PRIOR PRINTER'S NO. 3545 PRINTER'S NO. 3761
No. 2400 Session of 2008
INTRODUCED BY LENTZ, BELFANTI, GERBER, DiGIROLAMO, W. KELLER,
McCALL, EACHUS, CAPPELLI, MUSTIO, GINGRICH, ADOLPH, BARRAR,
BIANCUCCI, BISHOP, BLACKWELL, BRENNAN, CALTAGIRONE, CARROLL,
CIVERA, COHEN, DeLUCA, DePASQUALE, GEORGE, GERGELY, GODSHALL,
GOODMAN, GRUCELA, HARHAI, HARKINS, HORNAMAN, JOSEPHS, KENNEY,
KOTIK, KULA, MANDERINO, MANN, McGEEHAN, McILVAINE SMITH,
MELIO, MYERS, M. O'BRIEN, PASHINSKI, PETRONE, RAYMOND,
READSHAW, ROEBUCK, SABATINA, SHIMKUS, SIPTROTH, K. SMITH,
M. SMITH, SOLOBAY, STAIRS, SURRA, J. TAYLOR, R. TAYLOR,
WAGNER, WALKO, WATERS, J. WHITE AND PERZEL, APRIL 3, 2008
AS REPORTED FROM COMMITTEE ON LABOR RELATIONS, HOUSE OF
REPRESENTATIVES, AS AMENDED, MAY 13, 2008
AN ACT
1 Providing for the proper classification of employees for certain <--
2 purposes CRITERIA FOR INDEPENDENT CONTRACTORS IN THE <--
3 CONSTRUCTION INDUSTRY; and imposing penalties.
4 The General Assembly of the Commonwealth of Pennsylvania
5 hereby enacts as follows:
6 Section 1. Short title.
7 This act shall be known and may be cited as the Employee <--
8 Misclassification Prevention CONSTRUCTION INDUSTRY INDEPENDENT <--
9 CONTRACTOR Act.
10 Section 2. Legislative intent.
11 The General Assembly finds that employers who improperly <--
12 classify employees as independent contractors deprive these
13 workers of benefits, while reducing the employers' Federal and
14 State tax withholdings and related obligations. This practice
1 puts businesses who comply with applicable law at a competitive
2 disadvantage with those that do not follow the law. THE GENERAL <--
3 ASSEMBLY FINDS THAT INCREASINGLY EMPLOYERS IN THE CONSTRUCTION
4 INDUSTRY ARE IMPROPERLY CLASSIFYING EMPLOYEES AS INDEPENDENT
5 CONTRACTORS OR PAYING UNREPORTED COMPENSATION IN ORDER TO EVADE
6 COMPLIANCE WITH FEDERAL AND STATE LAWS. THESE ACTIONS DEPRIVE
7 THESE WORKERS OF SOCIAL SECURITY BENEFITS AND OTHER BENEFITS,
8 WHILE REDUCING THE EMPLOYERS' FEDERAL AND STATE TAX WITHHOLDINGS
9 AND RELATED OBLIGATIONS. THESE PRACTICES PUT EMPLOYERS THAT BEAR
10 HIGHER BUSINESS COSTS FOR COMPLYING WITH APPLICABLE LAW AT A
11 COMPETITIVE DISADVANTAGE WITH THOSE WHO DO NOT FOLLOW THE LAW.
12 IN ORDER TO RESTRICT AND ELIMINATE THESE ACTIONS THE GENERAL
13 ASSEMBLY SEES THE NEED TO ENACT LEGISLATION TO SPECIFICALLY
14 ADDRESS THESE ISSUES.
15 Section 3. Definitions.
16 The following words and phrases when used in this act shall
17 have the meanings given to them in this section unless the
18 context clearly indicates otherwise:
19 "CONSTRUCTION." CONSTRUCTION, RECONSTRUCTION, DEMOLITION, <--
20 ALTERATION, MODIFICATION, ERECTION, CUSTOM FABRICATION, REPAIR
21 WORK OR MAINTENANCE WORK DONE ON ANY PROPERTY OR PREMISES UNDER
22 CONTRACT, WHETHER OR NOT THE WORK IS FOR A PUBLIC BODY AND PAID
23 FOR FROM PUBLIC FUNDS.
24 "Department." The Department of Labor and Industry of the
25 Commonwealth.
26 "Employer." The term includes any individual, partnership,
27 association, joint stock company, corporation, business trust or
28 any other person or groups of persons acting directly or
29 indirectly in the interest of an employer in relation to an
30 employee AND WHO IS ENGAGING IN OR PERFORMING SERVICES IN THE <--
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1 COMMERCIAL OR RESIDENTIAL BUILDING CONSTRUCTION INDUSTRY FOR
2 REMUNERATION.
3 "Secretary." The Secretary of Labor and Industry of the
4 Commonwealth or the secretary's authorized representative.
5 Section 4. Performance of services. <--
6 (a) Applicability.--Services performed by an individual for
7 wages shall be deemed to be employment subject to this act, and
8 the individual shall be considered an employee of the party that
9 pays the wages, unless and until it is shown to the satisfaction
10 of the department that:
11 (1) the individual has been and will continue to be free
12 from direction and control of the employer, both under
13 contract of service and in fact;
14 (2) the service is outside the usual course of the
15 individual's business of the employer; and
16 (3) the individual is customarily engaged in an
17 independently established trade, occupation, profession or
18 business.
19 (b) Factor not to be considered.--The failure to withhold
20 Federal or State income taxes or to pay unemployment
21 compensation contributions or workers' compensation premiums
22 with respect to an individual's wages shall not be considered in
23 making a determination under this section.
24 SECTION 4. CERTAIN SERVICES DEEMED EMPLOYMENT AND EXCEPTIONS. <--
25 (A) GENERAL RULE.--FOR PURPOSES OF THIS ACT, AN INDIVIDUAL
26 ENGAGING IN OR PERFORMING SERVICES IN THE COMMERCIAL OR
27 RESIDENTIAL BUILDING CONSTRUCTION INDUSTRY FOR REMUNERATION IS
28 PRESUMED TO BE AN EMPLOYEE UNLESS:
29 (1) THE INDIVIDUAL CAN DEMONSTRATE BY SUBSTANTIAL
30 CREDIBLE EVIDENCE THAT THE INDIVIDUAL IS FREE FROM CONTROL OR
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1 DIRECTION OVER PERFORMANCE OF SUCH SERVICES BOTH UNDER THE
2 CONTRACT OF SERVICE AND IN FACT; AND
3 (2) AS TO SUCH SERVICES, THE INDIVIDUAL IS CUSTOMARILY
4 ENGAGED IN AN INDEPENDENTLY ESTABLISHED TRADE, OCCUPATION,
5 PROFESSION OR BUSINESS.
6 (B) INDEPENDENT CONTRACTOR CRITERIA.--AN INDIVIDUAL ENGAGING
7 IN OR PERFORMING SERVICES IN THE COMMERCIAL OR RESIDENTIAL
8 BUILDING CONSTRUCTION INDUSTRY FOR REMUNERATION SHALL BE DEEMED
9 AN INDEPENDENT CONTRACTOR IF THE INDIVIDUAL CAN DEMONSTRATE, BY
10 CREDIBLE EVIDENCE, THAT THE INDIVIDUAL MEETS ALL OF THE
11 FOLLOWING CRITERIA:
12 (1) MAINTAINS A SEPARATE BUSINESS LOCATION THAT IS
13 SEPARATE FROM THE LOCATION OF THE PERSON OR ENTITY FOR WHOM
14 SERVICES ARE BEING PERFORMED, WITH THE INDIVIDUAL'S OWN
15 OFFICE, AND OPERATES WITH OWNED OR LEASED EQUIPMENT AND OTHER
16 FACILITIES. FOR PURPOSES OF THIS PARAGRAPH, AN OFFICE MAY BE
17 MAINTAINED IN THE INDIVIDUAL'S RESIDENCE IF THE INDIVIDUAL IS
18 LICENSED TO PERFORM THE SPECIFIC KIND AND QUALITY OF WORK
19 REQUIRED BY THE CONTRACTS SPECIFIED IN THIS SUBSECTION BY ALL
20 STATE AND LOCAL LICENSING AUTHORITIES.
21 (2) OPERATES UNDER CONTRACTS WHICH ARE IN WRITING AND
22 WHICH CONTRACTS ARTICULATE PLAINLY THE PRECISE TERMS OF
23 PAYMENT FOR WORK PERFORMED, THE SCOPE OF WORK TO BE PERFORMED
24 AND A SPECIFIC PROHIBITION ON THE RETENTION BY THE
25 INDEPENDENT CONTRACTOR OF ANY OTHER INDEPENDENT CONTRACTOR TO
26 PERFORM ANY PART OF THE WORK DESCRIBED IN THE CONTRACT.
27 (3) INCLUDES SERVICES RENDERED ON A FEDERAL INCOME TAX
28 SCHEDULE AS AN INDEPENDENT BUSINESS OR PROFESSION.
29 (4) INCURS THE MAIN EXPENSES RELATED TO THE WORK.
