1931, c. 408, § 7, and St. 1934, c. 280.
The plaintiffs in these consolidated cases, Bernard Sebago,
Pierre Duchemin, Ahmed Farah, and Yves Bien-Aime, are licensed
taxicab drivers in the city. They contend that they were
employees of the defendants but were misclassified as
independent contractors, thereby depriving them of minimum
3
wages, overtime pay, tips, and the protections afforded by the
Wage Act, G. L. c. 149, § 148. The defendants include taxicab
owners, radio associations, and a taxicab garage. They argue
that their relationships with the plaintiffs must be considered
in the context of Rule 403, which explicitly permits drivers to
operate as independent contractors. The plaintiffs reply that a
municipal regulation cannot override the State's independent
contractor statute.
We read Rule 403 and the independent contractor statute in
harmony and conclude that the plaintiffs were not employees of
the defendants. Rule 403 neither precludes taxicab owners from
entering into employer-employee relationships with drivers nor
recasts drivers as independent contractors where they would
otherwise be considered employees. Rather, Rule 403 creates a
regulatory regime over an industry in which taxicab owners,
radio associations, and drivers may operate as separate
businesses. Given the Legislature's broad grant of authority to
the commissioner, we cannot say that Rule 403 is contrary to the
policies undergirding the independent contractor statute.4
1. Background. In 1930, the Legislature granted the
commissioner the exclusive authority to regulate the city's
taxicab industry. St. 1930, c. 392, § 1 ("police commissioner
4
We acknowledge the amicus briefs submitted by the city of
Boston (city), the International Franchise Association, the
Massachusetts AFL-CIO, and Stevan Johnson.
4
of the city of Boston shall have exclusive authority to make
rules and orders for the regulation of hackney carriages and
hackney stands"). In 2008, acting pursuant to that mandate, the
commissioner promulgated Rule 403, creating a comprehensive
system of rules and regulations governing the ownership,
leasing, licensing, rate setting, and operation of taxicabs in
the city. Rule 403, § 1(II). We summarize how the taxicab
industry is designed to operate under Rule 403, reserving
certain details for the issues raised on appeal.
Rule 403 defines what it means to be a Boston taxicab. In
order to qualify, a vehicle must, among other things, be
"outfitted with an approved Protective Partition dividing the
driver's and passenger's seats"; be "outfitted with an approved
taximeter"; be "enrolled in a Radio Association and painted with
the approved Radio Association colors and markings"; "display
the current fare rate cards on the inside of the vehicle, in
clear view of the passengers"; display "lease/shift rate
stickers . . . in clear view of the Driver"; "be equipped with
an electronic credit card processing capability"; and "be
equipped with two-way communication linked to an approved
dispatch service or radio association." Rule 403, §§ 3(III)(C),
7(I)(a).
In order for a qualifying taxicab to be put into service,
the owner must obtain a license, called a "medallion," for each
5
such taxicab. Rule 403, § 3(III)(c)(ix). Rule 403 sets forth a
myriad of requirements that must be met in order to qualify for
a medallion, including being deemed "suitable" individuals by
the city's inspector of carriages, obtaining adequate garage
facilities within the city, and maintaining membership in an
approved "dispatch service or radio association, which provides
twenty-four (24) hour two-way communication solely, and
exclusively, for Boston [taxicabs]." Rule 403, § 4(II)(a), (l),
(q).
The radio associations, in turn, are required to provide
certain enumerated dispatch services to their members and may
accept payment for those services only from medallion owners.
Rule 403 imposes strict operational standards on the radio
associations, ranging from record-keeping and financial
reporting requirements to city approval of the association's
colors and designs that are painted on their members' taxicabs.
A radio association's failure to comply with Rule 403 is cause
for its immediate removal from the commissioner's list of
approved dispatchers, in which case, medallion owners have
thirty days to enroll in a different radio association. Rule
403, § 7.
Drivers are likewise subject to a distinct set of
requirements under Rule 403, including training supervised by
the city's inspector of carriages, obtaining taxicab driver
6
licenses, and complying with numerous operational rules ranging
from personal appearance to treatment of passengers. The
procedures set forth in Rule 403 for picking up passengers at
public taxi stands are highly specific, instructing drivers,
inter alia, how to line up ("Take proper position in rear of the
Hackney Carriage line"); what activities they may engage in
while waiting in line ("Driver may perform small cleaning tasks
while on a public stand"); and how they may solicit passengers
("from inside the vehicle by motion of the hand"). Rule 403,
§ 5(II)(u). The fares that they collect from passengers are
determined by meter and flat rates set by the commissioner and
specified in Rule 403. See Rule 403, § 10. In sum, businesses
operating under the regime of Rule 403 may be described aptly as
members of a highly regulated industry.
Rule 403 contemplates four business models under which a
taxicab may be put into service: (1) the "owner-operator"
model, whereby a medallion owner with a qualifying taxicab
transports customers in exchange for fares and tips, Rule 403,
§ 3(I)(f); (2) the "leased" model, whereby a medallion owner
leases a medallion to a taxicab owner, who then operates the
medallioned taxicab, Rule 403, § 3(I)(g); (3) the "shifted"
model, whereby a medallion owner leases both a medallion and a
taxicab to a driver to operate for a "shift," which is typically
twelve hours in duration, Rule 403, § 4(I)(c); and (4) the
7
"managed" model, whereby a medallion owner leases medallions to
a "manager," who then subleases medallions and taxicabs to
drivers for shifts. Rule 403, § 4(I)(a), (b). Rule 403 neither
expressly permits nor prohibits a model in which drivers operate
as employees of medallion owners, radio associations, or taxicab
garages.
