In an October 28, 2010 posting in the New York Labor and Employment Report, Joseph Dole comments on a new law that took effect in New York State on October 26, 2010. That law, entitled the Construction Industry Fair Play Act, creates a presumption in the construction industry that all workers are statutory employees, not independent contractors. The law adopts a tri-partite test for proving someone is a bona fide independent contractor, a test identical to the New Jersey test for such determinations and one which (I have found through numerous cases) is very difficult to satisfy.

The law also sets forth one dozen factors for determining when a sole proprietor (e.g. single worker) is, in actuality, a true operating business for purposes of the statute. Examination of the factors illustrates that establishing that a "business" truly exists will be the major hurdle for a contractor who has to prove that his subcontractors are independent contractors operating their own businesses.

New Jersey has passed a similar law, the aptly named the Construction Industry Independent Contractor Act, which focuses on the same issue and which imposes (in my view) excessive and punitive penalties and fines for misclassifying employees as contractors.

These laws, and there are others, highlight a disturbing trend for employers. When individuals are misclassified, any number of federal and state agencies (e.g. IRS, Unemployment, Workers Compensation divisions) lose revenue. That provides the incentive. It is also an easy trap to fall into because all the invest gator has to do is to request a copy of all the 1099 Forms that a contractor or employer has issued, which must be turned over and cannot be withheld.

Then, the investigator goes down the list and inquiries as to what each of these alleged independent contractors did and ask for proof that they are in their own business. It is then the contractor's obligation to provide that proof and, if not forthcoming or convincing, re-classification to employee status will occur, accompanied by the host of fines and penalties that such a governmental action(s) will produce.