by Martin J. Saunders
Proper classification of workers as employees or independent contractors is an
issue which frequently confronts employers. Failure to properly classify a
worker can result in the employer being liable for the worker's portion of
income and payroll taxes which the employer should have withheld. Additionally,
workers have used the Fair Labor Standards Act, and other laws, to challenge
their classification; claiming that misclassification as an independent
contractor has resulted in denial of wages and benefits they properly were
The consequences for misclassification have been almost exclusively monetary,
regardless of whether the challenge came from a taxing authority or a worker.
The risk of such challenge was low. The rewards for misclassification were a
reduction in the employer's tax obligations and a savings in its wages and
benefits costs. Criminal liability was not a consideration for an
Effective February 1, 2011, Pennsylvania increased the price employers in the
construction industry might be required to pay for misclassification of
The Construction Workplace Misclassification Act defines its scope of coverage
to include the erection, demolition, alteration, custom fabrication, building,
assembly, site preparations and repair work on any real property or premises -
broad enough to encompass pad development etc. in the oil and gas fields. This
Act provides that for purposes of unemployment compensation law and workers'
compensation, an individual who performs services in the construction industry
for rumination may be classified as an independent contractor only if the
individual has a written contract to perform such services, is free from
direction over performance of such services, and is customarily engaged in an
independently established trade, occupation, profession or business of
providing such services. Individuals only will be deemed to be engaged in
an independently established trade, occupation, profession or business in the commercial
or residential building construction industry if they:
The failure to withhold
taxes or pay workers' compensation or unemployment compensation contributions,
moreover, will not be considered in determining whether an individual
is properly classified.
An employer, its officer or agent, failing to properly classify an individual,
provide coverage or pay contributions for unemployment or workers'
compensation, violates the Act unless they, in good faith, believe that the
individual qualifies as an independent contractor. Similarly, a person who is
not an employer violates the Act by contracting with an employer knowing that
the employer intends to misclassify a worker.
Intentional violation of the Act constitutes a misdemeanor. Negligent
violation of the Act constitutes a summary offense. Alleged violation of
the Act will be referred to the Secretary of Labor and Industry for
investigation, who may issue an order to show cause why a violation should not
be found. After a hearing, the Secretary may impose civil penalties of $1,000
to $2,500, seek a stop work order, or refer the matter to the Attorney General
or District Attorney for criminal prosecution.
Finally, the Act prohibits retaliation for making a good faith complaint about
misclassification or providing information on non-compliance. Adverse
action taken within 90 days of protected activity creates a rebuttable
presumption of retaliation.
This Act attempts to level the playing field between contractors who have
followed the rules and those who have not. In light of this statute,
Pennsylvania construction contractors now have civil and criminal incentives to
review and ensure that their workers are properly classified.
Copyright © 2011 Steptoe & Johnson PLLC. All rights
This Blog has been prepared by
Steptoe & Johnson PLLC for informational purposes only and the content
contained herein is not offered as legal advice. This is an advertisement and
the information contained herein is not intended to create, and receipt thereof
does not establish a lawyer-client relationship. Internet subscribers and
online readers should not act upon the information contained herein without
seeking professional counsel. Do not send information to us until you speak
with one of our lawyers and obtain authorization to do so. Unsolicited
information that you send to us will not be treated as confidential and may be
disclosed to others. Please contact Steptoe & Johnson PLLC at (304)
933-8000 if you have any questions.