30 (5) IS RESPONSIBLE FOR THE SATISFACTORY COMPLETION OF
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1 THE WORK AND IS LIABLE FOR A FAILURE TO COMPLETE THE WORK.
2 (6) REALIZES A PROFIT OR LOSS UNDER CONTRACTS TO PERFORM
3 WORK.
4 (7) THE SUCCESS OR FAILURE OF THE INDIVIDUAL'S BUSINESS
5 DEPENDS ON THE RELATIONSHIP OF BUSINESS RECEIPTS TO
6 EXPENDITURES.
7 (8) HAS THROUGH OWNERSHIP, OR A WRITTEN AND EXECUTED
8 LEASING ARRANGEMENT, THE TOOLS, EQUIPMENT AND OTHER ASSETS
9 NECESSARY TO PERFORM THE SERVICES.
10 (9) MAKES SERVICES AVAILABLE TO OTHER BUSINESSES,
11 GOVERNMENTAL AGENCIES IN THIS COMMONWEALTH OR TO THE GENERAL
12 PUBLIC THROUGH BUSINESS ADVERTISING, SOLICITATION OR OTHER
13 MARKETING EFFORTS REASONABLY CALCULATED TO OBTAIN NEW
14 CONTRACTS TO PROVIDE SIMILAR SERVICES.
15 (10) HAS CONTINUING OR RECURRING BUSINESS LIABILITIES OR
16 OBLIGATIONS.
17 (11) PERFORMS THE SERVICES THROUGH A BUSINESS IN WHICH
18 THE INDIVIDUAL HAS A PRINCIPAL PROPRIETARY INTEREST.
19 (12) IS A UNITED STATES CITIZEN OR IS AUTHORIZED UNDER
20 FEDERAL LAW TO WORK IN THE UNITED STATES, AS DEFINED UNDER
21 SECTION 274A OF THE IMMIGRATION AND NATIONALITY ACT (66 STAT.
22 163, 8 U.S.C. § 1324A).
23 (C) FACTOR NOT TO BE CONSIDERED.--THE FAILURE TO WITHHOLD
24 FEDERAL OR STATE INCOME TAXES OR PAY UNEMPLOYMENT COMPENSATION
25 TAXES WITH RESPECT TO AN INDIVIDUAL'S REMUNERATION SHALL NOT BE
26 CONSIDERED IN DETERMINING WHETHER THE INDIVIDUAL IS AN
27 INDEPENDENT CONTRACTOR FOR PURPOSES OF THE ACT OF JUNE 2, 1915
28 (P.L.736, NO.338), KNOWN AS THE WORKERS' COMPENSATION ACT, OR
29 THE ACT OF DECEMBER 5, 1936 (2ND SP.SESS., 1937 P.L.2897, NO.1),
30 KNOWN AS THE UNEMPLOYMENT COMPENSATION LAW.
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1 (D) CONSTRUCTION.--FOR PURPOSES OF THIS SECTION, EACH
2 EMPLOYMENT RELATIONSHIP SHALL BE CONSIDERED SEPARATELY.
3 Section 5. Improper classification of employees.
4 (a) Violation.--An employer, or an officer or agent of the
5 employer, that fails to properly classify an individual as an
6 employee in accordance with section 4 for purposes of the act of <--
7 June 2, 1915 (P.L.736, No.338), known as the Workers'
8 Compensation Act, the act of December 5, 1936 (2nd Sp.Sess.,
9 1937 P.L.2897, No.1), known as the Unemployment Compensation
10 Law, and Article III of the act of March 4, 1971 (P.L.6, No.2),
11 known as the Tax Reform Code of 1971, or fails to pay benefits
12 or other contributions required by law shall be subject to the
13 penalties, remedies or actions contained in this act.
14 (b) Enforcement.--When the secretary finds that an employer
15 has violated a provision of this act, the secretary shall MAY <--
16 refer the matter to the Office of Attorney General for
17 investigation and prosecution. Nothing in this act shall be
18 deemed to limit the authority of the Attorney General to
19 investigate and prosecute violations of this act.