The defendants in these cases include medallion owners,
radio associations, and a taxicab garage. Edward Tutunjian,
John Byda, and George Summers each own corporations that, in
turn, own and lease varying quantities of taxicabs and
medallions (collectively, medallion owners).5 Tutunjian also
owns Boston Cab Dispatch, Inc. (Boston Cab), which is one of the
seven radio associations authorized by Rule 403. Summers and
Byda each are members of the unincorporated Independent Taxi
Owners Association (Independent Taxi), another of the radio
associations authorized by Rule 403. In addition, Summers owns
USA Taxi Association, Inc. (USA Taxi), which operates a garage
that services taxicabs and taxicab equipment.
The plaintiffs are licensed taxicab drivers who leased
taxicabs and medallions from the medallion owners at flat rates,
5
Edward Tutunjian owns corporations that, in turn, own 372
taxicabs and medallions. Another of Tutunjian's companies, EJT
Management, Inc. (EJT), manages the leasing of Tutunjian's
taxicabs and medallions. Byda owns corporations that, in turn,
own and lease nine taxicabs and medallions. Summers owns
corporations that, in turn, own and lease seventeen taxicabs and
medallions.
8
which are set by the commissioner and specified in Rule 403.
See Rule 403, § 6; Rule 403, Appendix III. The taxicabs they
leased received dispatch services from either Boston Cab or
Independent Taxi, which the plaintiffs were entitled, but not
required, to use in the course of transporting customers for
fares and tips. Where, as here, drivers lease their taxicabs
and medallions, Rule 403 requires the parties to use the City of
Boston Hackney Carriage Shift Lease Agreement 2010 Version
(2009), which sets forth the rights and obligations of the
lessor and lessee, the duration of the lease, and the applicable
flat lease rate. See Rule 403, § 6. The agreement also
includes an optional "Independent Contractor" clause, which
states, inter alia, that the lessee is free from the control of
the lessor and is not required to remit to the lessor any funds
received in connection with the taxicab's operation.6 The lease
6
The clause states in full:
"The Lessee specifically acknowledges that he is an
independent contractor and the Lessor and Lessee are
separate entities. This Agreement shall not be construed
to form a partnership, limited partnership, general
partnership, joint venture, principal agent or
employee/employer relationship of any kind whatsoever.
Neither the Lessor nor the Lessee shall have any power to
obligate or bind the other. Lessee shall at all times be
free from control or direction of the Lessor in the manner
of operation of the Hackney Carriage. The Lessee shall not
be required to accept any radio dispatch call other than
those which it may be his volition to accept; and further,
Lessee shall not be restricted in any manner as to the area
in which he may operate said Hackney Carriage, nor shall he
9
agreements between the plaintiffs and defendant medallion owners
include this clause.
In 2012, the plaintiffs filed their complaints in the
Superior Court, alleging that the defendants improperly
classified them as independent contractors and, concomitantly,
violated G. L. c. 149, § 148 (Wage Act); G. L. c. 151, §§ 1, 7
(minimum wage law); G. L. c. 151, § 1A (overtime law); and G. L.
c. 149, § 152A (tips law).7 After the two actions were
consolidated, the plaintiffs and some of the defendants filed
cross motions for summary judgment, the focus of which were on
count one of each of the complaints, misclassification as
independent contractors. A Superior Court judge concluded that
be required to remain in any specific place, as long as he
adheres to the laws and ordinances of the municipality in
which said vehicle may be operated and the rules and
regulations governing Hackney Carriages. Lessee shall not
be required to account to the Lessor in any manner for the
fares or other amounts received by the Lessee in connection
with the operation of said Hackney Carriage, except will
turn over to the Lessor at the end of the rental period any
records required to be kept by any laws, ordinances or
regulations pertaining to the operation of the Hackney
Carriage.
"The Lessor and Lessee specifically acknowledge that
the inclusion of this optional clause in the Agreement does
not indicate or imply any endorsement, approval or judgment
as to the legal standing of the clause by the City of
Boston, the Police Commissioner or the Hackney Unit."
City of Boston Hackney Carriage Shift Lease Agreement 2010
Version (2009).
7
The city was also named as a defendant in one case, but
was subsequently dismissed.
10
the plaintiffs provided a "service" to the defendants within the
meaning of the independent contractor statute, but denied
summary judgment after determining that genuine issues of
material fact existed as to whether the provision of taxi
services was within the usual course of the defendants'
businesses. The judge reported her decision to the Appeals
Court, and we granted the parties' joint application for direct
appellate review.
2. Discussion. a. Application of the independent
contractor statute to the Boston taxicab industry. The
independent contractor statute "establishes a standard to
determine whether an individual performing services for another
shall be deemed an employee or an independent contractor for
purposes of our wage statutes." Somers v. Converged Access,
Inc., 454 Mass. 582, 589 (2009). Under this standard, "'an
individual performing any service' is presumed to be an
employee." Depianti v. Jan-Pro Franchising Int'l, Inc., 465
Mass. 607, 621 (2013), quoting G. L. c. 149, § 148B (a). The
purported employer may rebut the presumption of employment by
establishing the following three indicia of an independent
contractor relationship:
"(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; and
11
"(2) the service is performed outside the usual course
of the business of the employer; and
"(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."
