Tuesday, November 9, 2010

Classifying Construction Workers as Independent Contractors Will Soon Become More Difficult In Pennsylvania

On October 13, 2010, Pennsylvania Governor Ed Rendell signed into law House Bill 400 of 2009, otherwise known as the new "Construction Workplace Misclassification Act." This Act sets forth specific criteria that now must be met before individuals employed in the construction industry in Pennsylvania may be classified as "independent contractors" for purposes of workers' compensation and unemployment compensation.

Specifically, an individual who works in the construction industry can only be classified as an "independent contractor" for purposes of workers' compensation and unemployment compensation where the following three conditions are met:

(1) the individual must have a written contract to perform those services

(2) the individual must be free from control or direction over the performance of such service both in the written contract and in fact; and

(3) the individual must be customarily engaged in an independently established trade, occupation, profession or business.

The Act subsequently sets forth a detailed list of multiple factors that must be met before an individual can meet the third prong of the above test, i.e., the "customarily engaged in an independently established trade," prong.

Additionally, the Act provides that an employer's failure to withhold federal or state income taxes or failure to pay unemployment compensation contributions or workers' compensation contributions with respect to an individual's pay shall not be considered a factor in determining whether an individual is an employee for purposes of workers' compensation or unemployment compensation.

An employer who fails to appropriately classify an individual as an employee under this Act faces an array of possible penalties, ranging from a criminal misdemeanor charge for an intentional violation, to a $1,000.00 summary offense, or administrative enforcement, which can entail significant fines and the issuance of a stop-work order for a construction site.

The Act also prohibits an employer from retaliating against any individual for exercising his/her rights under the Act, and creates a "rebuttable presumption" of retaliation when any "adverse action," is taken against an individual within 90 days of that person's exercise of rights under the Act.

While the Act appears to create a private right of action for an individual to report an employer's non-compliance with the Act (individuals who suspect non-compliance are authorized to file a complaint), there is no provision that allows for the collection of monetary damages, costs, or attorneys' fees. However, the Act does provide that if any individual alleges noncompliance by an employer, and does so in good faith, then that individual "shall be afforded the rights provided by this Act, notwithstanding the person's failure to prevail on the merits."

The Construction Workplace Misclassification Act becomes effective on February 13, 2011. All businesses in Pennsylvania engaged in the construction industry that have individuals working for them need to review their current employee/independent contractor classifications in order to ensure compliance with these new rules before the effective date.

You can read the final version of the Construction Workplace Misclassification Act here: http://www.legis.state.pa.us/CFDOCS/Legis/PN/Public/btCheck.cfm?txtType=HTM&sessYr=2009&sessInd=0&billBody=H&billTyp=B&billNbr=0400&pn=4289 (the sections that are not lined-out are the provisions of the bill that have been signed into law).