A. Duie Latta, Esquire

The Pennsylvania House of Representatives recently passed the Construction Industry Independent Contractor Act (the "Act"). The House passed this bill on June 9, 2008, and if passed by the Senate and signed into law, it will provide guidance to the construction industry on when to classify workers as employees versus independent contractors. It will also penalize employers who misclassify workers.

The Act applies to the construction industry, with "construction" being defined broadly to include reconstruction, demolition, alteration, modification, erection, custom fabrication, and repair work or maintenance work done on any real property or premises under contract. The House passed the bill with the intent of curtailing the perceived practice of improperly classifying construction employees as independent contractors in order to avoid various federal and state employment laws, to deprive workers of overtime pay, and to reduce tax withholding obligations.

The Act regulates the classification of workers in the commercial or residential building construction industry by creating a presumption that, for the purposes of various state employment laws, an individual engaged in services in the commercial or residential building construction industry is an employee. To classify an individual as an independent contractor, it must be shown by credible evidence that the individual meets the Act's numerous and robust criteria to qualify as an independent contractor. In other words, in the construction industry the Act would presume an individual to be an employee until proven otherwise.

The Act would also penalize the misclassification of workers (with varying penalties for violations) depending upon whether the misclassification was negligent or intentional. Either way, the penalties would entail substantial fines, and, in the case of intentional misclassification, the possibility of imprisonment. Additionally, the Act would allow an individual (or his or her union) to bring a civil action against an employer for knowingly and intentionally failing to classify the individual as an employee. Furthermore, the Act would allow the Secretary of Labor and Industry to issue a stop-work order requiring the cessation of all business operations if it determines, after a hearing, that an employer has knowingly and intentionally failed to classify an individual as an employee.

In summary, if this Act becomes law, it would likely have a significant effect on the classification of workers in the construction industry. It would also require substantial compliance efforts on the part of employers, with significant risks and penalties for violations.

The earliest that the legislation could go into effect is January 1, 2009, but the time for employers in the construction industry to become aware of the potential requirements of this Act is now.

Careful planning and preparation is essential in securing the best results for your business. The attorneys at MacElree Harvey can assist you in determining the effect of this legislation on your company. Please contact us with any questions about Pennsylvania's Construction Industry Independent Contractor Act.

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