G. L. c. 149, § 148B. The failure to satisfy any prong will
result in the individual's classification as an employee.
"Individuals who provide services to an employer as an employee
(rather than as an independent contractor) fall within the
protection of the wage act and G. L. c. 151, § 1A (overtime)."
Somers, supra at 589.
The defendants argue that the independent contractor
statute does not apply to the taxicab industry, because the
industry is separately regulated by the city as a public
utility. We disagree. The enabling legislation for Rule 403 is
not so broad as to give the commissioner the authority to
override the independent contractor statute. See St. 1930,
c. 392. See also Boston Gas Co. v. Somerville, 420 Mass. 702,
703 (1995) ("Municipalities may not adopt by-laws or ordinances
that are inconsistent with State laws"). Further, we have held
that the independent contractor statute must be applied in a
manner that is consistent with its underlying purpose, which is
"to protect workers by classifying them as employees, and
thereby grant them the benefits and rights of employment, where
the circumstances indicate that they are, in fact, employees."
12
Depianti, 465 Mass. at 620, quoting Taylor v. Eastern Connection
Operating, Inc., 465 Mass. 191, 198 (2013).
It is instructive that the workers' compensation law
expressly excludes taxicab drivers operating on flat-rate leases
from the definition of "employee," whereas the independent
contractor statute is silent on the subject. See G. L. c. 152,
§ 1 (4). From this silence, we infer that the Legislature
intended the criteria for identifying independent contractors to
be applied in the context of the taxicab industry. See
Depianti, 465 Mass. at 620, quoting Batchelder v. Allied Stores
Corp., 393 Mass. 819, 822 (1985) ("remedial statutes such as the
independent contractor statute are 'entitled to liberal
construction'"). See also Roberts v. Enterprise Rent-A-Car Co.
of Boston, Inc., 438 Mass. 187, 192-193 (2002) ("Had the
Legislature intended to require that the notice appear in a
particular location, it could have done so easily, as it has
elsewhere in the General Laws . . . . The Legislature's silence
on the subject cannot be ignored").
Nonetheless, the plaintiffs err in characterizing the
defendants as a singular employer exercising monolithic control
over the taxicab industry. Disregard of the corporate form
requires an analysis of the following factors:
"(1) common ownership; (2) pervasive control; (3) confused
intermingling of business assets; (4) thin capitalization;
(5) nonobservance of corporate formalities; (6) absence of
13
corporate records; (7) no payment of dividends; (8)
insolvency at the time of the litigated transaction; (9)
siphoning away of corporation's funds by dominant
shareholder; (10) nonfunctioning of officers and directors;
(11) use of the corporation for transactions of the
dominant shareholders; and (12) use of the corporation in
promoting fraud."
Attorney Gen. v. M.C.K., Inc., 432 Mass. 546, 555 n.19 (2000).
Although there is common ownership among some of the defendants,
"[t]he mere fact of common management and shareholders among
related corporate entities has repeatedly been held not to
establish, as a matter of law, a partnership, agency or 'joint
venture' relationship that renders the corporations a 'single
employer.'" Gurry v. Cumberland Farms, Inc., 406 Mass. 615, 624
(1990).
The Depianti case is not to the contrary. In Depianti, we
held that an employer could not perform an "end run" around the
Wage Act "by virtue of an arrangement permitting it to distance
itself from its employees." Depianti, 465 Mass. at 621, 624.
Yet, the reported question in that case was premised on the
assumption that the workers were employees, prompting us to
caution that "the statute has no application where the parties
have neither an independent contractor nor an employment
relationship." Id. at 624 n.17. Depianti does not stand for
the proposition that any connection between entities is
sufficient to render them joint employers. Rather, Depianti
holds that if, for example, the plaintiffs in the present cases
14
were found to be employees of EJT Management, Inc. (the entity
with which they contracted), the lack of a contract between the
plaintiffs and Tutunjian would not shield Tutunjian from
potential misclassification liability. Id. at 624-625 & n.17.
Where, as here, the plaintiffs' allegations are limited to
common ownership and control, there is no cause to analyze the
defendants as a single employer. See Middlesex Retirement Sys.,
LLC v. Assessors of Billerica, 453 Mass. 495, 503 (2009); Gurry,
406 Mass. at 624. The correct approach in these cases is to
consider each defendant's relationship with the plaintiffs
separately, although, for ease of analysis, we group the
defendants as owners and lessors of taxicabs and medallions
(collectively, "medallion owners"); radio associations; and a
taxicab garage.8 We now turn to whether the plaintiffs provided
services to the defendants in any of these groups and, if so,
whether the recipients of those services misclassified the
plaintiffs as independent contractors.
b. Provision of services. The threshold question is
whether the plaintiffs provided services to the defendants. The
motion judge concluded that the drivers provided a service
8
It is important to keep in mind that if liability were to
attach to one of the corporate defendants, the "president and
treasurer of [the] corporation and any officer or agent having
the management of the corporation or entity shall be liable for
violations of [§ 148B]." G. L. c. 149, § 148B (d). However,
this is distinct from the analysis whether a medallion owning
entity and a radio association are alter egos of each other.