20 (C) CONSPIRACY BY OTHER PARTIES.--A PARTY THAT DOES NOT MEET <--
21 THE DEFINITION OF "EMPLOYER" IN SECTION 3, BUT WHICH CONTRACTS
22 WITH AN EMPLOYER KNOWING THE EMPLOYER INTENDS TO MISCLASSIFY
23 EMPLOYEES IN VIOLATION OF THIS ACT SHALL BE SUBJECT TO THE SAME
24 PENALTIES, REMEDIES OR OTHER ACTIONS AS THE EMPLOYER FOUND TO BE
25 IN VIOLATION OF THIS ACT.
26 Section 6. Criminal penalties.
27 (a) Knowing violation.--An employer, or an officer or agent
28 of the employer, that knowingly violates section 5(a) commits a
29 felony of the third degree and shall, upon conviction, be <--
30 sentenced to pay a fine of not more than $15,000 or to
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1 imprisonment for not more than three and one-half years for a
2 first offense, or both, and to pay a fine of not more than
3 $30,000 or to imprisonment for not more than seven years, or
4 both, for a subsequent offense. CONVICTION: <--
5 (1) BE SENTENCED TO PAY A FINE OF NOT MORE THAN $15,000
6 OR IMPRISONMENT FOR NOT MORE THAN THREE AND ONE-HALF YEARS,
7 OR BOTH, FOR A FIRST OFFENSE;
8 (2) BE SENTENCED TO PAY A FINE OF NOT MORE THAN $30,000
9 OR IMPRISONMENT FOR NOT MORE THAN SEVEN YEARS, OR BOTH, FOR A
10 SUBSEQUENT OFFENSE; AND
11 (3) MAY BE SUBJECT TO A STOP-WORK ORDER, AS DETERMINED
12 BY THE SECRETARY PURSUANT TO SECTION 8.
13 (b) Unintentional violation.--An employer, or an officer or
14 agent of the employer, that unintentionally violates section
15 5(a) commits a misdemeanor of the third degree and shall, upon
16 conviction, be sentenced to pay a fine of not more than $2,500
17 or to imprisonment for not more than 180 days for a first <--
18 offense, or both, and to pay a fine of not more than $5,000 or
19 to imprisonment for not more than one year, or both, for a
20 subsequent offense. FOR A FIRST OFFENSE. A PRIOR OCCURRENCE <--
21 SHALL BE DEEMED TO BE CLEAR AND CONVINCING EVIDENCE OF INTENTION
22 WITH RESPECT TO ANY SUBSEQUENT VIOLATION.
23 Section 7. Civil actions and remedies.
24 (a) Debarment.--If the secretary determines, after notice
25 and hearing, that an employer, or an officer or agent of the
26 employer, has KNOWINGLY failed to properly classify an <--
27 individual as an employee or failed to pay required benefits or
28 other contributions as required in section 5, or upon the
29 conviction for a violation of this act, the secretary shall
30 notify all public bodies in this Commonwealth of the name of the
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1 employer, and no contract shall be awarded to the employer or to
2 any firm, corporation or partnership in which the employer has
3 an interest until a period of up to three years, as determined
4 by the secretary, has elapsed from the date of the notice.
5 (b) Administrative penalties.--As an alternative to or in
6 addition to any other sanctions provided by law for a violation
7 of this act, when the secretary finds that an employer has
8 violated this act, the secretary is authorized to assess and
9 collect administrative penalties up to a maximum of $2,500 for
10 the first violation and up to a maximum of $5,000 for each
11 subsequent violation. When determining the amount of the penalty
12 imposed because of a violation, the secretary shall consider
13 factors which include the history of previous violations by the
14 employer, the seriousness of the violation, the good faith of
15 the employer and the size of the employer's business. Each
16 employee misclassified by the employer shall constitute a
17 separate offense.
18 (c) Actions by employees.--An individual who has not been
19 properly classified as an employee may bring a civil action for
20 damages against the employer for KNOWINGLY failing to properly <--
21 classify the employee if the employer had knowledge of the <--
22 misclassification. An individual's representative, including a
23 labor organization, may bring the action on behalf of the
24 individual or as a class action. The court may award attorney
25 fees and other costs of the action in addition to damages to an
26 individual or class of individuals who have not been properly
27 classified as employees in violation of section 5(a).
28 Section 8. Stop-work orders.
29 (a) Issuance of order.--If the secretary determines, after
30 notice and hearing, that an employer, OR OFFICER OR AGENT OF THE <--
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1 EMPLOYER, HAS KNOWINGLY failed to properly classify an
2 individual as an employee or has failed to pay required benefits <--
3 or other contributions as required in UNDER section 5, the <--
4 secretary shall MAY issue a stop-work order requiring the <--
5 cessation of all business operations within 72 hours of the
6 determination. The order shall take effect when served upon the
7 employer or, for a particular employer worksite, when served at
8 the worksite. The order shall remain in effect until the
9 secretary issues an order releasing the stop-work order or upon
10 finding that the employer has properly classified the individual
11 as an employee. The employer shall file with the department
12 periodic reports for a probationary period that shall not exceed
13 two years that demonstrate the employer's continued compliance
14 with this section. The department shall promulgate rules and
15 regulations to determine filing times and report requirements.
