Client Alert - Employment Law Update
Significant Changes to Independent Contractor Relationships in Illinois Construction Industry
Recently, the Illinois General Assembly instituted important changes that will impact many different construction-related businesses, including trucking companies, when it passed a new law. Public Act 095-0026, known as the Illinois Employee Classification Act, will become effective January 1, 2008, and redefines the legal standards for establishing an independent contractor relationship. As a result, many individuals previously classified as independent contractors will have to be treated as employees.
Scope and Effect
| The new law is broadly written to apply to any business engaged in “construction, altering, reconstruction, repairing, rehabilitating, refinishing, refurbishing, remodeling, remediating, renovating . . . wrecking, painting,” as well as those working on streets, bridges, sewers, and even “moving construction related materials on the job site or from the job site.” Unless the requirements of the law are satisfied, businesses will have to begin making payroll deductions, providing workers compensation insurance, unemployment compensation insurance, contributing to benefits plans, and considering the applicability of over-time laws. Employers will have to post notices of the new requirements in English, Spanish, and Polish. |
New Definition of Independent Contractor
Under the new law, an individual performing services for a contractor will be deemed to be an employee unless the following four-part test is satisfied: (1) the individual must be free from control or direction over the performance of the service for the contractor, both under the individual’s contract of service and in fact; (2) the service performed by the individual is outside the usual course of services performed by the contractor; (3) the individual is engaged in an independently established trade, occupation, profession or business; or (4) the individual is deemed a legitimate sole proprietor or partnership. In order to be deemed a sole proprietor or partnership, a business must satisfy a complicated twelve-part test.
Enforcement, Penalties, and Private Rights of Action
The Department of Labor is charged with enforcing the new law, and numerous state agencies including the Department of Employment Security, the Department of Revenue, and the Illinois Workers Compensation Commission are ordered to share information concerning any suspected misclassification. Further, the law creates a private right of action with a provision for the recovery of attorneys fees, allowing any “interested party” to file a lawsuit, including a class action, without first going to the Department of Labor to seek redress. These may be not only employees, but also competitors, labor unions, and anyone that can demonstrate damages resulting from the alleged misclassification. The new law also contains a “whistleblower provision,” which provides for an award of 10% of any amount recovered. Violations will carry penalties of up to $1,500 per day for a first violation, and up to $2,500 per day for each subsequent violation. Willful violations by an employer will subject them to double damages, plus punitive damages and potential criminal prosecution.
What to do
Given the potential and significant liability posed by the new law, construction and construction-related businesses may wish to evaluate their use of independent contractors to ensure their compliance with the new requirements.
If you would like assistance or counsel concerning your independent contractor classification procedures, please contact Mr. Gonzalez at 312-558-9779 or at egonzalez@elvisgonzalezltd.com. |
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