15
because, without the drivers' work, the owners' medallions and
taxicabs would be worthless. The judge's reasoning, adopted by
the plaintiffs on appeal, proves too much. "[O]ur respect for
the Legislature's considered judgment dictates that we interpret
the statute to be sensible, rejecting unreasonable
interpretations unless the clear meaning of the language
requires such an interpretation." DiFiore v. American Airlines,
Inc., 454 Mass. 486, 490-491 (2009). Certainly, the parties'
characterization of their relationship as lessor-lessee, rather
than employer-employee, is not controlling. See Commonwealth v.
Weinfield's, Inc., 305 Mass. 108, 111 (1940) ("A consideration
of the lease and the agreed facts leads to the conclusion that
the relationship . . . was that of employer and employee").
However, companies spanning a vast array of industries commonly
elect to lease, rather than purchase, equipment that is
necessary to their business operations. Absent some controlling
principles, all lessees would be deemed presumptive employees of
their lessors.
In search of a controlling principle, the plaintiffs cite
several cases involving adult entertainment entities that
purport to lease performance space to dancers.9 Those cases are
9
See, e.g., Monteiro vs. PJD Entertainment of Worcester,
Inc., Super. Ct., No. 10-1930 (Worcester County Nov. 23, 2011);
Jenks vs. D. & B. Corp., Super. Ct., No. 09-1978 (Essex County
16
not applicable here. This is not a case of defendants
concocting an artificial leasing scheme to circumvent the wage
laws. Contrast Weinfield's, Inc., 305 Mass. at 111 ("unusual
method adopted in the lease is significant"). This is also not
a case of owners creating a false dichotomy between the
administrative and operational aspects of their business.
Contrast Massachusetts Delivery Ass'n v. Coakley, 769 F.3d 11,
14, 21 n.4 (1st Cir. 2014) ("[C]ouriers deliver packages for
delivery companies. There can be no dispute that they act in
the course of business for the delivery companies, even if one
performs the deliveries and the other arranges the deliveries").
It is significant that the commissioner, rather than the
defendants, created the leasing system at issue and, further,
that the system was created in the context of a legislative
mandate to regulate the taxicab industry. See Arbella Mut. Ins.
Co. v. Commissioner of Ins., 456 Mass. 66, 77 (2010) ("we will
not declare the regulations void unless no reasonable
construction of them is in harmony with the legislative
mandate"). We cannot say that the creation of a tightly
controlled taxicab leasing system was an unreasonable method of
regulating the taxicab industry. Cf. Hingham Healthcare Ltd.
Partnership v. Division of Health Care Fin. & Policy, 439 Mass.
Aug. 24, 2011); Chaves vs. King Arthur's Lounge, Super. Ct., No.
07-2505 (Suffolk County July 30, 2009).
17
643, 651 n.9 (2003) ("defendant was following a legislative
mandate to control reimbursement in an important, and highly
regulated, industry. Nothing the defendant has done is in
violation of the statutorily conferred power of G. L. c. 118G,
and thus the 1998 and 2000 amendments may be deemed reasonable
and necessary actions by the defendant"). Mere participation in
that system is insufficient to render medallion owners the
presumptive employers of the drivers who lease their taxicabs.
See Parks Cab Co. v. Annunzio, 412 Ill. 549, 553 (1952)
(defendant's business was "leasing of taxicab licenses, and in
that business the drivers render no services for it").
It may be argued that there is a genuine issue of material
fact as to whether the plaintiffs provided services to the
medallion owners beyond the mere operation of their lessor-
lessee relationship. The summary judgment record is opaque, for
example, regarding the extent to which medallion owners sold
advertising space on their taxicabs and, further, the extent to
which the plaintiffs drove taxicabs depicting those
advertisements. Although the plaintiffs were free to use leased
taxicabs for purposes entirely unrelated to the transportation
of passengers, their use of the taxicabs arguably could
constitute a service to the owners insofar as it increased the
value and facilitated the sale of advertising space. However,
as we explain below, even if the plaintiffs did, in fact,
18
provide the medallion owners with some form of service in this
respect, the owners satisfy all three prongs of the independent
contractor test.
With respect to the radio associations, it is noteworthy
that they maintain voucher accounts with corporate clients.
Vouchers from such clients are submitted to the taxicab drivers
as payment for fares and tips. The voucher may then be redeemed
through the radio association, which advances an amount equal to
the fare and tip, minus a "processing" fee, which Rule 403 caps
at eight per cent of the fare. Rule 403, § 7(I)(l). The
revenue flowing to the radio association through the voucher
program is directly dependent on the drivers' work of
transporting passengers. Although the plaintiffs were not
required to perform services for the radio associations, that is
precisely what they did. Consequently, the independent
contractor test must be applied to determine whether the
plaintiffs are employees of the radio associations.
In contrast, the plaintiffs clearly do not provide services
to taxicab garages. USA Taxi owns neither a taxicab nor a
medallion. It does not lease taxicabs, maintain corporate
voucher accounts, or belong to a radio dispatch association.
