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Senate of Pennsylvania
Session of 2023 - 2024 Regular Session

MEMORANDUM

Posted:	February 1, 2023 04:05 PM
From:	Senator John I. Kane and Sen. Christine M. Tartaglione, Sen. Lindsey M. Williams
To:	All Senate members
Subject:	Improvements to the Construction Worker Misclassification Act

We plan to reintroduce Senate Bill 1056 from the 2021-22 Session to protect workers and taxpayers. This legislature can act to make our Commonwealth a place where workers get paid for the labor they provide, workers are provided with critical benefits that protect them and their loved ones from workplace injury damages, and taxpayers are guaranteed that our money isn’t used to exploit the labor of our neighbor.   Senate Bill 1056 was previously co-sponsored by Senators Hughes, Haywood, Comitta, Santarsiero, Collett, Kearney, Street, Flynn, Fontana, and Cappelletti.   The construction industry is filled with hardworking people. These individuals work every day from sunrise to sunset to build our homes, offices, hospitals, roads, and other critical infrastructure. This industry supplies over 230,000 jobs and has an economic impact of over $1 billion in Pennsylvania, according to the U.S. Bureau of Labor Statistics. Construction jobs should be good, family-sustaining jobs with benefits to Pennsylvanians; however, some contractors intentionally misclassify construction workers as independent contractors.   This misclassification cheats workers out of salaries, benefits, and important worker protections like unemployment and workers compensation. Misclassified workers do not qualify for sick pay. Misclassified workers are not guaranteed paid time off. Misclassified workers are not protected by OSHA. Despite completing the exact same work, misclassified workers receive many fewer protections than their correctly-classified peers.    Misclassification also cheats Pennsylvania taxpayers of revenue. The Keystone Research Center estimates that misclassification of construction employees in Pennsylvania deprives the Commonwealth of $83M in worker compensation premiums, $47M in state income taxes, and $11M in unemployment compensation taxes.   To address this issue, the General Assembly passed Act 72 of 2010, the Construction Workplace Misclassification Act. This legislation prohibits employers from misclassifying workers as independent contractors, using several data points to determine if a worker is an employee or independent contractor. From 2011- 2014 the act was rarely enforced. Since 2015, enforcement has increased -- 777 employers have been found in violation of Act 72, and the Department of Labor and Industry has levied $2.39 million in fines. In 2021, the Delaware County District Attorney and the Attorney General of Pennsylvania filed the first criminal charges under Act 72 of 2010 against a dry wall contractor.   Even with the stepped-up enforcement, this remains a significant problem. Following this first criminal charge, we teamed up with the Attorney General’s office and Delaware County District Attorney to discuss what changes are needed. Our legislation would strengthen and improve Act 72 by increasing penalties on contractors and increase the purview of the Attorney General and District Attorney to investigate and prosecute worker misclassification. We want to make sure working Pennsylvanians get paid what they deserve.   The specific changes we are proposing include:   Add a definition of Debar to Act 72 to allow contractors to be debarred from commonwealth contracting opportunities. Requires the Department of Labor and Industry (DLI) to impose administrative penalties for violations of the act. DLI must debar contractors or subcontractors who violate Act 72 from bidding for state work. DLI will determine if debarment is for a period or permanent. Requires DLI to refer cases to the Office of Attorney General (OAG) if it is a second or subsequent violation of Act 72 by an employer. Clarifies that the OAG may continue to initiate a criminal investigation and prosecution of violations of this act without a referral by DLI. Allows DLI and OAG to seek penalties upstream against contractors that hire subcontractors who violate Act 72. Allows the Secretary of DLI to order a tax or financial audit of companies that violate Act 72. Strengthens the whistleblower protection language of Act 72. It adds a private right of action, reinstatement to employment, restitution, and reasonable attorney’s fees for workers who are misclassified. Enhanced penalties for violations of Act 72 including a Misdemeanor 1 for a first violation and a Felony 3 penalty for second and subsequent violations. Every employer subject to this act must place an informational poster at construction sites in a highly visible and accessible place to workers. Prohibit contractors who have violated Act 72 from bidding on all commonwealth contracts, not only construction contracts. Reduce the number of days that suspected violators have to respond to DLI, OAG, and DA’s requests for information from 20 days to 10 days. Reducing it to 10 days will give investigators the ability to get relevant information more quickly. It also reduces the time that suspected violators have to hinder an investigation. Stronger Private Right of Action language so folks hurt by construction worker misclass can sue for damages, lost wages, and other items. Allows DLI, OAG, and DA’s to recover investigatory costs and attorneys costs from individuals and companies found guilty of violating Act 72.     Several of these proposals were also endorsed by the Joint Task Force on Misclassification of Employees. The Task Force Issued its final report on December 1, 2022.   Misclassifying employees as independent contractors is theft. Employers who misclassify their workers do so to take advantage of them, to steal worker wages and benefits and ignore proper safety protocols and training. Our legislation will prevent the continued exploitation of workers through misclassification and strengthen our existing legislation to protect Pennsylvania’s construction industry.

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