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Why Are Illinois Employers "Guilty Until Proven Innocent" When They Are Audited by the Illinois Department of Employment Security?

August 2014

By: Nancy E. Joerg, Esq.

Over the twenty-five years that I have been working with Illinois employers who are faced with an Illinois Department of Employment Security (IDES) audit, one of the most frequent comments I hear from my employer client is " Why am I guilty until proven innocent?!? "

It is understandable that clients feel this way. They are put in a position that they must prove to the IDES auditor that workers (who they deem to be independent contractors) are not their employees.

Section 212 (A), (B) and (C) of the Illinois Unemployment Insurance Act (Section 212 hereinafter) states that:

Service performed by an indi­vidual (i.e., the proposed independent contractor) for an employing unit, whether or not such individual employs others in connection with the per­formance of such services, shall be deemed to be in employment unless and until it is proven in any proceeding where such issue is involved that -

A. Such individual has been and will continue to be free from control or direction over the performance of such services, both under his contract of service and in fact; and

B. Such service is either outside the usual course of the business for which such service is performed or that such service is performed outside of all the places of business of the enterprise for which such service is performed; and

C. Such individual is engaged in an independently established trade, occu­pation, profession, or busi­ness. [Emphasis added]

Under Section 212, the company being audited must actually prove to the IDES auditor that the individual/worker at issue (the IDES uses the term "individual" and "worker" as supposedly neutral terms when the controversy is about the independent contractor issue) is not an employee. In other words, that company must think "What kind of documents can we keep in the file in case the IDES contacts us and demands that we prove that this person is not our employee?"

Being put in this position naturally infuriates my clients. They become very upset and make comments like "This is America, but this sure doesn't feel like it." or "What is the state of Illinois trying to do, wreck my business?" or "Doesn't the IDES realize that I am employing people and that they are going to destroy our company, and more people will then be unemployed?"

After the client has vented and expressed all of these very understandable feelings, I try to direct the client's attention to the task at hand which is gathering proof, hopefully documents, that this particular worker at issue is not the company's employee, but is rather an independent contractor under Section 212.

The company-NOT the auditor-is carrying the burden of proof. This means that the auditor can simply say to the company "I am willing to consider that this worker is an independent contractor, but you have to prove to me that this person is in fact self-employed with his or her own business, with his or her own place business, is not in the same course of business as the company, and is independently established as his/her own business."

The moral of this story is to understand your legal position when you are audited by the Illinois Department of Employment Security. The company being audited should not play "hide the ball" from the auditor. The company must actively participate in the audit process and produce proof that the workers in question are actually independent contractors under Section 212.

If any readers of this article would like a free copy of Section 212 and its regulations, please contact legal assistant Tammy Nelson at 630-377-1554 or via email attanelson@wesselssherman.com.

For assistance with IDES audits, hearings, and independent contractor agreements (or for consultations on limiting your liability in the use of independent contractors), contact Attorney Nancy E. Joerg, who enjoys a nationwide reputation in working with companies who use Independent Contractors of all types. Nancy Joerg can be reached at Wessels Sherman's St. Charles, Illinois office: 630-377-1554 or email her at najoerg@wesselssherman.com.