Rather, it operates a garage that caters to the taxicab industry
as a whole. USA Taxi's revenues derive largely from setting up
and servicing taxicabs belonging not only to Summers, but other
19
medallion owners as well. USA Taxi generates additional revenue
from credit card companies for repairs made to credit card
machines installed in taxicabs. The fact that Summers owns USA
Taxi is not, in itself, of legal significance. See Middlesex
Retirement Sys., LLC, 453 Mass. at 503. Irrespective of the
services that USA Taxi allegedly provided to Summers, the record
is clear that the plaintiffs did not provide services to USA
Taxi. Summary judgment on count one should have been rendered
against the plaintiffs with respect to USA Taxi. Mass. R. Civ.
P. 56 (c), as amended, 436 Mass. 1404 (2002).
Still to be addressed, however, is the application of the
independent contractor test to the medallion owners and radio
associations. We address each prong in turn.
c. Freedom from control and direction. The first prong
asks whether the drivers were "free from control and direction
in connection with the performance of the service," i.e., the
transportation of passengers in exchange for fares and tips.
G. L. c. 149, § 148B (a) (1). The Attorney General has advised
that this inquiry turns on whether the "worker's activities and
duties [were] actually . . . carried out with minimal
instruction. For example, an independent contractor completes
the job using his or her own approach with little direction and
dictates the hours that he or she will work on the job."
Advisory 2008/1, Attorney General's fair labor and business
20
division. "Insofar as the Attorney General's office is the
department charged with enforcing the wage and hour laws, its
interpretation of the protections provided thereunder is
entitled to substantial deference, at least where it is not
inconsistent with the plain language of the statutory
provisions." Smith v. Winter Place LLC, 447 Mass. 363, 367-368
(2006).
Drivers receive minimal direction from medallion owners or
radio associations. The drivers choose the shifts they work and
are free to transport as many or as few passengers as they wish
during those shifts. Although Rule 403 allows a radio
association to discontinue its services to a driver if the
driver accepts dispatches and fails to complete them, the driver
remains free to operate his or her business of picking up
passengers in exchange for fares and tips. The driver is also
free to lease from a different medallion owner, who, in turn,
may provide the driver with access to a different radio
association. Drivers may decline to accept dispatches
altogether and, indeed, one of the plaintiffs in this case
testified that he has never logged in to receive dispatches from
a radio association. Another plaintiff testified that he used
leased taxicabs to attend classes and drive to volunteer jobs.
See Commissioner of the Div. of Unemployment Assistance v. Town
Taxi of Cape Cod, Inc., 68 Mass. App. Ct. 426, 430 (2007)
21
(taxicab drivers free from control and direction where they had
freedom of choosing which shifts to work, were not obligated to
respond to dispatches, and were free to engage in other
employment and perform personal business using taxicabs).
The driver's appearance, cellular telephone usage, ability
to smoke, procedures for obtaining or refusing passengers,
standards for the treatment of passengers, meter rates, and
geographical areas of operation are all governed by Rule 403.
Rule 403, §§ 5, 10. When a passenger leaves property behind in
the taxicab, the driver is required to deliver it, not to the
medallion owner or radio association, but to Boston police
headquarters or the hackney carriage unit. Rule 403,
§ 5(II)(2). Further, the leases they signed, while not
dispositive, are additional evidence that the plaintiffs were
generally free from the control and direction of the medallion
owners and radio associations. See City of Boston Hackney
Carriage Shift Lease Agreement 2010 Version, supra. The
defendants have carried their burden under the first prong.
d. Performance outside the usual course of the employer's
business. The second prong represents the core of the parties'
dispute. This prong is satisfied if the drivers' services are
"outside the usual course of the business of the employer."
G. L. c. 149, § 148B (a) (2). We have recognized that a
purported employer's own definition of its business is
22
indicative of the usual course of that business. See Athol
Daily News v. Board of Review of the Div. of Employment &
Training, 439 Mass. 171, 179 (2003). Another factor is "whether
the service the individual is performing is necessary to the
business of the employing unit or merely incidental." Advisory
2008/1, supra. The Attorney General has suggested that
interpretations of the Illinois independent contractor statute
are instructive of the distinction between necessary and
incidental services. Id. We agree.10
In Parks Cab Co., 412 Ill. at 549, taxicab drivers paid
flat fees to lease taxicab medallions. The court observed that
the lessor was "not concerned with the operation of the cabs or
the results of their operation . . . . Its business is the
leasing of taxicab [medallions], and in that business the
drivers render no services for it." Id. at 553. In contrast,
the drivers in O'Hare-Midway Limousine Serv., Inc. v. Baker, 232
Ill. App. 3d 108, 111 (1992), leased limousines and transported
customers for fares, but were required to remit a percentage of
those fares to the lessors. The court recognized:
"[The] Parks cab drivers are readily distinguishable from
the chauffeurs in the case at bar. While the cab drivers
10
But see Athol Daily News v. Board of Review of the Div.
of Employment & Training, 439 Mass. 171, 179 n.11 (2003) ("To
the extent that language employed by the Illinois court suggests
that a newspaper delivery route is a newspaper company's place
of business for purposes of G. L. c. 151A, we respectfully
disagree").
23
were free to pick up passengers wherever they chose, [the
chauffeurs] picked up customers who had 'booked' limousine
services with [the employer]. While the cab drivers paid a
set weekly rate for their leases, [the chauffeurs] paid a
percentage of their commissions to [the employer], thus
establishing a financial interdependence, or a direct
financial stake with the limousine company."