16 (b) Applicability of orders.--Stop-work orders under
17 subsection (a) and penalties under subsection (c) shall be in
18 effect against any successor corporation or business entity that
19 has one or more of the same principals or officers as the
20 employer against whom the stop-work order was issued and which
21 is engaged in the same or equivalent trade or activity.
22 (c) Penalty.--The secretary shall assess a penalty of $1,000
23 per day against an employer for each day that the employer
24 conducts business operations that are in violation of a stop-
25 work order issued under this section.
26 (d) Additional penalty.--In addition to any other penalties <--
27 provided for in this section, the secretary may assess against
28 any employer a penalty of $5,000 for each individual whom that
29 employer failed to properly classify as an employee under
30 section 5(a).
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1 Section 9. Procedure.
2 (a) Hearings.--Actions taken under sections 7 and 8 are
3 subject to the right of notice and adjudication and the right of
4 appeal in accordance with the provisions of 2 Pa.C.S. (relating
5 to administrative law and procedure).
6 (b) Subpoena powers.--The department has the power to
7 subpoena witnesses, administer oaths, examine witnesses and take
8 testimony or compel the production of documents. Upon
9 application of an attorney for the Commonwealth, the department
10 may issue a subpoena to compel the production of the documents,
11 computer records and information relating to compliance with the
12 act.
13 Section 10. Commonwealth Court.
14 The secretary may seek enforcement of any order or subpoena
15 in the Commonwealth Court.
16 Section 11. Certain agreement prohibited.
17 No person shall require or request that an individual enter
18 into an agreement or sign a document which results in the
19 misclassification of the individual as an independent contractor
20 or otherwise does not accurately reflect the relationship with
21 the employer.
22 Section 12. Retaliation for action prohibited.
23 It shall be unlawful for an employer or any other party to
24 discriminate in any manner or take adverse action against any
25 person in retaliation for exercising rights protected under this
26 act. Rights protected under this act include, but are not
27 limited to, the right to file a complaint or inform any person
28 about an employer's noncompliance with this act and the right to
29 inform any person of the person's potential rights and to assist
30 the person in asserting those rights. Any person who in good
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1 faith alleges noncompliance with this act shall be afforded the
2 rights provided by this act, notwithstanding the person's
3 failure to prevail on the merits. Taking adverse action against
4 a person within 90 days of the person's exercise of rights
5 protected under this act shall raise a rebuttable presumption of
6 having done so in retaliation for the exercise of those rights.
7 Section 13. Use of penalty funds.
8 Any sum collected as a penalty ASSESSMENTS AND PENALTIES <--
9 COLLECTED pursuant to this act shall be applied toward
10 IMPLEMENTATION, enforcement and administration costs of INCURRED <--
11 BY the department UNDER THIS ACT. HOWEVER, THE SECRETARY MAY <--
12 TRANSFER AN AGREED-TO AMOUNT OF MONEYS COLLECTED TO THE ATTORNEY
13 GENERAL TO ASSIST IN THE ENFORCEMENT OF THIS ACT.
14 Section 14. Rules and regulations.
15 The department may promulgate rules and regulations necessary
16 to implement this act.
17 SECTION 15. ANNUAL REPORT REQUIRED. <--
18 THE DEPARTMENT SHALL SUBMIT AN ANNUAL REPORT TO THE GENERAL
19 ASSEMBLY BY MARCH 1 OF THE YEAR FOLLOWING THE FIRST FULL YEAR IN
20 WHICH THIS ACT IS IN EFFECT, AND EACH YEAR THEREAFTER,
21 DETAILING, TO THE MAXIMUM EXTENT POSSIBLE, DATA ON THE PREVIOUS
22 CALENDAR YEAR'S ADMINISTRATION AND ENFORCEMENT OF THIS ACT. THE
23 DEPARTMENT MAY INCLUDE ANY RELEVANT FACTS AND STATISTICS THAT IT
24 BELIEVES NECESSARY INTO THE CONTENT OF THE REPORT.
25 Section 15 16. Effective date. <--
26 This act shall take effect July 1, 2008, or in 60 JANUARY 1, <--
27 2009, OR IN 90 days, whichever is later.
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