Bill Text: PA HB400 | 2009-2010 | Regular Session | Amended

NOTE: There are more recent revisions of this legislation. Read Latest Draft

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Bill Title: Providing for the criteria for independent contractors in the construction industry and for the powers and duties of the Department of Labor and Industry and the Secretary of Labor and Industry; and imposing penalties.

Spectrum: Moderate Partisan Bill (Democrat 65-13)

Status: (Passed) 2010-10-13 - Act No. 72 [HB400 Detail]

Download: Pennsylvania-2009-HB400-Amended.html

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PRIOR PRINTER'S NOS. 1162, 1652 PRINTER'S NO. 1707
THE GENERAL ASSEMBLY OF PENNSYLVANIA
HOUSE BILL
No. 400 Session of2009
INTRODUCED BY LENTZ, BELFANTI, M. SMITH, EACHUS, BARBIN, BARRAR, BRENNAN, BRIGGS, BUXTON, CALTAGIRONE, CARROLL, CIVERA, CONKLIN, D. COSTA, P. COSTA, CRUZ, DALEY, DeLUCA, DePASQUALE, DeWEESE, DiGIROLAMO, DRUCKER, J. EVANS, FRANKEL, FREEMAN, GALLOWAY, GEORGE, GERBER, GERGELY, GIBBONS, GODSHALL, GOODMAN, GRUCELA, HALUSKA, HARKINS, HORNAMAN, JOSEPHS, W. KELLER, KIRKLAND, KORTZ, MANDERINO, MANN, MARSHALL, McCALL, McGEEHAN, McILVAINE SMITH, MELIO, MICOZZIE, MUNDY, MURPHY, MURT, MUSTIO, MYERS, M. O'BRIEN, PASHINSKI, PAYTON, PERZEL, PETRARCA, PETRI, PRESTON, SABATINA, SANTARSIERO, SEIP, SIPTROTH, SOLOBAY, STURLA, J. TAYLOR, VEREB, WAGNER, WALKO, WANSACZ, WHITE, YOUNGBLOOD, BURNS, BOYLE AND BRADFORD, MARCH 19, 2009
AS AMENDED ON SECOND CONSIDERATION, HOUSE OF REPRESENTATIVES, APRIL 29, 2009
AN ACT
Providing for the criteria for independent contractors in the
construction industry; and imposing penalties.
The General Assembly of the Commonwealth of Pennsylvania
hereby enacts as follows:
Section 1. Short title.
This act shall be known and may be cited as the Construction
Workplace Fraud Act.
Section 2. Legislative intent.
The General Assembly finds that increasingly employers in the
construction industry are improperly classifying employees as
independent contractors or paying unreported compensation in
order to evade their responsibilities as employers with respect
to compliance with Federal and State laws. These actions also
deprive these workers of Social Security benefits and other
benefits, including overtime pay, while reducing the employers'
Federal and State tax withholdings and related obligations.
These practices put employers that bear higher business costs
for complying with applicable law at a competitive disadvantage
with those who do not follow the law. In order to restrict these
actions, the General Assembly hereby finds the need to enact
clear statutory guidelines for the construction industry to
define the difference between an independent contractor and an
employee for purposes of applicable laws. The General Assembly
further finds a need to enact stiff criminal and civil penalties
for employers who knowingly and intentionally misclassify
employees as independent contractors in order to ensure that the
practice is not financially advantageous to those employers as
they compete against employers that are in compliance with the
law.
Section 3. Definitions.
The following words and phrases when used in this act shall
have the meanings given to them in this section unless the
context clearly indicates otherwise:
"Construction." Erection, reconstruction, demolition,
alteration, modification, custom fabrication, building,
assembling, site preparation and repair work or maintenance work
done on any real property or premises under contract, whether or
not the work is for a public body and paid for from public
funds.
"Department." The Department of Labor and Industry of the
Commonwealth.
"Employer." The term includes any individual, partnership,
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association, joint stock company, corporation, business trust or
any other person or groups of persons acting directly or
indirectly in the interest of an employer in relation to an
employee and who is engaging in or performing services in the
commercial or residential building construction industry for
remuneration.
"Minimum Wage Act." The act of January 17, 1968 (P.L.11,
No.5), known as The Minimum Wage Act of 1968.
"Remuneration." All compensation including, but not limited
to, wages and employee benefits paid to an employee.
"Secretary." The Secretary of Labor and Industry of the
Commonwealth or the secretary's authorized representative.
