THE GENERAL ASSEMBLY OF PENNSYLVANIA

HOUSE BILL

INTRODUCED BY LENTZ, BELFANTI, M. SMITH, EACHUS, BARBIN, BARRAR, BRENNAN, BRIGGS, BUXTON, CALTAGIRONE, CARROLL, CIVERA, CONKLIN, D. COSTA, P. COSTA, CRUZ, DALEY, DeLUCA, DePASQUALE, DeWEESE, DiGIROLAMO, DRUCKER, J. EVANS, FRANKEL, FREEMAN, GALLOWAY, GEORGE, GERBER, GERGELY, GIBBONS, GODSHALL, GOODMAN, GRUCELA, HALUSKA, HARKINS, HORNAMAN, JOSEPHS, W. KELLER, KIRKLAND, KORTZ, MANDERINO, MANN, MARSHALL, McCALL, McGEEHAN, McILVAINE SMITH, MELIO, MICOZZIE, MUNDY, MURPHY, MURT, MUSTIO, MYERS, M. O'BRIEN, PASHINSKI, PAYTON, PERZEL, PETRARCA, PETRI, PRESTON, SABATINA, SANTARSIERO, SEIP, SIPTROTH, SOLOBAY, STURLA, J. TAYLOR, VEREB, WAGNER, WALKO, WANSACZ, WHITE, YOUNGBLOOD, BURNS, BOYLE AND BRADFORD, MARCH 19, 2009

AS AMENDED ON SECOND CONSIDERATION, HOUSE OF REPRESENTATIVES, APRIL 29, 2009  

AN ACT

Providing for the criteria for independent contractors in the

construction industry; and imposing penalties.

The General Assembly of the Commonwealth of Pennsylvania

hereby enacts as follows:

Section 1.  Short title.

This act shall be known and may be cited as the Construction 

Workplace Fraud Act.

Section 2.  Legislative intent.

The General Assembly finds that increasingly employers in the

construction industry are improperly classifying employees as

independent contractors or paying unreported compensation in

order to evade their responsibilities as employers with respect

to compliance with Federal and State laws. These actions also

deprive these workers of Social Security benefits and other

benefits, including overtime pay, while reducing the employers'

Federal and State tax withholdings and related obligations.

These practices put employers that bear higher business costs

for complying with applicable law at a competitive disadvantage

with those who do not follow the law. In order to restrict these

actions, the General Assembly hereby finds the need to enact

clear statutory guidelines for the construction industry to

define the difference between an independent contractor and an

employee for purposes of applicable laws. The General Assembly

further finds a need to enact stiff criminal and civil penalties

for employers who knowingly and intentionally misclassify

employees as independent contractors in order to ensure that the

practice is not financially advantageous to those employers as

they compete against employers that are in compliance with the

law.

Section 3.  Definitions.

The following words and phrases when used in this act shall

have the meanings given to them in this section unless the

context clearly indicates otherwise:

"Construction."  Erection, reconstruction, demolition,

alteration, modification, custom fabrication, building,

assembling, site preparation and repair work or maintenance work

done on any real property or premises under contract, whether or

not the work is for a public body and paid for from public

funds.

"Department."  The Department of Labor and Industry of the

Commonwealth.

"Employer."  The term includes any individual, partnership,

association, joint stock company, corporation, business trust or

any other person or groups of persons acting directly or

indirectly in the interest of an employer in relation to an

employee and who is engaging in or performing services in the

commercial or residential building construction industry for

remuneration.

"Minimum Wage Act."  The act of January 17, 1968 (P.L.11,

No.5), known as The Minimum Wage Act of 1968.

"Remuneration."  All compensation including, but not limited

to, wages and employee benefits paid to an employee.

"Secretary."  The Secretary of Labor and Industry of the

Commonwealth or the secretary's authorized representative.

"Unemployment Compensation Law."  The act of December 5, 1936

(2nd Sp.Sess., 1937 P.L.2897, No.1), known as the Unemployment

Compensation Law.

"Wage Payment and Collection Law."  The act of July 14, 1961

(P.L.637, No.329), known as the Wage Payment and Collection Law.

"Workers' Compensation Act."  The act of June 2, 1915

(P.L.736, No.338), known as the Workers' Compensation Act.

Section 4.  Certain services deemed employment and exceptions.

