PRINTER'S NO. 3545
No. 2400 Session of 2008
INTRODUCED BY LENTZ, BELFANTI, GERBER, DiGIROLAMO, W. KELLER, McCALL, EACHUS, CAPPELLI, MUSTIO, SWANGER, 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 AND J. WHITE, APRIL 3, 2008
REFERRED TO COMMITTEE ON LABOR RELATIONS, APRIL 3, 2008
AN ACT 1 Providing for the proper classification of employees for certain 2 purposes; and imposing penalties. 3 The General Assembly of the Commonwealth of Pennsylvania 4 hereby enacts as follows: 5 Section 1. Short title. 6 This act shall be known and may be cited as the Employee 7 Misclassification Prevention Act. 8 Section 2. Legislative intent. 9 The General Assembly finds that employers who improperly 10 classify employees as independent contractors deprive these 11 workers of benefits, while reducing the employers' Federal and 12 State tax withholdings and related obligations. This practice 13 puts businesses who comply with applicable law at a competitive
1 disadvantage with those that do not follow the law. 2 Section 3. Definitions. 3 The following words and phrases when used in this act shall 4 have the meanings given to them in this section unless the 5 context clearly indicates otherwise: 6 "Department." The Department of Labor and Industry of the 7 Commonwealth. 8 "Employer." The term includes any individual, partnership, 9 association, joint stock company, corporation, business trust or 10 any other person or groups of persons acting directly or 11 indirectly in the interest of an employer in relation to an 12 employee. 13 "Secretary." The Secretary of Labor and Industry of the 14 Commonwealth or the secretary's authorized representative. 15 Section 4. Performance of services. 16 (a) Applicability.--Services performed by an individual for 17 wages shall be deemed to be employment subject to this act, and 18 the individual shall be considered an employee of the party that 19 pays the wages, unless and until it is shown to the satisfaction 20 of the department that: 21 (1) the individual has been and will continue to be free 22 from direction and control of the employer, both under 23 contract of service and in fact; 24 (2) the service is outside the usual course of the 25 individual's business of the employer; and 26 (3) the individual is customarily engaged in an 27 independently established trade, occupation, profession or 28 business. 29 (b) Factor not to be considered.--The failure to withhold 30 Federal or State income taxes or to pay unemployment 20080H2400B3545 - 2 -
1 compensation contributions or workers' compensation premiums 2 with respect to an individual's wages shall not be considered in 3 making a determination under this section. 4 Section 5. Improper classification of employees. 5 (a) Violation.--An employer, or an officer or agent of the 6 employer, that fails to properly classify an individual as an 7 employee in accordance with section 4 for purposes of the act of 8 June 2, 1915 (P.L.736, No.338), known as the Workers' 9 Compensation Act, the act of December 5, 1936 (2nd Sp.Sess., 10 1937 P.L.2897, No.1), known as the Unemployment Compensation 11 Law, and Article III of the act of March 4, 1971 (P.L.6, No.2), 12 known as the Tax Reform Code of 1971, or fails to pay benefits 13 or other contributions required by law shall be subject to the 14 penalties, remedies or actions contained in this act. 15 (b) Enforcement.--When the secretary finds that an employer 16 has violated a provision of this act, the secretary shall refer 17 the matter to the Office of Attorney General for investigation 18 and prosecution. Nothing in this act shall be deemed to limit 19 the authority of the Attorney General to investigate and 20 prosecute violations of this act. 21 Section 6. Criminal penalties. 22 (a) Knowing violation.--An employer, or an officer or agent 23 of the employer, that knowingly violates section 5(a) commits a 24 felony of the third degree and shall, upon conviction, be 25 sentenced to pay a fine of not more than $15,000 or to 26 imprisonment for not more than three and one-half years for a 27 first offense, or both, and to pay a fine of not more than 28 $30,000 or to imprisonment for not more than seven years, or 29 both, for a subsequent offense. 30 (b) Unintentional violation.--An employer, or an officer or 20080H2400B3545 - 3 -
1 agent of the employer, that unintentionally violates section 2 5(a) commits a misdemeanor of the third degree and shall, upon 3 conviction, be sentenced to pay a fine of not more than $2,500 4 or to imprisonment for not more than 180 days for a first 5 offense, or both, and to pay a fine of not more than $5,000 or 6 to imprisonment for not more than one year, or both, for a 7 subsequent offense. 8 Section 7. Civil actions and remedies. 9 (a) Debarment.--If the secretary determines, after notice 10 and hearing, that an employer, or an officer or agent of the 11 employer, has failed to properly classify an individual as an 12 employee or failed to pay required benefits or other 13 contributions as required in section 5, or upon the conviction 14 for a violation of this act, the secretary shall notify all 15 public bodies in this Commonwealth of the name of the employer, 16 and no contract shall be awarded to the employer or to any firm, 17 corporation or partnership in which the employer has an interest 18 until a period of up to three years, as determined by the 19 secretary, has elapsed from the date of the notice. 20 (b) Administrative penalties.--As an alternative to or in 21 addition to any other sanctions provided by law for a violation 22 of this act, when the secretary finds that an employer has 23 violated this act, the secretary is authorized to assess and 24 collect administrative penalties up to a maximum of $2,500 for 25 the first violation and up to a maximum of $5,000 for each 26 subsequent violation. When determining the amount of the penalty 27 imposed because of a violation, the secretary shall consider 28 factors which include the history of previous violations by the 29 employer, the seriousness of the violation, the good faith of 30 the employer and the size of the employer's business. Each 20080H2400B3545 - 4 -