"Unemployment Compensation Law." The act of December 5, 1936
(2nd Sp.Sess., 1937 P.L.2897, No.1), known as the Unemployment
Compensation Law.
"Wage Payment and Collection Law." The act of July 14, 1961
(P.L.637, No.329), known as the Wage Payment and Collection Law.
"Workers' Compensation Act." The act of June 2, 1915
(P.L.736, No.338), known as the Workers' Compensation Act.
Section 4. Certain services deemed employment and exceptions.
(a) General rule.--For purposes of the Minimum Wage Act, the
Wage Payment and Collection Law, the Unemployment Compensation
Law and the Workers' Compensation Act, an individual engaging in
or performing services in the commercial or residential building
construction industry for remuneration is presumed to be an
employee unless:
(1) the individual has been and will continue to be is <--
free from control or direction over performance of such
services both under the contract of service and in fact; and
(2) as to such services, the individual is customarily
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engaged in an independently established trade, occupation,
profession or business.
(b) Independent contractor criteria.--An individual engaging
in or performing services in the commercial or residential
building construction industry for remuneration shall be deemed
an independent contractor if the individual can demonstrate, by
credible evidence, that the individual meets all of the
following criteria:
(1) Maintains a separate business location that is
separate from the location of the person or entity for whom
services are being performed, with the individual's own
office, and operates with owned or leased equipment and other
facilities. For purposes of this paragraph, an office may be <--
maintained in the individual's residence if the individual is
licensed to perform the specific kind and quality of work
required by the contracts specified in this subsection by all
State and local licensing authorities.
(2) Operates under contracts which are in writing and
which contracts articulate plainly the precise terms of
payment for work performed, the scope of work to be performed <--
and a specific prohibition on the retention by the
independent contractor of any other independent contractor to <--
personnel to perform any part of the work described in the <--
contract unless an independent contractor must subcontract a <--
portion of the work because the work in question falls
outside the scope of the independent contractor's normal
course of business and requires special tools or expertise,
and is not for the purpose of supplementing the independent
contractor's work force other than employees of the <--
independent contractor and other contractors that can
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demonstrate by credible evidence that they meet the criteria
of this subsection.
(3) Includes income and losses from services rendered on
a Federal income tax schedule as an independent business or
profession.
(4) Incurs the main expenses related to the work.
(5) Is responsible for the satisfactory completion of
the work and is liable for a failure to complete the work.
(6) Realizes a profit or loss under contracts to perform
work.
(7) The success or failure of the individual's business
depends on the relationship of business receipts to
expenditures.
(8) Has through ownership, or a written and executed
leasing arrangement with a person other than the employer,
the tools, equipment and other assets necessary to perform
the services.
(9) Makes services available to other businesses,
governmental agencies in this Commonwealth or to the general
public through business advertising, solicitation or other
marketing efforts reasonably calculated to obtain new
contracts to provide similar services.
(10) Has continuing or recurring business liabilities or
obligations.
(11) Performs the services through a business in which
the individual has a principal proprietary interest.
(12) Is a United States citizen or is authorized under
Federal law to work in the United States, as defined under
section 274A of the Immigration and Nationality Act (66 Stat.
163, 8 U.S.C. § 1324a).
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(c) Factor not to be considered.--The failure to withhold
Federal or State income taxes or pay unemployment compensation
taxes with respect to an individual's remuneration shall not be
considered in determining whether the individual is an
independent contractor for purposes of the Unemployment
Compensation Law or the Workers' Compensation Act.
(d) Construction.--For purposes of this section, each
employment relationship shall be considered separately.
Section 5. Improper classification of employees.
(a) Offense defined.--An employer, or officer or agent of an
employer, commits a violation of this act if the employer,
officer or agent fails to properly classify the individual as an
employee with the intent of evading the requirements of the <--
Minimum Wage Act, the Wage Payment and Collection Law, the
Unemployment Compensation Law or the Workers' Compensation Act
and shall be subject to the penalties, remedies or actions
contained in this act.
(b) Enforcement.--When the secretary finds that an employer
has violated a provision of this act, the secretary may refer
the matter to the Office of Attorney General for investigation
and prosecution. Nothing in this act shall be deemed to limit
the authority of the Attorney General or the District Attorney <--
of the appropriate county to investigate and prosecute
violations of this act.
