It was way back in October of 2010 when the Pennsylvania Legislature passed the law known as the Construction Workplace Misclassification Act (43 Pa. C.S. §933.1, et seq.). The stated purpose of the Act was to prohibit construction industry employers from classifying people who worked for them as independent contractors, as opposed to employees, and to prosecute those employers who misclassified such people. I recall writing articles and presenting a number of seminars to construction industry professionals on the Act, its prohibitions, requirements, and penalties for violators. Though the law has been in effect now for nearly 10 years, it has not spurred many prosecutions.
However, recently, the Pennsylvania Attorney General, along with the District Attorney for Delaware County, announced a joint pilot program aimed at combating the misclassification of construction workers, putting Pennsylvania contractors on notice that they intend to prosecute contractor violators. I have attached a brief article from the DelCo Times highlighting the Attorney General’s latest crusade. Non-union contractors in particular should take note as the article reveals that the Attorney General and District Attorney have actively sought the assistance of organized labor to refer suspected violating contractors for prosecution.
Now is a good time to revisit the key prohibitions in the Act. First, it is important for contractors to understand that the law may not be circumvented by simply entering into an agreement with individuals whereby the agreement states that the individual is “an independent contractor.” Simply designating a person as an “independent contractor” does not make him so, and such agreements are not determinative of whether there is a violation of the Act. As such, all agreements are essentially worthless as a defense to a prosecution under the Act. Rather there are several indicia required in order to properly classify an individual as an independent contractor, as opposed to an employee, who would otherwise be entitled to company benefits, unemployment and workers’ compensation benefits among other protections. The law states that an individual who performs services in the construction industry for payment is an independent contractor only if:
- the individual has a written contract to perform such services,
- the individual is free from control or direction over performance of such services both under the contract of service and in fact, and
- as to such services, the individual is customarily engaged in an independently established trade, occupation, profession or business.
Whether an individual is customarily engaged in an independently established trade, occupation, profession or business requires the following:
- the individual possesses the essential tools, equipment and other assets necessary to perform the services independent of the person for whom the services are performed,
- the individual’s arrangement with the person for whom the services are performed is such that the individual shall realize a profit or suffer a loss as a result of performing the services,
- the individual performs the services through a business in which the individual has a proprietary interest,
- the individual maintains a business location that is separate from the location of the person for whom the services are being performed,
- the individual holds himself out to other persons as available and able, and in fact is available, to perform the same or similar services, and
- the individual maintains liability insurance during the term of his contract of at least $50,000.
Contractors who run afoul of these requirements are subject to prosecution and criminal penalties over and above administrative penalties. Finally, as is the case with most statutes that protect worker rights, the Act prohibits a construction company from retaliating against any person who files a complaint or who informs any person about an employer’s noncompliance with the Act.
In light of the Attorney General’s announcement and rollout of his intended aggressive prosecution of violators, construction employers are well advised to revisit their relationships with all “independent contractors” to make certain that each relationship meets the requirements of the Act.
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