ATTENTION ALL CONSTRUCTION CONTRACTORS!!!

Illinois’ NEW Employee Classification Act:

On August 6, 2007, Governor Blagojevech signed H.B. 1795, creating Illinois law that will seek to penalize and punish any individual or entity that misclassifies any worker as an “independent contractor” on construction related projects. The term construction is liberally defined. This Act will become effective January 1, 2008.

This new law could be disastrous for the construction industry in Illinois. In fact, Senior WP&S Attorney and Shareholder Jeffrey A. Risch worked tirelessly along side the Illinois Chamber of Commerce, the Associated Builders and Contractors of Illinois and the Midwest Truckers Association for advice and consultation in their collective efforts opposing the passage of this new law. Despite these efforts, organized labor simply had the votes to eventually pass this law. Based on Gov. Blagojevech’s strong support from organized labor, his signature was expected.

According to the Act, an individual performing services for a contractor is deemed to be an employee of the contractor, unless the contractor can prove:

1. the individual has been and will continue to 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; and
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.

The Act further provides that subcontractors or lower tiered contractors are subject to all provisions of the Act. The Illinois Department of Labor will administer and enforce the law. The IDOL has broad subpoena and investigatory powers, and will certainly make this new law one of its top priorities. It is also anticipated that the IDOL will enforce this new law in conjunction with Illinois Prevailing Wage Law in an effort to try and shift liability for state prevailing wage violations to the general contractor or upper tier contractor to the greatest extent possible.

It is a violation of the Act for an employer or entity not to designate an individual as an employee unless the employer or entity satisfies the provisions of the Act. Pursuant to the Act, civil penalties of $1,500.00 can be issued for each violation found in a first audit and $2,500.00 for each violation found in any subsequent audit within a 5 year period. Under the Act, a VIOLATION means each person misclassified and each day the misclassification took place. Willful violations allow for PUNITIVE DAMAGES equal to civil penalties. Also, any individual or interested third party can file a private right of action in circuit court and seek damages and injunctive relief. Any person whose rights have been violated under the Act can recover any unpaid wages, overtime, employment benefits, liquidated damages equal to any compensatory loss, as well as $500 per day for each violation, and can also recover attorneys’ fees and costs. ADDITIONALLY, THE ACT REQUIRES COOPERATION AND SHARING OF INFORMATION between the Illinois Department of Labor, Illinois Department Employment Security, Illinois Department of Revenue, Illinois State Comptroller, and Illinois Workers Compensation Commission. Therefore, there is an absolute premium for any construction contractor to become intimately familiar with this new law. Any contractor that utilizes a subcontractor must be certain that the subcontractor is truly a bona fide “independent contractor.”

Wessels Pautsch & Sherman P.C. is well known for its independent contractor/contingent workforce practice. We have litigated these types of issues in venues throughout the United States. We have written countless articles and books on related issues, and regularly teach fellow attorneys on the “ins and outs” of this hot-button area of law. With this in mind, please do not hesitate to contact Nancy Joerg or Jeffrey Risch in the St. Charles, Illinois office at (630) 377-1554 concerning any independent contractor/contingent workforce matter.