(c) Concurrent jurisdiction to prosecute.--The Attorney
General shall have concurrent prosecutorial jurisdiction with
the district attorney of the appropriate county for violations
under this section and any crime arising out of the activity
prohibited by this section. No person charged with a violation
of this section by the Attorney General shall have standing to
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challenge the authority of the Attorney General to prosecute the
case, and, if a challenge is made, the challenge shall be
dismissed, and no relief shall be available in the courts of
this Commonwealth to the person making the challenge.
(d) Conspiracy by other parties.--A party that does not meet
the definition of "employer" in section 3, but which contracts
with an employer knowing the employer intends to misclassify
employees in violation of this act shall be subject to the same
penalties, remedies or other actions as the employer found to be
in violation of this act.
Section 5.1 Presumption of independent contractor status. <--
(a) Rebuttable presumption.—-An employer that enters into a
written contract for construction services containing the
requirements set forth under subsection (b) creates a rebuttable
presumption that the individual contracted with is an
independent contractor and the employer has an affirmative
defense to an allegation under this act that the individual is
an employee if all of the following are true:
(1) The contract is signed by both parties.
(2) The employer has in its possession the documents
identified in subsection (c).
(b) Contract terms.—-A written contract between an employer
and an individual presumed to be an independent contractor under
this section must contain all of the following:
(1) The name, home and business address of the
individual and the individual’s tax identification number or
Social Security Number.
(2) A description of the work to be performed under the
contract and plain, precise terms for payment.
(3) A section in substantially the following form:
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Independent Contractor Status. The parties to this
contract acknowledge that they intend that the Contractor
be considered an independent contractor as described in
the act of ______________, 2009 (P.L. ___, No. ___),
known as the Construction Workplace Fraud Act (the "Act")
and not an employee of the Hiring Party. In furtherance
of that intention, the parties agree as follows:
(A) By his signature on this contract below, the
Contractor certifies that he meets all of the following
criteria:
(i) He maintains a separate business location
that is separate from the location of the Hiring
Party, with the Contractor’s own office, and operates
with owned or leased equipment and other facilities.
(ii) He operates under contracts which are in
writing and which articulate plainly the precise
terms of payment for work performed, the work to be
performed and a specific prohibition against the
retention by the Contractor of any other personnel to
perform any part of the work described in the
contracts other than employees of the Contractor and
other contractors that can demonstrate, by credible
evidence, that they meet all of the criteria of this
paragraph (A).
(iii) He includes income and losses from
services rendered in a Federal income tax schedule as
an independent business or profession.
(iv) He will incur the primary expenses related
to the work performed under this contract.
(v) He is responsible for the satisfactory
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completion of the work to be performed under this
contract and is liable for a failure to complete the
work.
(vi) He realizes a profit or loss under
contracts to perform work.
(vii) The success or failure of his business
depends on the relationship of business receipts to
expenditures.
(viii) He has through ownership, or a written
and executed leasing arrangement with a person other
than the Hiring Party, the tools, equipment and other
assets necessary to perform the work under this
contract.
(ix) He makes services available to other
businesses, governmental agencies in this
Commonwealth or to the general public through
business advertising, solicitation or other marketing
efforts reasonably calculated to obtain new contracts
to provide similar services.
(x) He has continuing or recurring business
liabilities or obligations.
(xi) He performs services through a business in
which the Contractor has a principal proprietary
interest.
(xii) He is a United States citizen or is
authorized under Federal law to work in the United
States, as defined under section 274A of the
Immigration and Nationality Act (66 Stat. 163, 8
U.S.C. §1324a).
The foregoing are collectively referred to herein as the
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"Independent Contractor Requirements." Failure of the
Contractor to meet the Independent Contractor
Requirements during the term of this contract shall
constitute a material breach by the Contractor of this
contract. In that event, the Hiring Party shall have the
right to terminate this contract immediately upon notice
to the Contractor without penalty.
(B) By his signature on this contract below, the
Hiring Party certifies that he has verified, after
reasonable investigation, that as of the date of this
contract the Contractor meets the Independent Contractor
Requirements except for those requirements set forth in
subparagraphs (iii), (vi), (vii), (ix) and (xi) of
paragraph (A) above, which he has not verified.
(C) The Contractor agrees that he shall not engage
any other personnel to perform any part of the work
described in this contract other than employees of the
Contractor and other contractors that can demonstrate by
credible evidence that they meet all of the Independent
Contractor Requirements.