(a)  General rule.--For purposes of the Minimum Wage Act, the

Wage Payment and Collection Law, the Unemployment Compensation

Law and the Workers' Compensation Act, an individual engaging in

or performing services in the commercial or residential building

construction industry for remuneration is presumed to be an

employee unless:

(1)  the individual has been and will continue to be is 

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free from control or direction over performance of such

services both under the contract of service and in fact; and

(2)  as to such services, the individual is customarily

engaged in an independently established trade, occupation,

profession or business.

(b)  Independent contractor criteria.--An individual engaging

in or performing services in the commercial or residential

building construction industry for remuneration shall be deemed

an independent contractor if the individual can demonstrate, by

credible evidence, that the individual meets all of the

following criteria:

(1)  Maintains a separate business location that is

separate from the location of the person or entity for whom

services are being performed, with the individual's own

office, and operates with owned or leased equipment and other

facilities. For purposes of this paragraph, an office may be

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maintained in the individual's residence if the individual is

licensed to perform the specific kind and quality of work

required by the contracts specified in this subsection by all

State and local licensing authorities.

(2)  Operates under contracts which are in writing and

which contracts articulate plainly the precise terms of

payment for work performed, the scope of work to be performed

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and a specific prohibition on the retention by the

independent contractor of any other independent contractor to

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personnel to perform any part of the work described in the

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contract unless an independent contractor must subcontract a

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portion of the work because the work in question falls

outside the scope of the independent contractor's normal

course of business and requires special tools or expertise,

and is not for the purpose of supplementing the independent

contractor's work force other than employees of the

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independent contractor and other contractors that can

demonstrate by credible evidence that they meet the criteria

of this subsection.

(3)  Includes income and losses from services rendered on

a Federal income tax schedule as an independent business or

profession.

(4)  Incurs the main expenses related to the work.

(5)  Is responsible for the satisfactory completion of

the work and is liable for a failure to complete the work.

(6)  Realizes a profit or loss under contracts to perform

work.

(7)  The success or failure of the individual's business

depends on the relationship of business receipts to

expenditures.

(8)  Has through ownership, or a written and executed

leasing arrangement with a person other than the employer,

the tools, equipment and other assets necessary to perform

the services.

(9)  Makes services available to other businesses,

governmental agencies in this Commonwealth or to the general

public through business advertising, solicitation or other

marketing efforts reasonably calculated to obtain new

contracts to provide similar services.

(10)  Has continuing or recurring business liabilities or

obligations.

(11)  Performs the services through a business in which

the individual has a principal proprietary interest.

(12)  Is a United States citizen or is authorized under

Federal law to work in the United States, as defined under

section 274A of the Immigration and Nationality Act (66 Stat.

163, 8 U.S.C. § 1324a).

(c)  Factor not to be considered.--The failure to withhold

Federal or State income taxes or pay unemployment compensation

taxes with respect to an individual's remuneration shall not be

considered in determining whether the individual is an

independent contractor for purposes of the Unemployment

Compensation Law or the Workers' Compensation Act.

(d)  Construction.--For purposes of this section, each

employment relationship shall be considered separately.

Section 5.  Improper classification of employees.

(a)  Offense defined.--An employer, or officer or agent of an

employer, commits a violation of this act if the employer,

officer or agent fails to properly classify the individual as an

employee with the intent of evading the requirements of the

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Minimum Wage Act, the Wage Payment and Collection Law, the

Unemployment Compensation Law or the Workers' Compensation Act 

and shall be subject to the penalties, remedies or actions

contained in this act.

(b)  Enforcement.--When the secretary finds that an employer

has violated a provision of this act, the secretary may refer

the matter to the Office of Attorney General for investigation

and prosecution. Nothing in this act shall be deemed to limit

the authority of the Attorney General or the District Attorney

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of the appropriate county to investigate and prosecute

violations of this act.

(c)  Concurrent jurisdiction to prosecute.--The Attorney

General shall have concurrent prosecutorial jurisdiction with

the district attorney of the appropriate county for violations

under this section and any crime arising out of the activity

prohibited by this section. No person charged with a violation

of this section by the Attorney General shall have standing to

challenge the authority of the Attorney General to prosecute the

case, and, if a challenge is made, the challenge shall be

dismissed, and no relief shall be available in the courts of

this Commonwealth to the person making the challenge.