1 employee misclassified by the employer shall constitute a 2 separate offense. 3 (c) Actions by employees.--An individual who has not been 4 properly classified as an employee may bring a civil action for 5 damages against the employer for failing to properly classify 6 the employee if the employer had knowledge of the 7 misclassification. An individual's representative, including a 8 labor organization, may bring the action on behalf of the 9 individual or as a class action. The court may award attorney 10 fees and other costs of the action in addition to damages to an 11 individual or class of individuals who have not been properly 12 classified as employees in violation of section 5(a). 13 Section 8. Stop-work orders. 14 (a) Issuance of order.--If the secretary determines, after 15 notice and hearing, that an employer failed to properly classify 16 an individual as an employee or has failed to pay required 17 benefits or other contributions as required in section 5, the 18 secretary shall issue a stop-work order requiring the cessation 19 of all business operations within 72 hours of the determination. 20 The order shall take effect when served upon the employer or, 21 for a particular employer worksite, when served at the worksite. 22 The order shall remain in effect until the secretary issues an 23 order releasing the stop-work order or upon finding that the 24 employer has properly classified the individual as an employee. 25 The employer shall file with the department periodic reports for 26 a probationary period that shall not exceed two years that 27 demonstrate the employer's continued compliance with this 28 section. The department shall promulgate rules and regulations 29 to determine filing times and report requirements. 30 (b) Applicability of orders.--Stop-work orders under 20080H2400B3545 - 5 -
1 subsection (a) and penalties under subsection (c) shall be in 2 effect against any successor corporation or business entity that 3 has one or more of the same principals or officers as the 4 employer against whom the stop-work order was issued and which 5 is engaged in the same or equivalent trade or activity. 6 (c) Penalty.--The secretary shall assess a penalty of $1,000 7 per day against an employer for each day that the employer 8 conducts business operations that are in violation of a stop- 9 work order issued under this section. 10 (d) Additional penalty.--In addition to any other penalties 11 provided for in this section, the secretary may assess against 12 any employer a penalty of $5,000 for each individual whom that 13 employer failed to properly classify as an employee under 14 section 5(a). 15 Section 9. Procedure. 16 (a) Hearings.--Actions taken under sections 7 and 8 are 17 subject to the right of notice and adjudication and the right of 18 appeal in accordance with the provisions of 2 Pa.C.S. (relating 19 to administrative law and procedure). 20 (b) Subpoena powers.--The department has the power to 21 subpoena witnesses, administer oaths, examine witnesses and take 22 testimony or compel the production of documents. Upon 23 application of an attorney for the Commonwealth, the department 24 may issue a subpoena to compel the production of the documents, 25 computer records and information relating to compliance with the 26 act. 27 Section 10. Commonwealth Court. 28 The secretary may seek enforcement of any order or subpoena 29 in the Commonwealth Court. 30 Section 11. Certain agreement prohibited. 20080H2400B3545 - 6 -
1 No person shall require or request that an individual enter 2 into an agreement or sign a document which results in the 3 misclassification of the individual as an independent contractor 4 or otherwise does not accurately reflect the relationship with 5 the employer. 6 Section 12. Retaliation for action prohibited. 7 It shall be unlawful for an employer or any other party to 8 discriminate in any manner or take adverse action against any 9 person in retaliation for exercising rights protected under this 10 act. Rights protected under this act include, but are not 11 limited to, the right to file a complaint or inform any person 12 about an employer's noncompliance with this act and the right to 13 inform any person of the person's potential rights and to assist 14 the person in asserting those rights. Any person who in good 15 faith alleges noncompliance with this act shall be afforded the 16 rights provided by this act, notwithstanding the person's 17 failure to prevail on the merits. Taking adverse action against 18 a person within 90 days of the person's exercise of rights 19 protected under this act shall raise a rebuttable presumption of 20 having done so in retaliation for the exercise of those rights. 21 Section 13. Use of penalty funds. 22 Any sum collected as a penalty pursuant to this act shall be 23 applied toward enforcement and administration costs of the 24 department. 25 Section 14. Rules and regulations. 26 The department may promulgate rules and regulations necessary 27 to implement this act. 28 Section 15. Effective date. 29 This act shall take effect July 1, 2008, or in 60 days, 30 whichever is later. D1L43BIL/20080H2400B3545 - 7 -