(D) The Contractor agrees that he shall maintain
liability insurance during the term of this contract of
at least $1,000,000 and shall provide proof thereof to
the Hiring Party upon request.
(c) Documentation.—-At the time of entering into the
contract described in subsection (b), the employer shall obtain
from the individual, and maintain for a period of three years
thereafter, the following information:
(1) Proof of liability insurance in the amount of at
least $1,000,000.
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(2) Proof that the individual is a United States citizen
or is otherwise authorized under Federal law to work in the
United States, as defined under section 274A of the
Immigration and Nationality Act (66 Stat. 163, 8 U.S.C. §
1324a).
(d) Loss of presumption.—-If, during the term of the
contract, the employer receives knowledge that the individual
does not meet the criteria set forth in section 4(b) and the
employer does not terminate the contract as permitted by the
provisions of the contract set forth in subsection (b), the
employer shall no longer be entitled to the presumption and
affirmative defense set forth in subsection (a).
(e) Penalty.—-An employer that signs a contract
described in subsection (b) knowing that any of the
certifications made by the employer in the contract is false
shall be subject to the administrative penalties set forth in
section 7(b) in addition to any other penalties for violation
of this act to which the employer may be subject.
Section 6. Criminal penalties.
(a) Knowing violation.-- <--
(1) An employer, or officer or agent of the employer,
that knowingly violates section 5(a) commits a felony of the
third degree and shall, upon conviction:
(i) be sentenced to pay a fine of not more than
$15,000 or imprisonment for not more than three and one-
half years, or both, for a first offense; and
(ii) be sentenced to pay a fine of not more than
$30,000 or imprisonment for not more than seven years, or
both, for a subsequent offense.
(2) An employer, or officer or agent of the employer,
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that, after being sentenced under paragraph (1)(i), knowingly
violates section 5(a) may be subject to a stop-work order, as
determined by the secretary pursuant to section 8.
(a) Grading.--An employer, or an officer or an agent of the <--
employer, who intentionally violates section 5(a) commits:
(1) A misdemeanor of the third degree for a first
offense.
(2) A misdemeanor of the second degree for a second or
subsequent offense.
(b) Summary offense.--An employer, or officer or agent of
the employer, that negligently fails to properly classify an
individual as an employee under section 5(a) commits a summary
offense and shall, upon conviction, be sentenced to pay a fine
of not more than $1,000. Evidence of a prior conviction under
this subsection shall be admissible as evidence of knowledge
under subsection (a).
Section 7. Civil actions and remedies.
(a) Debarment.--If the secretary receives information
indicating that any employer, or officer or agent of the
employer, has intentionally failed to properly classify an
employee and has been convicted of the violation, the secretary
shall notify all public bodies of the name of the employer, and
no contract shall be awarded to the employer or to any firm,
corporation or partnership in which the employer has an interest
for a period of up to three years, as determined by the
secretary, has elapsed from the date of notice to the public
bodies. Actions taken under this subsection shall be subject to
the provisions of section 9(a).
(b) Administrative penalties.--As an alternative to or in
addition to any other sanctions provided by law for a violation
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of this act, when the secretary finds that an employer has
violated this act, the secretary is authorized to assess and
collect administrative penalties up to a maximum of $2,500 for
the first violation and up to a maximum of $5,000 for each
subsequent violation. When determining the amount of the penalty
imposed because of a violation, the secretary shall consider
factors which include the history of previous violations by the
employer, the seriousness of the violation, the good faith of
the employer and the size of the employer's business. Each
employee misclassified by the employer shall constitute a
separate offense.
(c) Actions by employees.--An individual who has not been
properly classified as an employee may bring a civil action for
damages against the employer for knowingly and intentionally
failing to properly classify the employee. An individual's
representative may bring the action on behalf of the individual
or as a class action. The court may award attorney fees and
other costs of the action in addition to damages to an
individual or class of individuals who have not been properly
classified as employees in violation of section 5(a).
Section 8. Stop-work orders.
(a) Issuance of order.--If the secretary determines, after
notice and hearing, that an employer, or officer or agent of the
employer, has knowingly and intentionally failed to properly
classify an individual as an employee under section 5, the
secretary may issue a stop-work order requiring the cessation of
all business operations of that employer at each site at which a
violation occurred within 72 hours of the determination. The
order shall take effect when served upon the employer or, for a
particular employer worksite, when served at the worksite. The
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order shall remain in effect until the secretary issues an order
releasing the stop-work order or upon finding that the employer
has properly classified the individual as an employee. The
employer shall file with the department periodic reports for a
probationary period that shall not exceed two years that
demonstrate the employer's continued compliance with this
section. The department shall promulgate rules and regulations
to determine filing times and report requirements. Actions taken
under this subsection shall be subject to the provisions of
section 9(a).