(d)  Conspiracy by other parties.--A party that does not meet

the definition of "employer" in section 3, but which contracts

with an employer knowing the employer intends to misclassify

employees in violation of this act shall be subject to the same

penalties, remedies or other actions as the employer found to be

in violation of this act.

Section 5.1  Presumption of independent contractor status.

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(a)  Rebuttable presumption.—-An employer that enters into a

written contract for construction services containing the

requirements set forth under subsection (b) creates a rebuttable

presumption that the individual contracted with is an

independent contractor and the employer has an affirmative

defense to an allegation under this act that the individual is

an employee if all of the following are true:

(1)  The contract is signed by both parties.

(2)  The employer has in its possession the documents

identified in subsection (c).

(b)  Contract terms.—-A written contract between an employer

and an individual presumed to be an independent contractor under

this section must contain all of the following:

(1)  The name, home and business address of the

individual and the individual’s tax identification number or

Social Security Number.

(2)  A description of the work to be performed under the

contract and plain, precise terms for payment.

(3)  A section in substantially the following form:

Independent Contractor Status. The parties to this

contract acknowledge that they intend that the Contractor

be considered an independent contractor as described in

the act of ______________, 2009 (P.L. ___, No. ___),

known as the Construction Workplace Fraud Act (the "Act")

and not an employee of the Hiring Party. In furtherance

of that intention, the parties agree as follows:

(A)  By his signature on this contract below, the

Contractor certifies that he meets all of the following

criteria:

(i)  He maintains a separate business location

that is separate from the location of the Hiring

Party, with the Contractor’s own office, and operates

with owned or leased equipment and other facilities.

(ii)  He operates under contracts which are in

writing and which articulate plainly the precise

terms of payment for work performed, the work to be

performed and a specific prohibition against the

retention by the Contractor of any other personnel to

perform any part of the work described in the

contracts other than employees of the Contractor and

other contractors that can demonstrate, by credible

evidence, that they meet all of the criteria of this

paragraph (A).

(iii)  He includes income and losses from

services rendered in a Federal income tax schedule as

an independent business or profession.

(iv)  He will incur the primary expenses related

to the work performed under this contract.

(v)  He is responsible for the satisfactory

completion of the work to be performed under this

contract and is liable for a failure to complete the

work.

(vi)  He realizes a profit or loss under

contracts to perform work.

(vii)  The success or failure of his business

depends on the relationship of business receipts to

expenditures.

(viii)  He has through ownership, or a written

and executed leasing arrangement with a person other

than the Hiring Party, the tools, equipment and other

assets necessary to perform the work under this

contract.

(ix)  He makes services available to other

businesses, governmental agencies in this

Commonwealth or to the general public through

business advertising, solicitation or other marketing

efforts reasonably calculated to obtain new contracts

to provide similar services.

(x)  He has continuing or recurring business

liabilities or obligations.

(xi)  He performs services through a business in

which the Contractor has a principal proprietary

interest.

(xii)  He is a United States citizen or is

authorized under Federal law to work in the United

States, as defined under section 274A of the

Immigration and Nationality Act (66 Stat. 163, 8

U.S.C. §1324a).

The foregoing are collectively referred to herein as the

"Independent Contractor Requirements." Failure of the

Contractor to meet the Independent Contractor

Requirements during the term of this contract shall

constitute a material breach by the Contractor of this

contract. In that event, the Hiring Party shall have the

right to terminate this contract immediately upon notice

to the Contractor without penalty.

(B)  By his signature on this contract below, the

Hiring Party certifies that he has verified, after

reasonable investigation, that as of the date of this

contract the Contractor meets the Independent Contractor

Requirements except for those requirements set forth in

subparagraphs (iii), (vi), (vii), (ix) and (xi) of

paragraph (A) above, which he has not verified.

(C)  The Contractor agrees that he shall not engage

any other personnel to perform any part of the work

described in this contract other than employees of the

Contractor and other contractors that can demonstrate by

credible evidence that they meet all of the Independent

Contractor Requirements.

(D)  The Contractor agrees that he shall maintain

liability insurance during the term of this contract of

at least $1,000,000 and shall provide proof thereof to

the Hiring Party upon request.

(c)  Documentation.—-At the time of entering into the

contract described in subsection (b), the employer shall obtain

from the individual, and maintain for a period of three years

thereafter, the following information:

(1)  Proof of liability insurance in the amount of at

least $1,000,000.

