Due to significant employee misclassification, New York passed the New York State Construction Industry Fair Play Act. It provides that a person performing services for a construction contractor or subcontractor is an employee, unless (a) the individual is free from direction and control in performing the job based on both his/her contract and in fact; (b) the services performed are outside the usual course of business for which the service is performed, and (c) the individual is usually working in an independently established trade, occupation, profession or business that is similar to the service being performed for a construction contractor/subcontractor. A business entity will be considered a separate entity from the contractor or subcontractor if all of the following 12 criteria are met:
- the business entity is performing the service free from the direction or control over the means and manner of providing the service, subject only to the right of the contractor/subcontractor to specify the desired result;
- the business entity is not subject to cancellation or destruction upon severance of the relationship with the contractor/subcontractor;
- the business entity has a substantial investment of capital in the business entity beyond ordinary tools, equipment and a personal vehicle;
- the business entity owns the capital goods and gains the profits and bears the losses of the business entity;
- the business entity makes its services available to the general public or business community on a continuing basis;
- the business entity indicates its services on a federal income tax schedule as an independent business or profession;
- the business entity performs services for the contractor/subcontractor under the business entity's name;
- the business entity obtains and pays for any required license or permit in the business entity's name;
- the business entity provides its own tools and equipment needed to provide the service;
- the business entity hires its own employees without contractor/subcontractor approval, pays the employees without reimbursement from the contractor and reports its employees' income to the Internal Revenue Service;
- the contractor does not represent the business entity as an employee of the contractor to its customers, and
- the business entity has the right to perform similar services for others on whatever basis it chooses and whenever it chooses.
The law also requires construction contractors and subcontractors to post a notice at each work site listing the responsibility of the independent contractors to pay taxes and the right of employees to workers' compensation, unemployment benefits, minimum wages, overtime, and other federal and state protections. Contractors and subcontractors that fail to post the required notices or improperly classify an employee are subject to civil and criminal penalties. The civil penalties provide for a $2,500 fine for the first misclassification violation and $5,000 for each subsequent violation within five years. Criminal penalties include 30 days in prison or a fine of up to $25,000 for the first violation, and 60 days in prison and $50,000 for each subsequent violation. Any officer of the corporation or shareholder holding a minimum of a ten percent interest in the corporation is also subject to civil and criminal liability. Any person, contractor or subcontractor convicted of a misdemeanor is barred from submitting bids on New York contracts for up to one year for the first violation and up to five years for any subsequent violation.