CONSTRUCTION WORKPLACE MISCLASSIFICATION ACT - ENACTMENT
                  Act of Oct. 13, 2010, P.L. 506, No. 72              Cl. 63
                             Session of 2010
                               No. 2010-72

     HB 400

                                  AN ACT

     Providing for the criteria for independent contractors in the
        construction industry and for the powers and duties of the
        Department of Labor and Industry and the Secretary of Labor
        and Industry; and imposing penalties.
     Section 1.  Short title.
        This act shall be known and may be cited as the Construction
     Workplace Misclassification Act.
     Section 2.  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 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.
        "Employee."  Either of the following:
            (1)  In relation to workers' compensation, the term shall
        have the meaning given to it in section 104 of the act of
        June 2, 1915 (P.L.736, No.338), known as the Workers'
        Compensation Act.
            (2)  In relation to unemployment compensation, the term
        shall have the meaning given to it in section 4(i) of the act
        of December 5, 1936 (2nd Sp.Sess., 1937 P.L.2897, No.1),
        known as the Unemployment Compensation Law.
        "Employer."  Either of the following:
            (1)  In relation to workers' compensation, the term shall
        have the meaning given to it in section 103 of the act of
        June 2, 1915 (P.L.736, No.338), known as the Workers'
        Compensation Act.
            (2)  In relation to unemployment compensation, the term
        shall have the meaning given to it in section 4(j) of the act
        of December 5, 1936 (2nd Sp.Sess., 1937 P.L.2897, No.1),
        known as the Unemployment Compensation Law.
        "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.
        "Workers' Compensation Act."  The act of June 2, 1915
     (P.L.736, No.338), known as the Workers' Compensation Act.
     Section 3.  Independent contractors.
        (a)  General rule.--For purposes of workers' compensation,
     unemployment compensation and improper classification of
     employees provided herein, an individual who performs services
     in the construction industry for remuneration is an independent
     contractor only if:
            (1)  The individual has a written contract to perform
        such services.
            (2)  The individual is free from control or direction
        over performance of such services both under the contract of
        service and in fact.
            (3)  As to such services, the individual is customarily
        engaged in an independently established trade, occupation,
        profession or business.
        (b)  Criteria.--An individual is customarily engaged in an
     independently established trade, occupation, profession or
     business with respect to services the individual performs in the
     commercial or residential building construction industry only
     if:
            (1)  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.
            (2)  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.
            (3)  The individual performs the services through a
        business in which the individual has a proprietary interest.
            (4)  The individual maintains a business location that is
        separate from the location of the person for whom the
        services are being performed.
            (5)  The individual:
                (i)  previously performed the same or similar
            services for another person in accordance with paragraphs
            (1), (2), (3) and (4) while free from direction or
            control over performance of the services, both under the
            contract of service and in fact; or
                (ii)  holds himself out to other persons as available
            and able, and in fact is available and able, to perform
            the same or similar services in accordance with
            paragraphs (1), (2), (3) and (4) while free from
            direction or control over performance of the services.
            (6)  The individual maintains liability insurance during
        the term of this contract of at least $50,000.
        (c)  Factors not to be considered.--The failure to withhold
     Federal or State income taxes or pay unemployment compensation
     contributions or workers' compensation premiums with respect to
     an individual's remuneration shall not be considered in
     determining whether the individual is an independent contractor
     for purposes of the Workers' Compensation Act or the
     Unemployment Compensation Law.
        (d)  Workers' compensation.--
            (1)  An individual who is an independent contractor as
        determined under this section is not an employee for purposes
        of the Workers' Compensation Act. For purposes of this
        section, each employment relationship shall be considered
        separately.
            (2)  Nothing in this act shall be construed to affect
        section 321(2) of the Workers' Compensation Act.
        (e)  Unemployment compensation.--
            (1)  For purposes of section 4(l)(2)(B) of the
        Unemployment Compensation Law, an individual is customarily
        engaged in an independently established trade, occupation,
        profession or business with respect to services the
        individual performs in the construction industry only if the
        criteria in subsection (b) are satisfied.
            (2)  Except as provided in paragraph (1), nothing in this
        act shall be construed to affect any exclusion from
        "employment" as defined in the Unemployment Compensation Law.
     Section 4.  Improper classification of employees.
        (a)  Violation.--An employer, or officer or agent of an
     employer, shall be in violation of this act and shall be subject
     to the penalties, remedies and actions contained in this act if
     the employer, officer or agent:
            (1)  fails to properly classify an individual as an
        employee for purposes of the Workers' Compensation Act and
        fails to provide the coverage required under the Workers'
        Compensation Act; or
            (2)  fails to properly classify an individual as an
        employee for purposes of the Unemployment Compensation Law
        and fails to pay contributions, reimbursements or other
        amounts required to be paid under the Unemployment
        Compensation Law.
        (b)  Separate offenses.--Each individual who is not properly
     classified as an employee shall be the basis of a separate
     violation of this section.
        (c)  Order to show cause.--
            (1)  If the secretary receives information indicating
        that any person has violated this act, the secretary may
        investigate the matter and issue an order to show cause why
        the person should not be found in violation of this act.
            (2)  A person served with an order to show cause shall
        have a period of 20 days from the date the order is served to
        file an answer in writing.
            (3)  If the person fails to file a timely and adequate
        answer to the order to show cause, the secretary may,
        following notice and hearing, do any of the following:
                (i)  petition a court of competent jurisdiction to
            issue a stop-work order as provided in section 7; or
                (ii)  immediately assess penalties as provided in
            section 6.
        (d)  Enforcement.--If, subsequent to issuing an order to show
     cause under subsection (c), the secretary finds probable cause
     that an employer has committed a criminal violation of this act,
     the secretary shall refer the matter to the Office of Attorney
     General for investigation or impose administrative penalties
     under section 6.
        (e)  Acting in concert with other parties.--A party that does
     not meet the definition of "employer" in section 2, but which
     intentionally 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.
        (f)  Defense.--It shall be a defense to an alleged violation
     of this section if the person for whom the services are
     performed in good faith believed that the individual who
     performed the services qualified as an independent contractor at
     the time the services were performed.
     Section 5.  Criminal penalties.
        (a)  Grading.--An employer, or officer or agent of an
     employer, that intentionally violates section 4(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 an
     employer, that negligently fails to properly classify an
     individual as an employee under section 4(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 intent under
     subsection (a).
        (c)  Concurrent jurisdiction.--
            (1)  The Attorney General shall have concurrent
        prosecutorial jurisdiction with the district attorney of the
        appropriate county for violations under this section and any
        offense arising out of the activity prohibited by this
        section.
            (2)  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.
     Section 6.  Administrative penalties.
        (a)  General rule.--When the secretary finds that a person
     has violated this act, the secretary may assess and collect
     civil penalties of not more than $1,000 for the first violation,
     and not more than $2,500 for each subsequent violation.
        (b)  Factors to be considered.--When determining the amount
     of the penalty to be imposed, the secretary shall consider
     factors including, but not limited to:
            (1)  The history of previous violations by the employer.
            (2)  The seriousness of the violation.
            (3)  The good faith of the employer.
            (4)  The size of the employer's business.
     Section 7.  Stop-work orders.
        (a)  Issuance of order.--
            (1)  If the secretary determines, subsequent to the
        issuance of an order to show cause under section 4(c), that
        an employer, or officer or agent of the employer, has
        intentionally failed to properly classify an individual as an
        employee under section 4(a), the secretary may petition a
        court of competent jurisdiction to issue a stop-work order
        requiring the cessation of work by individuals who are
        improperly classified within 24 hours of the effective date
        of the order, or in the event that a majority of individuals
        working at a site are improperly classified, requiring the
        cessation of all business operations of that employer at each
        site at which a violation occurred within 24 hours of the
        effective date of the order.
            (2)  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
        court issues an order releasing the stop-work order or upon
        finding that the employer, or officer or agent of the
        employer, is no longer in violation of this act.
            (3)  An order releasing a stop-work order may include a
        requirement that the employer file with the department
        periodic reports for a probationary period that shall not
        exceed two years demonstrating the employer's continued
        compliance with this act.
        (b)  Applicability of orders and penalties.--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 or
     penalties imposed and which is engaged in the same or equivalent
     trade or activity.
        (c)  Penalty.--The court 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 8.  Procedure.
        (a)  Hearings.--Actions taken under sections 4(c) and 6 shall
     be subject to the provisions of 2 Pa.C.S. (relating to
     administrative law and procedure).
        (b)  Subpoena powers.--The department shall have the power to
     subpoena witnesses, administer oaths, examine witnesses and take
     testimony or compel the production of documents. The secretary
     may petition the Commonwealth Court to enforce any order or
     subpoena issued under this act.
     Section 9.  Certain agreement prohibited.
        (a)  Violation.--No person shall require or demand that an
     individual enter into an agreement or sign a document which
     results in the improper classification of that individual as an
     independent contractor.
        (b)  Penalty.--A violation of subsection (a) shall be
     punishable by an administrative fine of not less than $1,000 and
     not more than $2,500. Each violation shall be considered a
     separate offense under this section.
     Section 10.  Retaliation for action prohibited.
        (a)  General rule.--It shall be unlawful for an employer, or
     officer or agent of an employer, 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.
        (b)  Good faith allegations of noncompliance.--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.
        (c)  Rebuttable presumptions.--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 11.  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 12.  Use of penalty funds.
        Any sum collected as a penalty under:
            (1)  Sections 6, 7 and 9 for a violation of section
        4(a)(1) shall be paid into the Workers' Compensation
        Administration Fund.
            (2)  Sections 6, 7 and 9 for a violation of section
        4(a)(2) shall be paid into the Special Administration Fund
        created under section 601.1 of the Unemployment Compensation
        Law.
            (3)  Section 9 for a violation of any other provision of
        this act shall be divided equally between the Workers'
        Compensation Administration Fund and the Special
        Administration Fund.
     Section 13.  Rules and regulations.
        The department may promulgate rules and regulations necessary
     to implement this act.
     Section 14.  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 in the content of the report.
     Section 15.  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 16.  Construction of law.
        (a)  Other laws.--Nothing contained in this act shall be
     construed to impair or affect in any manner the ability of the
     department and secretary to carry out the powers and duties
     prescribed by the laws of this Commonwealth.
        (b)  Other industries.--The department is not precluded from
     finding misclassification in any industry on the basis of the
     laws of this Commonwealth.
     Section 17.  Funding.
        The department shall not be required to enforce this act
     until adequate funding is appropriated.
     Section 30.  Effective date.
        This act shall take effect in 120 days.