Id. In Carpetland U.S.A., Inc. v. Illinois Dep't of Employment
Sec., 201 Ill. 2d 351, 386 (2002), the Supreme Court of Illinois
cited O'Hare-Midway, supra at 113, as an exemplar of the
distinction between incidental and necessary services.
The present case hews much closer to Parks Cab than to
O'Hare-Midway, for the medallion owners' leasing business is not
directly dependent on the success of the drivers' endeavors.
The medallion owners are not concerned with the results of the
plaintiffs' operations, as drivers are not required to remit a
percentage of their revenues, which include both fares and
tips.11 Cf. Whitehouse v. Cities Serv. Oil Co., 315 Mass. 108,
111-112 (1943) ("[The distributor] conducted its own business,
selling to its own customers and receiving as its only
11
Rule 403 permits medallion owners to recover from drivers
the credit card transaction fee charged to them by credit card
companies. As Rule 403 requires drivers to accept credit card
payments, the processing fee is simply a cost of doing business.
The fact that the fee is channeled through the medallion owners
does not render the leasing business dependent on the success of
the drivers' transportation business. It also bears noting that
if "the owner chooses a source for the [credit card processing]
equipment that charges more than [six per cent], said Medallion
Owner (or Lessee in a Medallion-only lease) shall be responsible
for any credit card processing fee charged that is greater than
[six per cent] of the fare." Rule 403, § 4(II)(g).
24
compensation whatever profits accrued from the business. [The
distributor] was paid nothing by the oil company. No part of
the regular business of the oil company was entrusted to [the
distributor]. . . . [T]he only relationship that it created was
that of buyer and seller"). Although the plaintiffs may
incidentally contribute to the owners' advertising revenues, the
second prong "should not be construed to include all aspects of
a business such that [the first and third] prongs . . . become
unnecessary." Advisory 2008/1, supra.
Further, the fact that the radio associations advertise
taxicab services has nothing to do with the leasing transactions
between the drivers and medallion owners. The plaintiffs'
argument requires us to accept the premise that the owners and
radio associations are one and the same. As indicated above, we
reject that premise. Rule 403 creates separately defined
businesses within the taxicab industry. Absent evidence that a
medallion owner and radio association are alter egos, there is
no cause to ignore the distinction drawn by the regulation. See
Middlesex Retirement Sys., LLC, 453 Mass. at 503. See also
Hingham Healthcare Ltd. Partnership, 439 Mass. at 651 n.9.
Consequently, if the medallion owners are to be deemed in the
business of transporting customers for fares, the evidence
supporting that conclusion would need to derive from their own
representations and conduct.
25
The summary judgment record does not reflect that any of
the medallion owners -- separate and apart from their
involvement in the radio associations -- held themselves out as
providing transportation services to passengers. Tutunjian
describes his companies as leasing taxicabs, managing the
leasing of taxicabs, providing taxicab dispatch services, and
providing limousine services. Byda describes his companies as
"taxicab" businesses. With respect to Summers, the only
evidence relates to USA Taxi, which neither owns nor leases
taxicabs or medallions. USA Taxi describes its business as
"taxi service," which is precisely what the company does: it
services taxicabs. The plaintiffs did not provide services in
the ordinary course of the medallion owners' business, i.e., the
leasing of taxicabs and medallions.
It is true that the radio associations advertise themselves
as providing taxicab services and that they arrange for the
transportation of passengers. Yet, these facts, helpful as they
are to the plaintiffs' cause, see Athol Daily News, 439 Mass. at
179, do not override the realities of the radio associations'
actual business operations or the regulatory framework in which
those operations occur. In contrast to the Athol Daily News
case, the radio associations' business is not directly dependent
on the drivers' services. Rather, Rule 403 requires medallion
owners to purchase dispatch services regardless of how often
26
those services are used in the transportation of passengers.
Rule 403, § 4(II)(q). In other words, the radio associations'
raison d'etre, per Rule 403, is to provide dispatch services to
medallion owners -- a service that is funded by medallion owners
and only incidentally dependent on drivers.
The voucher program is likewise incidental to the ordinary
course of the radio associations' business. The voucher program
makes the dispatch services more attractive to their customers
(medallion owners) because it creates a base of customers
(passengers) for the medallion owners' customers (drivers). See
Rev. Rul. 71-572, 1971-2 C.B. 347 ("use of two-way radio
communication, dispatchers, and advertising media . . . will
enhance the lessee's profits by making more 'trips' available to
him at the same time that it increases the lessor's ability to
rent his taxicabs to the maximum extent, thereby increasing his
profits"). The benefit inuring to the drivers, for which Rule
403 permits a measure of compensation capped at eight per cent
of the fare, is incidental to the ordinary course of the radio
associations' business of selling dispatch services to medallion
owners. Cf. Cannon v. Crowley, 318 Mass. 373, 376 (1945) ("One
may also be engaged in a business that cannot be conducted
unless he . . . can ship the finished product to the various
markets. It is hard to imagine a business that is not dependent
in some way upon transportation. In such instances, while
27
transportation is a necessity, it does not thereby become a part
of or a process in the business but it continues as ancillary
and incidental thereto"). Accordingly, we conclude that the
transportation of passengers for fares is not in the ordinary
course of either the medallion owners' or radio associations'
businesses. The defendants have satisfied the second prong of
the independent contractor test.
e. Engagement in an independently established business.