(b) Applicability of orders.--Stop-work orders under
subsection (a) and penalties under subsection (c) shall be in
effect against any successor corporation or business entity that
has one or more of the same principals or officers as the
employer against whom the stop-work order was issued and which
is engaged in the same or equivalent trade or activity.
(c) Penalty.--The secretary shall assess a penalty of $1,000
per day against an employer for each day that the employer
conducts business operations that are in violation of a stop-
work order issued under this section.
Section 9. Procedure.
(a) Hearings.--Actions taken under sections 7 and 8 are
subject to the right of notice and adjudication and the right of
appeal in accordance with the provisions of 2 Pa.C.S. (relating
to administrative law and procedure).
(b) Subpoena powers.--The department has the power to
subpoena witnesses, administer oaths, examine witnesses and take
testimony or compel the production of documents. Upon
application of an attorney for the Commonwealth, the department
may issue a subpoena to compel the production of the documents,
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computer records and information relating to compliance with the
act.
Section 10. Commonwealth Court.
The secretary may seek enforcement of any order or subpoena
in the Commonwealth Court.
Section 11. Certain agreement prohibited.
(a) Violation.--No person shall require or request that an
individual enter into an agreement or sign a document which
results in the misclassification of the individual as an
independent contractor or otherwise does not accurately reflect
the relationship with the employer.
(b) Penalty.--A violation of subsection (a) shall be
punishable by a fine of not less than $1,000, nor more than
$2,500. Each violation shall be considered a separate offense
under this section.
Section 12. Retaliation for action prohibited.
It shall be unlawful for an employer or any other party to
discriminate in any manner or take adverse action against any
person in retaliation for exercising rights protected under this
act. Rights protected under this act include, but are not
limited to, the right to file a complaint or inform any person
about an employer's noncompliance with this act and the right to
inform any person of the person's potential rights and to assist
the person in asserting those rights. Any person who in good
faith alleges noncompliance with this act shall be afforded the
rights provided by this act, notwithstanding the person's
failure to prevail on the merits. Taking adverse action against
a person within 90 days of the person's exercise of rights
protected under this act shall raise a rebuttable presumption of
having done so in retaliation for the exercise of those rights.
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Section 13. Availability of information.
The department shall create a poster for job sites which
outlines the requirements and penalties under this act and shall
make the poster available on its Internet website. At the
discretion of the secretary, a toll-free hotline telephone
number may be established to receive alleged violations.
Section 14. Use of penalty funds.
Any assessments and penalties collected pursuant to this act
shall be applied toward implementation, enforcement and
administration costs incurred by the department under this act.
However, the secretary may transfer an agreed-to amount of
moneys collected to the Attorney General to assist in the
enforcement of this act.
Section 15. Rules and regulations.
The department may promulgate rules and regulations necessary
to implement and administer this act.
Section 16. Annual report required.
The department shall submit an annual report to the General
Assembly by March 1 of the year following the first full year in
which this act is in effect, and each year thereafter,
detailing, to the maximum extent possible, data on the previous
calendar year's administration and enforcement of this act. The
department may include any relevant facts and statistics that it
believes necessary into the content of the report.
Section 17. Applicability.
This act shall not be construed to bring an individual within
the scope of the Minimum Wage Act, the Wage Payment and
Collection Law, the Unemployment Compensation Law or the
Workers' Compensation Act if the individual is excluded from the
scope of the appropriate statute.
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Section 18. Severability.
The provisions of this act are severable. If any provision of
this act or its application to any individual or circumstance is
held invalid, the invalidity shall not affect other provisions
or applications of this act which can be given effect without
the invalid provision or application.
Section 19. Construction of law.
Nothing contained in this act shall be construed to impair or
affect in any manner the ability of the department to carry out
the powers and duties prescribed by the laws of this
Commonwealth or to adopt measures to improve the enforcement of
other laws of this Commonwealth.
Section 20. Finding.
The department shall commence implementation of this act to
the extent the secretary determines sufficient funds are
available or the General Assembly appropriates additional funds
for purposes of this act.
Section 21. Effective date.
This act shall take effect in 90 days.
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