Supreme Court Declines to Hear Challenge of Illinois Independent Contractor Classification Law

On October 14, 2014, the Supreme Court of the United States refused to consider a challenge to the Illinois Employee Classification Act, which classifies workers in the construction industry as employees unless they can meet the detailed requirements of the statute for independent contractor status. The Supreme Court denied the petition for writ of certiorari, meaning that the decision by the Illinois Supreme Court earlier this year will stand.

Background

Jack and Rhonda Bartlow, owners of a construction company named Jack’s Roofing, brought a lawsuit challenging the constitutionality of the Employee Classification Act (the Act). The Illinois Department of Labor (IDOL) had been investigating Jack’s Roofing for misclassification of 10 workers. Jack’s Roofing faced a potential penalty of nearly $1.7 million, although the IDOL never entered a final judgment or attempted to collect the penalty. The Bartlows sought an injunction and declaratory judgment that the Act violated due process and equal protection rights under both the federal and Illinois constitutions.

The Illinois Supreme Court’s Decision

After losing in the trial court and on appeal, the Bartlows took their case to the Illinois Supreme Court, which also rejected their reasoning. The primary arguments considered by the state Supreme Court were constitutional challenges based on procedural due process and vagueness. The court held their due process challenge moot because, during the pendency of the appeal, the Act’s enforcement provisions had been amended to include notice, a formal hearing, and an administrative review processes. Addressing the vagueness challenge to the independent contractor exemptions in the Act, the state Supreme Court determined that the Act afforded a person of ordinary intelligence a reasonable opportunity to understand the independent contractor status terms.

Under the Act, workers must fall within specific statutory criteria to be eligible for independent contractor classification. They must (1) be free from control and direction by the contractor, (2) perform services outside of the usual scope of services performed by the contractor, and (3) be engaged in an independently established business or be a legitimate sole proprietor or partnership under the law, which requires satisfaction of a 12-part test. In addition, as recently set forth by the First District Appellate Court in Michael v. Pella Products, Inc., 2014 IL App (1^st) 132695 (a case in which Ogletree Deakins’ attorneys represented the defendant), entities that meet the test for a “bona fide corporation” pursuant to the IDOL’s regulations are also excluded from the purview of the Act.

Other State Independent Contractor Laws

Many other states have similar independent contractor classification laws, and they have been sources of significant litigation. In Massachusetts, for instance, an even more stringent misclassification law applies to all employers (not just employers in the construction industry). It requires that workers be treated as employees unless they (1) are free from direction and control, (2) perform service outside of the usual area of business of the employer, and(3) are customarily engaged in an independently established business in the nature of the service performed.

The Effects of the Supreme Court’s Denial

Although the Supreme Court of the United States did not provide an explanation for declining to hear the appeal, its decision allows the Illinois Supreme Court’s ruling to stand, and the terms of the Act remain in full force. The Supreme Court’s decision not to address this Act could have an impact on already-increased misclassification litigation across the country. For Illinois employers, it confirms that they must be exceedingly careful in classifying individuals as independent contractors in the construction industry. And, it further serves as a reminder to all employers, even those outside of the construction industry in Illinois, to ensure that they properly classify workers in compliance with state misclassification laws, which remain a potent source of audit and litigation.