The third prong requires that the drivers be "customarily
engaged in an independently established trade, occupation,
profession or business of the same nature as that involved in
the service performed." G. L. c. 149, § 148B (a) (3). The
critical inquiry under this prong is whether "the worker is
capable of performing the service to anyone wishing to avail
themselves of the services or, conversely, whether the nature of
the business compels the worker to depend on a single employer
for the continuation of the services." Athol Daily News, 439
Mass. at 181.
As the defendants point out, Rule 403 creates a framework
such that leasing taxicabs, dispatching taxicabs, and
transporting passengers for fares each may function as a
separate and distinct business. Drivers may lease taxicabs and
medallions from whomever they wish. Each day of the week, they
may lease from a different owner, each using a different radio
28
association. Drivers earn as much as they are able and need not
accept a single dispatch. See Town Taxi of Cape Cod, Inc., 68
Mass. App. Ct. at 432 (taxicab drivers' ability to generate own
businesses while using leased taxicab was evidence of
"'entrepreneurial' spirit, exhibited by a typical independent
contractor"). They are also free to advertise their services
through personalized business cards. See Athol Daily News, 439
Mass. at 182 ("The fact of the matter is that the carriers are
free to advertise their delivery services . . . . The breadth of
each carrier's delivery service is a function, not only of the
original subscriber list given to the carrier by the [company],
but of the individual initiative of the carrier. . . . This in
itself is compelling evidence that a carrier is an entrepreneur
. . ."). The defendants have carried their burden under the
third prong.
f. Coexistence of Rule 403 and the independent contractor
statute. It is plain that our conclusion today rests in
significant part on the regulatory framework created by Rule
403. It is, of course, true that Rule 403 cannot trump the
independent contractor statute. See Boston Gas Co., 420 Mass.
at 703. Yet, Rule 403 does nothing to bar medallion owners from
entering into employer-employee relationships with drivers, nor
does it characterize workers as independent contractors where
they would otherwise fit the definition of employees. Rather,
29
it creates a system whereby taxicab drivers may operate as
employees or as entrepreneurs with their own separately defined
and separately regulated businesses.
In deciding whether this system conflicts with the
independent contractor statute, we are guided by the
Legislature's intent. We have recognized that
"[m]isclassification not only hurts the individual employee; it
also imposes significant financial burdens on the Federal
government and the Commonwealth in lost tax and insurance
revenues," and "gives an employer who misclassifies employees as
independent contractors an unfair competitive advantage over
employers who correctly classify their employees and bear the
concomitant financial burden." Somers, 454 Mass. at 593. Many
of these concerns, however, are simply not applicable to taxicab
drivers operating under flat-rate leases because such drivers
are not included in the definition "employees" for purposes of
workers compensation premiums, unemployment insurance
contributions, and income tax withholding. See G. L. c. 152,
§ 1 (4);12 Town Taxi of Cape Cod, Inc., 68 Mass. App. Ct. at
12
Under the workers' compensation law, the term "employee"
means:
"every person in the service of another under any contract
of hire, express or implied, oral or written, excepting
. . . a person who operates a taxicab vehicle which is
leased by such person from a taxicab company pursuant to an
independent contract which specifically provides for a
30
432;13 Rev. Rul. 71-572, 1971-2 C.B. 347; 830 Code Mass. Regs.
§ 62B.2.1(3)(b) (2005).14
rental fee or other payment to the owner of such taxicab
vehicle which is in no way related to the taxicab fares
collected by such person; and provided, further, that such
person is not treated as an employee for Federal tax
purposes."
G. L. c. 152, § 1 (4).
13
General Laws c. 151A, § 2, prescribes a three-part test
for determining whether an individual is an "employee" for
unemployment insurance purposes. The first and third parts of
that test are identical to the test prescribed by the
independent contractor statute, G. L. c. 149, § 148B. However,
the second part diverges by allowing an entity to establish
either that the service was performed "outside the usual course
of [its] business" or "outside of all the places of business of
the enterprise for which the service is performed." G. L.
c. 151A, § 2 (b). In Commissioner of the Div. of Unemployment
Assistance v. Town Taxi of Cape Cod, Inc., 68 Mass. App. Ct. 426
(2007), the Appeals Court held that taxicab owners were not
required to pay unemployment insurance premiums for drivers,
where, inter alia, (1) "the drivers . . . were not obligated to
respond to calls from [the owner] regarding a prospective
customer"; (2) "the drivers did not transport customers on [the
owner's] premises"; and (3) "[the owner] permitted them to
engage in other employment or generate their own businesses
while using the leased taxi." Id. at 430-432. See Athol Daily
News, 439 Mass. at 179 n.11 ("assertion that the [newspaper's]
'places of business,' for purposes of the second part of the [c.
151A] test, includes the geographic area tracked by all of the
[newspaper's] delivery routes, is illogical").
14
In Rev. Rul. 71-572, the Internal Revenue Service (IRS)
examined "whether taxicab owners or operators, carrying on their
transportation services pursuant to 'lease' agreements with a
taxicab company . . . [were] employees of the taxicab company
for purposes of the Federal Insurance Contributions Act, the
Federal Unemployment Tax Act, and the Collection of Income Tax."