(2)  Proof that the individual is a United States citizen

or is otherwise authorized under Federal law to work in the

United States, as defined under section 274A of the

Immigration and Nationality Act (66 Stat. 163, 8 U.S.C. §

1324a).

(d)  Loss of presumption.—-If, during the term of the

contract, the employer receives knowledge that the individual

does not meet the criteria set forth in section 4(b) and the

employer does not terminate the contract as permitted by the

provisions of the contract set forth in subsection (b), the

employer shall no longer be entitled to the presumption and

affirmative defense set forth in subsection (a).

(e)  Penalty.—-An employer that signs a contract

described in subsection (b) knowing that any of the

certifications made by the employer in the contract is false

shall be subject to the administrative penalties set forth in

section 7(b) in addition to any other penalties for violation

of this act to which the employer may be subject.

Section 6.  Criminal penalties.

(a)  Knowing violation.--

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(1)  An employer, or officer or agent of the employer,

that knowingly violates section 5(a) commits a felony of the

third degree and shall, upon conviction:

(i)  be sentenced to pay a fine of not more than

$15,000 or imprisonment for not more than three and one-

half years, or both, for a first offense; and

(ii)  be sentenced to pay a fine of not more than

$30,000 or imprisonment for not more than seven years, or

both, for a subsequent offense.

(2)  An employer, or officer or agent of the employer,

that, after being sentenced under paragraph (1)(i), knowingly

violates section 5(a) may be subject to a stop-work order, as

determined by the secretary pursuant to section 8.

(a)  Grading.--An employer, or an officer or an agent of the

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employer, who intentionally violates section 5(a) commits:

(1)  A misdemeanor of the third degree for a first

offense.

(2)  A misdemeanor of the second degree for a second or

subsequent offense.

(b)  Summary offense.--An employer, or officer or agent of

the employer, that negligently fails to properly classify an

individual as an employee under section 5(a) commits a summary

offense and shall, upon conviction, be sentenced to pay a fine

of not more than $1,000. Evidence of a prior conviction under

this subsection shall be admissible as evidence of knowledge

under subsection (a).

Section 7.  Civil actions and remedies.

(a)  Debarment.--If the secretary receives information

indicating that any employer, or officer or agent of the

employer, has intentionally failed to properly classify an

employee and has been convicted of the violation, the secretary

shall notify all public bodies of the name of the employer, and

no contract shall be awarded to the employer or to any firm,

corporation or partnership in which the employer has an interest

for a period of up to three years, as determined by the

secretary, has elapsed from the date of notice to the public

bodies. Actions taken under this subsection shall be subject to

the provisions of section 9(a).

(b)  Administrative penalties.--As an alternative to or in

addition to any other sanctions provided by law for a violation

of this act, when the secretary finds that an employer has

violated this act, the secretary is authorized to assess and

collect administrative penalties up to a maximum of $2,500 for

the first violation and up to a maximum of $5,000 for each

subsequent violation. When determining the amount of the penalty

imposed because of a violation, the secretary shall consider

factors which include the history of previous violations by the

employer, the seriousness of the violation, the good faith of

the employer and the size of the employer's business. Each

employee misclassified by the employer shall constitute a

separate offense.

(c)  Actions by employees.--An individual who has not been

properly classified as an employee may bring a civil action for

damages against the employer for knowingly and intentionally

failing to properly classify the employee. An individual's

representative may bring the action on behalf of the individual

or as a class action. The court may award attorney fees and

other costs of the action in addition to damages to an

individual or class of individuals who have not been properly

classified as employees in violation of section 5(a).

Section 8.  Stop-work orders.

(a)  Issuance of order.--If the secretary determines, after

notice and hearing, that an employer, or officer or agent of the

employer, has knowingly and intentionally failed to properly

classify an individual as an employee under section 5, the

secretary may issue a stop-work order requiring the cessation of

all business operations of that employer at each site at which a

violation occurred within 72 hours of the determination. The

order shall take effect when served upon the employer or, for a

particular employer worksite, when served at the worksite. The

order shall remain in effect until the secretary issues an order

releasing the stop-work order or upon finding that the employer

has properly classified the individual as an employee. The

employer shall file with the department periodic reports for a

probationary period that shall not exceed two years that

demonstrate the employer's continued compliance with this

section. The department shall promulgate rules and regulations

to determine filing times and report requirements. Actions taken

under this subsection shall be subject to the provisions of

section 9(a).

