New York Law Attacks Misclassification of Independent Contractors in Construction Industry

On August 27, Governor David Paterson signed the Construction Industry Fair Play Act (S. 5847F) which creates a presumption that all construction workers are employees, unless they meet the following three criteria:

• The employee is “free from control and direction in performing the job, both under his or her contract and in fact”;
• The employee’s services “must be performed outside the usual course of business for which the service is performed”; and
• The employee is “customarily engaged in an independently established trade, occupation, profession, or business that is similar to the service at issue.”

The law also sets out 12 criteria to determine when a business entity is considered a separate business entity from the contractor, and therefore subject to the terms of this law.

The law also requires contractors to post a written notice (describing the rights and responsibilities of independent contractors and employees and the contact information for filing complaints). The notice is scheduled to be drafted by the New York Department of Labor within 30 days of the effective date of the bill. The penalties for violating these obligations are $1,500 per violation, and $5,000 for subsequent violations.

Further, the law sets a first violation civil penalty of $2,500 per employee for willful misclassification as an independent contractor and up to $5,000 per employee for subsequent violations within a five-year period. The law also includes criminal penalties for willful violations of 30 days in prison or a fine up to $25,000 with increasing penalties for subsequent offenses. Similar penalties will be assessed against certain complacent officers and shareholders; additional penalties will be assessed when an employer’s violation results in the contractor’s failure to pay unemployment insurance tax, workers’ compensation premiums, or corporate or personal income tax; and disqualification from bidding on public contracts will be assessed for one to five years.

The law also provides a civil cause of action for employees (who can recover lost wages, treble damages, and attorneys’ fees).

Retaliation against any employee who asserts his or her rights under this law is prohibited. The act takes effect on October 26, 2010.