The IRS observed that a taxicab company did not exercise or have
the right to exercise direction and control over the taxicab
drivers in the performance of their services. It had "no right
to obtain, for its own benefit, an accounting with respect to
31
We also observe that if drivers operating in the shifted
model were employees, then the shift fees (or lease payments) on
which that model rests would clearly violate public policy as
payments required for the right to work. See Awuah v. Coverall
N. Am., Inc., 460 Mass. 484, 498 (2011). Such a result would be
patently inconsistent with the Legislature's indorsement of the
lease model, which is implicit in the exemption of taxicab
lessees from the definition of employee in the workers'
compensation law. G. L. c. 152, § 1 (4). "[W]here two or more
statutes relate to the same subject matter, they should be
construed together so as to constitute a harmonious whole
consistent with the legislative purpose." Board of Educ. v.
Assessor of Worcester, 368 Mass. 511, 513-514 (1975).
Relying on subsection (b) of G. L. c. 149, § 148B, the
independent contractor statute, the plaintiffs argue that the
workers' compensation and other exemptions are not relevant to
whether taxicab drivers are employees for purposes of the Wage
the fares collected for operation of the taxicabs." Rather, it
had "only the right to receive the specified regular payment."
Accordingly, the IRS held that lessee taxicab drivers are not
employees of the company for Federal employment tax purposes.
Rev. Rul. 71-572, 1971-2 C.B. 347. "Taxpayers generally may
rely upon Revenue Rulings published in the Bulletin in
determining the tax treatment of their own transactions and need
not request specific rulings applying the principles of a
published Revenue Ruling to the facts of their particular
cases." 26 C.F.R. § 601.601(d)(2)(v)(e) (2014). Massachusetts
applies the Federal standard for the applicability employment
tax withholding. 830 Code Mass. Regs. 62B.2.1(3)(b) (2005).
32
Act. Subsection (b) provides that "[t]he failure to withhold
federal or state income taxes or to pay unemployment
compensation contributions or workers' compensation premiums
with respect to an individual's wages shall not be considered in
making a determination under this section." The plaintiffs
interpret this language to mean that the Legislature intended
the scope of employment to be wider with respect to the Wage
Act. We do not read subsection (b) so broadly.
"A fundamental tenet of statutory interpretation is that
statutory language should be given effect consistent with its
plain meaning and in light of the aim of the Legislature unless
to do so would achieve an illogical result." Sullivan v.
Brookline, 435 Mass. 353, 360 (2001). The word "failure" means
the "neglect of an assigned, expected, or appropriate action."
Webster's Third New International Dictionary 815 (1993). In
other words, it implies the existence of an affirmative duty or
obligation. Yet, with respect to taxicab drivers operating on
flat rate leases, the laws exempt medallion owners from making
unemployment insurance contributions, paying workers'
compensation premiums, and withholding Federal and State income
taxes. See notes 12, 13, and 14, supra. Where there is no such
duty there is no failure.
The more harmonious reading of the statutory framework is
that the Legislature intended to preserve the ability of taxicab
33
drivers to operate as either employees or independent
contractors. If, for example, a driver did not qualify for the
exemption from the workers' compensation law, the "employer's
belief that a worker should be an independent contractor has no
relevance in determining whether there has been violation of the
Law," vis-à-vis the failure to pay workers' compensation
premiums. Advisory 2008/1, supra. Rule 403 does no violence to
the Legislature's intent.
The plaintiffs speculate that our decision today will
provide incentives for businesses in other industries to
deconstruct their operations into component parts to avoid the
strictures of the Wage Act. This concern is not warranted. Our
cases are clear that employers may not circumvent the Wage Act
or other laws affecting employee compensation by creating
illusory distinctions in the services they provide. See
Depianti, 465 Mass. at 623-624; Awuah, 460 Mass. at 498;
DiFiore, 454 Mass. at 496. Importantly, however, those are not
the facts of this case.
The medallion owners and radio associations merely complied
with a regulatory framework that separately defines different
services as different businesses. In other words, the
distinctions in services within the taxicab industry as a whole
are not illusory, but quite real. Contrast Massachusetts
Delivery Ass'n, 769 F.3d at 14, 21 n.4. None of the defendants
34
was required to engage in the distinct business of transporting
customers for fares and, indeed, they chose not to do so. We
conclude that there is no conflict between Rule 403 and the
independent contractor statute either facially or as applied in
this case. See Arbella Mut. Ins. Co., 456 Mass. at 77. See
also Town Taxi Inc. v. Police Comm'r of Boston, 377 Mass. 576,
585 (1979) ("question whether the taxi industry monopoly created
by the applicable statutes is wise as a matter of economic and
social policy is, of course, not subject to judicial review").
Because the owners and radio associations have, in complying
with Rule 403, satisfied each prong of the independent
contractor test, summary judgment should have been granted in
favor of Tutunjian, Summers, Byda, EJT, Boston Cab, and
Independent Taxi on count one of each of the complaints.
3. Conclusion. We vacate the order denying summary
judgment to the defendants and remand the case to the Superior
Court for entry of judgment in favor of the defendants on count
one of each of the complaints, and for further proceedings
consistent with this opinion.
So ordered.