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Construction Misclassification Act

Many employers try to escape liability by misclassifying their employees as independent contractors. They often think if they just issue their employees 1099s, that they are immune from liability under the Pennsylvania Workers’ Compensation Act. However, nothing could be further from the truth! Over a century ago, Section 104 of the Act, 77 P.S. § 22 1915, June 2, P.L. 736, art. I, § 104 defined an employee, in pertinent part, as “synonymous with servant and includes all natural persons who perform services for another for a valuable consideration”. Although there have been numerous amendments to the Act, the definition of an employee has remained intact. However, there is a growing trend in the modern age to downsize and mischaracterize employees throughout the country. The problem is so widespread that the United States Department of Labor has developed a “Misclassification Initiative”, to ensure that workers are paid fairly and get the benefits to which they are entitled.

The U.S. Dept. of Labor’s ‘s Wage and Hour Division’s Web Page highlights this trend and notes, “In recent years, the employment relationship between workers and the businesses receiving the benefit of their labor has fissured apart as companies have contracted out or otherwise shed activities to be performed by other businesses. This is accomplished through, for example, the use of subcontractors, temporary agencies, labor brokers, franchising, licensing, and third-party management.”

On August 4, 2016, the U.S. Dept. of Labor’s Wage and Hour Division entered into a 3-year Memorandum of Understanding with the Commonwealth of Pennsylvania, Department of Labor and Industry, “with the specific and mutual goals of providing clear, accurate, and easy-to-access compliance information to employers, employees, and other stakeholders, and of sharing resources and enhancing enforcement by conducting joint investigations and sharing information”.

This trend has begun to infiltrate Pennsylvania Workers’ Compensation law, as reflected by the enactment of the Construction Workplace Misclassification Act, Act 72. The misclassification of construction workers as independent contractors, rather than employees were so rampant, that on October 13, 2010, Governor Rendell signed House Bill 400, The Construction Workplace Misclassification Act, which went into effect on February 10, 2011. This legislation dramatically altered the treatment of construction workers, creating a heavy burden for entities seeking to argue that their workers were independent contractors. 43 P.S. Section 933.3 provides that for purposes of workers’ compensation or unemployment compensation, an individual who works in the construction industry will only be considered an independent contractor if (1) the worker signed an independent contractor or subcontractor agreement, (2) the worker is free from control or direction over the performance of such services, and (3) the individual is customarily engaged in an independently established trade, occupation, profession or business. This last criterion of being customarily engaged in the trade, occupation, profession, or business only if (1) The individual possesses the essential tools, equipment, and other assets necessary to perform the services independent of the person for whom the services are performed. (2) The individual’s arrangement with the person for whom the services are performed is such that the individual shall realize a profit or suffer a loss as a result of performing the services. (3) The individual performs the services through a business in which the individual has a proprietary interest. (4) The individual maintains a business location that is separate from the location of the person for whom the services are being performed. (5) The individual previously performed the same or similar services for another person . . . while free from direction or control over the performance of the services, holds himself out to other persons as available and able, and in fact is available and able, to perform the same or similar services . . . while free from direction or control over the performance of the services. (6) The individual maintains liability insurance during the term of this contract of at least $50,000.

One example of construction misclassification is a Commonwealth Court case where a painter who used his own paint brushes and caulk gun, traveled to and from the work site with his boss, and used his employer’s ladders and equipment was found to be an employee. His employer tried to avoid liability by having the painter sign an independent contractor or subcontractor agreement on his way to the hospital! Fortunately, the court held that this agreement was invalid because any written contract agreeing to an independent contractor relationship must be signed before the injury.

Therefore, just because the person or company you work for pays you as an independent contractor, issues you a 1099, or perhaps even pays you in cash, this does not mean that you are an independent contractor. Marla has successfully secured workers’ compensation benefits for workers in this situation for over a quarter of a century; therefore, you should contact Ms. Joseph for a free consult if you are injured in a construction accident, regardless of how the person or company you work for classifies you.

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