(b)  Applicability of orders.--Stop-work orders under

subsection (a) and penalties under subsection (c) shall be in

effect against any successor corporation or business entity that

has one or more of the same principals or officers as the

employer against whom the stop-work order was issued and which

is engaged in the same or equivalent trade or activity.

(c)  Penalty.--The secretary shall assess a penalty of $1,000

per day against an employer for each day that the employer

conducts business operations that are in violation of a stop-

work order issued under this section.

Section 9.  Procedure.

(a)  Hearings.--Actions taken under sections 7 and 8 are

subject to the right of notice and adjudication and the right of

appeal in accordance with the provisions of 2 Pa.C.S. (relating

to administrative law and procedure).

(b)  Subpoena powers.--The department has the power to

subpoena witnesses, administer oaths, examine witnesses and take

testimony or compel the production of documents. Upon

application of an attorney for the Commonwealth, the department

may issue a subpoena to compel the production of the documents,

computer records and information relating to compliance with the

act.

Section 10.  Commonwealth Court.

The secretary may seek enforcement of any order or subpoena

in the Commonwealth Court.

Section 11.  Certain agreement prohibited.

(a)  Violation.--No person shall require or request that an

individual enter into an agreement or sign a document which

results in the misclassification of the individual as an

independent contractor or otherwise does not accurately reflect

the relationship with the employer.

(b)  Penalty.--A violation of subsection (a) shall be

punishable by a fine of not less than $1,000, nor more than

$2,500. Each violation shall be considered a separate offense

under this section. 

Section 12.  Retaliation for action prohibited.

It shall be unlawful for an employer or any other party to

discriminate in any manner or take adverse action against any

person in retaliation for exercising rights protected under this

act. Rights protected under this act include, but are not

limited to, the right to file a complaint or inform any person

about an employer's noncompliance with this act and the right to

inform any person of the person's potential rights and to assist

the person in asserting those rights. Any person who in good

faith alleges noncompliance with this act shall be afforded the

rights provided by this act, notwithstanding the person's

failure to prevail on the merits. Taking adverse action against

a person within 90 days of the person's exercise of rights

protected under this act shall raise a rebuttable presumption of

having done so in retaliation for the exercise of those rights.

Section 13.  Availability of information.

The department shall create a poster for job sites which

outlines the requirements and penalties under this act and shall

make the poster available on its Internet website. At the

discretion of the secretary, a toll-free hotline telephone

number may be established to receive alleged violations.

Section 14.  Use of penalty funds.

Any assessments and penalties collected pursuant to this act

shall be applied toward implementation, enforcement and

administration costs incurred by the department under this act.

However, the secretary may transfer an agreed-to amount of

moneys collected to the Attorney General to assist in the

enforcement of this act.

Section 15.  Rules and regulations.

The department may promulgate rules and regulations necessary

to implement and administer this act.

Section 16.  Annual report required.

The department shall submit an annual report to the General

Assembly by March 1 of the year following the first full year in

which this act is in effect, and each year thereafter,

detailing, to the maximum extent possible, data on the previous

calendar year's administration and enforcement of this act. The

department may include any relevant facts and statistics that it

believes necessary into the content of the report.

Section 17.  Applicability.

This act shall not be construed to bring an individual within

the scope of the Minimum Wage Act, the Wage Payment and

Collection Law, the Unemployment Compensation Law or the

Workers' Compensation Act if the individual is excluded from the

scope of the appropriate statute.

Section 18.  Severability.

The provisions of this act are severable. If any provision of

this act or its application to any individual or circumstance is

held invalid, the invalidity shall not affect other provisions

or applications of this act which can be given effect without

the invalid provision or application.

Section 19.  Construction of law.

Nothing contained in this act shall be construed to impair or

affect in any manner the ability of the department to carry out

the powers and duties prescribed by the laws of this

Commonwealth or to adopt measures to improve the enforcement of

other laws of this Commonwealth.

Section 20.  Finding.

The department shall commence implementation of this act to

the extent the secretary determines sufficient funds are

available or the General Assembly appropriates additional funds

for purposes of this act.

Section 21.  Effective date.

This act shall take effect in 90 days.